# The Origins of Efficiency **Brian Potter** | [[Strategy]]  --- > "In 1941, the United States did not have sufficient stock of penicillin to treat a single patient. At the end of 1942, enough penicillin was available to treat fewer than 100 patients. By September 1943, however, the stock was sufficient to satisfy the demands of the Allied Armed Forces." Fleming's discovery of penicillin was necessary but not sufficient. Without the ability to produce it cheaply and at scale, this miracle drug would have saved almost no one. What changed everything wasn't the science—it was figuring out how to manufacture it efficiently. Between 1943 and 1952, the price of a 600-milligram vial fell from $200 to $1.30. By some estimates, antibiotics have extended average human lifespan by 23 years. Potter's thesis: efficiency is the engine that powers human civilisation. Finding ways to produce goods and services with fewer resources—improving production efficiency—is the force behind some of the largest and most consequential changes in human history. This isn't just about making things cheaper. It's about making the impossible possible at scale. --- ## Core Ideas ### [[Production Process Model]] A production process is a series of steps through which input materials are transformed incrementally into a finished product. Each step induces some change, then passes the material to the next step, until the finished product emerges. Five factors characterise any production step: **The transformation method itself** - the actual work being done (e.g., blowing molten glass into a mould). **The production rate** - how many units can be produced per unit of time. **The inputs and outputs** - direct materials, labour costs, wear and tear on equipment. **The buffer size** - how much material is waiting in the process at any given time (work in process). **The variability** - fluctuations in how fast work happens, quality of output, breakages and failures. An efficiency improvement is anything that lowers the cost per unit. Work in process is material that's been paid for but hasn't yet been sold—it's an investment that has yet to yield a return. ### [[Six Axes of Efficiency Improvement]] There are six ways to make a production process more efficient: **Change the transformation method** to one that requires fewer resources. **Increase the production rate** to take advantage of economies of scale—per-unit costs fall as volume rises. **Reduce variation** in the process—make it work every time, producing exactly what's needed when it's needed. **Decrease input costs** - cheaper materials, lower wages, less waste. **Reduce buffer sizes** to minimise work in process and tied-up capital. **Delete entire steps** that don't add value. The theoretical limit: a process with no buffers (material flows smoothly with no waiting), no variability (perfectly predictable output), no unnecessary steps, inputs as cheap as possible with no wasted outputs, operating at maximum scale, and using transformation methods at the limits of what technology allows. ### [[Technology S-Curves]] Individual technologies follow S-shaped curves: slow initial progress, rapid improvement in the middle, then diminishing returns as physical limits approach. Production technology follows overlapping S-curves—a new method is developed, improves until it approaches some limit, then gets replaced by another method with a higher ceiling. Early on, a new technology often performs worse than the established technology along the most important measures. But it's superior along some other axis that matters to a particular set of customers, giving it a market foothold. Over time, the new technology improves along all dimensions and eventually displaces the incumbent. Nails made up 0.4% of US GDP in 1810—roughly the same fraction as computers today. They got cheaper because new production methods required fewer inputs, ran more reliably, and operated at higher rates. ### [[Production Method Portability]] Production methods are surprisingly unportable. A production process doesn't stand on its own—it's embedded in a particular context of resources, knowledge, assumptions, and relationships. Much of the knowledge required to run a process is tacit: skill-based know-how that can't be easily written down or transferred. It might be embodied in working relationships among staff, or kept in the "little black books" of tricks foremen and operators devise to keep things running but conceal from supervisors. Adopting new production technology isn't like buying a new car and getting a better ride. It's like trading your car for an aeroplane: you have to learn how the new technology works and develop skills that take experience to acquire. This is why fast-food franchises have new employees work side-by-side with existing employees from other locations for several weeks. --- ## Key Insights **The creation of new technological capability tells us nothing about whether that capability can be achieved cheaply.** This is the central problem with "new technology improves efficiency" explanations. Discovery is necessary but not sufficient. What matters is whether you can produce it at scale, reliably, and cheaply. Between 1770 and 1841, Britain's output of linen and wool cloth more than doubled, and cotton cloth increased by a factor of over 100. In 1770, England had 1 to 1.5 million spinners out of a total workforce of 4 million. Efficiency improvements in textile production didn't just make cloth cheaper—they restructured the entire economy. **Manual labour is the original general-purpose technology.** It's a set of capabilities for sensing the environment, processing information, and moving physical objects that can be applied to solve an extensive range of problems. But when a process is limited by how fast a person can work, output is limited by the number of workers available. The cost will necessarily be high because a person needs minimum compensation spread over relatively small output. **Successful mechanisation requires reducing information processing and environmental variation.** Manual processes are resilient to variation and don't need to be specified below a certain level of fidelity. Machines are less flexible. Mechanisation proceeds like any technological progression: machines start out working poorly, but with time and effort they become capable enough to replace manual labour. --- ## Connects To - [[Competing Against Time]] - Stalk's focus on time compression and buffer reduction directly maps to Potter's production process model - [[The Fifth Discipline]] - Senge's systems thinking complements Potter's view of production as interconnected processes - [[7 Powers]] - Hamilton's scale economies power is explained mechanistically by Potter's production rate advantage --- ## Final Thought Efficiency isn't just about cost reduction—it's about making the previously impossible possible at scale. Antibiotics, cheap textiles, mass-produced books—none of these changed the world because someone invented them. They changed the world because someone figured out how to produce them efficiently enough to reach millions of people. The five-factor production model gives you a way to see any process clearly: transformation method, production rate, inputs/outputs, buffer size, variability. The six axes of improvement tell you where to attack: change the method, increase the rate, reduce variation, cut input costs, shrink buffers, delete steps. Most analyses of competitive advantage miss the production process itself. Companies win not just by having better products but by having better ways of making them—processes with less waste, higher throughput, greater reliability, and lower tied-up capital. Understanding production efficiency is understanding how value actually gets created.