Efficient inefficiency: organisational challenges of realising economic gains from AI

Mills, Stuart and Spencer, David A. (2025) Efficient inefficiency: organisational challenges of realising economic gains from AI. Journal of Business Research, 189. ISSN 0148-2963

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Abstract

Organisations are increasingly using artificial intelligence (AI). Where AI performs productive tasks more efficiently than humans, organisations will benefit economically through increases in productivity. However, if AI is deployed to undertake unproductive, superfluous tasks, the efficiency benefits will be reduced, even if these tasks are performed more efficiently than a human could, because the said tasks are inefficient to begin with. We call this eventuality ‘efficient inefficiency.’ We outline several reasons why superfluous tasks are created by managers and why they persist in organisations, drawing on an array of behavioural, managerial, and sociological literature. We argue bounded rationality accounts for why managers often fail to identify superfluous tasks, coupled with organisational conflicts which often incentivise their creation. These factors impede the ability of organisations to avoid efficient inefficiency. Restructuring organisations to promote knowledge sharing and align stakeholder incentives may reduce, though not eliminate, the risk of efficient inefficiency.

Item Type:	Article
Additional Information:	© 2024 The Authors
Divisions:	Psychological and Behavioural Science
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HB Economic Theory B Philosophy. Psychology. Religion > BF Psychology
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D20 - General D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes
Date Deposited:	07 Jan 2025 15:12
Last Modified:	18 Mar 2025 00:54
URI:	http://eprints.lse.ac.uk/id/eprint/126626

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