Efficiency kills innovation. Efficient markets, efficient companies, and efficient employees are good for many things, but not for innovation. Efficiency is created by scaling, standardizing, and routinizing labor. While each of these efforts in itself can be an innovation effort, the relentless focus on efficiency will, in the end, kill society’s, organizations', and employees’ ability to innovate and implement novel ideas.
Efficient markets kill innovation
Innovation might create greater efficiency. However, efficiency itself can make innovation less likely by concentrating profit and power within a few dominant players.
For a long time, this seemed almost inevitable. Large technology firms built positions that appeared difficult to disrupt. But recent developments in Generative AI have shown that disruption can still happen—and faster than expected.
The real risk today is not that innovation is impossible. It is that most organizations are too focused on efficiency to recognize and act on these shifts in time.
Geoffrey James gives the high-tech industry as an example. Google, Amazon, and Facebook completely dominate their respective markets to the point that no amount of innovation is likely to disrupt or displace them. Any startup that threatens their dominance is acquired and folded into their monopolies.
The late Clayton Christensen also foresaw this problem. He argued that there are three types of innovation.
- Empowering innovations, which transform expensive products into affordable ones
- Sustaining innovations, which improve existing offerings
- Efficiency innovations, which reduce cost and streamline delivery
As Christensen said: "In our traditional economic cycles, all three kinds of innovations occurred within a natural and repeatable sequence. Our current economy, however, has gone off the rails in large part because we are focused almost entirely on efficiency innovations—on streamlining and wringing bottom-line savings and additional profits out of our existing organizations.
...We are focused on the wrong metrics. Our universities are training entrepreneurs—and investors — to focus on fast and efficient return on capital investment. Efficiency innovations provide return on investment in 12-18 months. Empowering innovations take 5-10 years to yield a return. We have ample capital — oceans of capital — that is being reinvested into efficiency innovation. As long as this continues to happen, we will continue to experience the tremendous chasm between capital investment and the creation of meaningful numbers of new jobs and especially of highly specialized jobs."
In other words, we optimize for what is measurable and immediate. But in doing so, we risk underinvesting in the kinds of innovation that create meaningful growth, new markets, and long-term value.
GenAI is accelerating the efficiency trap
Generative AI has dramatically increased our ability to be efficient.
Tasks that once took hours—drafting, summarizing, researching—can now be completed in minutes. That sounds like innovation. But in most cases, it is efficiency innovation: doing the same work, faster.
The risk is subtle but significant.
We are optimizing workflows that may no longer be worth optimizing.
Instead of asking “How can we do this faster?”, organizations need to ask:
“Should we be doing this at all?”
Without that shift, GenAI risks reinforcing existing patterns rather than enabling true transformation.
Efficiency kills innovation in firms
For a long time, focusing on efficiency served firms well. It was the engine behind the industrial age, and as we have been shifting to the post-industrial economy, it has helped us get the most out of any manufacturing facility.
But with top-line growth becoming paramount for most businesses, it is time to acknowledge that efficiency alone is producing diminishing returns. In management research, the ability to be efficient (exploit your current assets) and to remain effective (explore and build new assets) is called ambidexterity.
Drawing on longitudinal data of the Belgian Community Innovation Survey and the Bel-first database, Geerts, Blindenbach-Driessen, and Gemmel examined 532 firms. Their results suggest that firms can explore and exploit both simultaneously and sequentially—and that both positively impact performance growth.
The takeaway is clear: organizations must be able to do both.
But the challenge today is different.
Efficiency has become so accessible—especially with AI—that it crowds out the need to rethink how work gets done.
Letting go of a 100% focus on efficiency
Letting go of a strict focus on efficiency can feel risky—especially in a time of increasing cost pressure and scrutiny around ROI.
But efficiency alone does not create meaningful returns. ROI is not a number to calculate after the fact. It is a commitment made upfront about what a project will deliver—and whether the team is set up to deliver it.
The irony is that organizations pursue efficiency to improve ROI. Yet real returns rarely come from doing the same things faster—they come from doing the right things better.
As Tim Leberecht wrote:
- Efficiency is the machine’s turf. Simply put, machines are unbeatable when it comes to efficiency. Conversely, we humans must become better at everything not centered on efficiency; in fact, we must become masters at inefficiency. It is our one remaining competitive advantage.
- Efficiency kills innovation. Leaders often demand actionable outcomes. They ask, “What problem is this going to solve?” By trying to be efficient in the innovation efforts, you narrow the space for exploration, wandering, and discovery. There is no innovation without at least some ‘waste’. That is, if you are too afraid of exploring dead ends, you will only go for me-too innovations that result in incremental changes at best.
- Efficiency hinders learning. The focus on actionable insights and generating short-term returns prevents creating the learning circumstances that yield profound insights that can truly transform us (and the systems we operate in).
- Efficiency hurts customer and employer care. Online retailer Zappos famously empowered its customer service representatives to spend more time with customers, not less–at their discretion.
There has been increasing discussion about the re-humanization of work—putting people at the center of organizations. But if that is truly the goal, efficiency cannot be the only guiding principle.
Showing our humanity requires discretion. Whether in healthcare, retail, or professional services, organizations that genuinely care about people must move beyond pure efficiency.
A different question for this new era of GenAI
So next time you are pushing for greater efficiency with the help of GenAI, pause for a moment.
The question is no longer:
How do we become more efficient?
It is:
Where is efficiency preventing us from rethinking the work entirely?
Because in a world where AI can optimize almost anything, competitive advantage comes from changing what is worth optimizing in the first place.