Efficiency is like quality, not like quantity: it’s measurable, but it doesn’t have an absolute definition. It depends on what you’re trying to do, what can reasonably be expected, and how others are doing the same thing.

You can’t start with a blank slate and an armchair and calculate perfect efficiency for any given operation. That’s the kind of thinking that fools people into believing they can work 24/7/365. It’s a little better to have some first-hand experience of the operation, which gives you a feeling for the physical and psychological limitations involved. Better still is a thorough, objective study of a group of competitors against which you can measure your operation. Your inefficiency is, roughly put, the difference between your performance and your competitors.

But we need to be more precise. For this study to be informative it needs to measure the correlation between at least two of the dimensions of performance and plot some data point. Longer wait times don’t necessarily point to lower efficiency, especially if the labor cost is lower. So you have to relate the two factors on a two-dimensional graph. If these two factors make a real trade-off against each other, you should notice a general trend. The curve containing all of the data points as tightly as possible is known as the efficient frontier. Your inefficiency is the least distance between your operation and the efficient frontier.

If you discover that your inefficiency is substantial, it’s time to ask what your competitors on the efficient frontier are doing differently. Have they found a more cost-effective POS system? Are they following best practices you’re missing out on? Maybe they’ve implemented an ERP system?

What if you’re already on the efficient frontier? Then the only way to improve your performance is to innovate. The efficient frontier only moves when somebody takes a risk and does something that’s not already being done.