Does Efficiency Always Save Money?
A general consensus would most likely agree that efficiency is cost-effective, in a good way. There are a plethora of products and services marketed who use their efficiency as a selling point, so why would we assume an opposing statement?
Contrary to popular belief, efficiency can cause the complete opposite of its intended effect. We’ll use the computing technology in electronics as an example.
Every year, Companies like Apple, Samsung, and HP release dozens of new products with upgrades from their predecessors that were released a year prior. Other than a faster processor or more pixels, these products will fill up the stores and sell like hot cakes. We have grown so accustomed to the efficiency of the technology that any time a new upgrade is available; we opt for that new product instead of using models from previous years.
When you factor in efficiency to supply and demand, demand grows faster than supply can even keep up. Generally, the more efficient and cheap a product is, the more money we will spend on the products, thereby eliminating the point of cost-effective efficiency. The efficiency that was supposed to be money saving has evolved into a vicious cycle of us donating to a money pit. We can’t blame the companies, because every year they do the same thing and get even better results from the year before.
Now, this fast track of efficiency, could it be applied to other industries? Could we use this to the advantage of the general public and not just CEO’s and investors? While there is no doubt that we love our new cell phone that has 2 cameras and a dozen apps, just how much does it contribute to our well-being?
A Healthcare Utopia
Imagine if healthcare efficiency was comparable to that of computing technology. Getting an X-ray on the new 2012 Ray 5000 is now only $20, and much less harmful than the 2011 Ray 4500. Physicians using the Body Check 3 can now diagnose just about any physical illness in the time it takes to tie a shoe, for half the price of that shoe! Preventative healthcare could be the hottest thing on the market, but at what cost, and to whom?
Surely this would make health more efficient, but unfortunately the costs to do this would be astronomical. The ends would undoubtedly justify the means, but since when do we get that kind of justice?
On the other, more popular side of the spectrum, efficiency does save money. For example, when you go online to do an online quote comparison to find the cheapest auto insurance quotes, you are definitely saving time and money. This money-saving gold mine is almost always in long lasting products that nobody replaces annually.
Take energy efficient washers and dryers for example. Even though companies like GE will release new, more efficient models each year, the majority of people will continue to use their older models for years to come. Their already efficient models combined with a warranty and low APR financing need time for that efficiency to kick in. It may be years before the units have paid for themselves, and several years after that before the savings becomes something to be proud of. The same example can be applied to kitchen appliances and cars.
The relationship between cost and efficiency is a volatile one, depending on the industry you are evaluating. While in most situations it’s false, sometimes efficiency can end up costing more money.
Guest Post by Wilson