ORGANIZATIONAL EFFECTIVENESS

Since organization and management science emerged in the early 1900s in conjunction with the industrial revolution, an evolution has taken place in concepts about the nature and function of organizations and the criteria for organizational effectiveness (Kathryn A. Baker and KristiM. Branch, 2002). Goodman, Atkin and Schoorma (1983) argued that the empirical literature to date has been mostly inadequate in helping to understand the effectiveness of organizations. A specific kind of research is needed if organizational performance is to be comprehended.

As Morgan (1997) describes, there are numerous ways to conceptualize and model an organization, with profound results for criteria of effectiveness. These concepts typically deal with organization form and structure on the one hand and organizational functions and activities on the other. If the organization is seen as flux and transformation then “the fundamental role of managers is to shape and create ‘contexts’ in which appropriate forms of self-organization can occur” (Morgan, 1997)

Dooley (1997:69) has observed that the “prevailing paradigm of a given era’s management theories has historically mimicked the prevailing paradigm of that era’s scientific theories.” During the nineteenth and twentieth century, organization and management theories maintained reductionism, determinism, and equilibrium as central principles (the organization as a machine metaphor), and accorded management near total authority over the workplace. As science has developed theories of complexity and adaptive self-organizing systems, organization and management science have increased their emphasis on organization-external environment interactions, worker participation, employee motivation, and the dynamism of change, adaptation, and learning (Morgan 1997; Wheatley 1992), placed a high stress on balancing technical aspects of organizational design with consideration of the needs and interests of the workers and the use of management models that emphasize support and participation (Mayo 1945; Likert 1961; McGregor 1960; and Trist 1981).

Interestingly, one of the most widely used tools for assessing organizational effectiveness the MalcolmBaldrige Quality Award (1999), still reflects this basic, generic approach. The seven Baldrige performance criteria (leadership, strategic planning, customer and market orientation, information and analysis, human resource focus, process focus, and business results) capture the critical organization/management functions identified in the early literature, albeit in slightly different groupings. It raised awareness of a need for a more complex view of organizational design and management. Although all organizations have to address common functions, several organizations can have varied emphases and approaches. There was growing recognition that focusing on generic functions could mask the fact that there were, indeed, differing views and aspects of organizational effectiveness. Different functions – and different attributes within each of the functions – needed to be emphasized as organizations faced different internal and external challenges.

Quinn and Radebaugh (1983) noted that different conceptualizations of organizational effectiveness were associated with four common organizational perspectives, which they categorized as:
(1) the human relations model;
(2) the open systems model;
(3) the rational goal model (closed systems perspective); and
(4) the internal process model (closed system perspective).

Using multivariate analysis, they found three “value dimensions” that underlay these different and seemingly conflicting conceptualizations of organizational effectiveness: Rohrbaugh (1983), Quinn and Rohrbaugh (1983), and Quinn (1988) noted that organizations were likely to experience tension among organizational effectiveness attributes – for example, all organizations have a need for some level of stability as well as a need to be flexible and adaptable; a need for control and discipline as well as a need to allow some degree of freedom and autonomy; a need for rational formal structures and non-rational informal relations. They concluded that effectiveness depended upon the ability of an organization, and its managers, to strike the right balance among these critical attributes, as required by the organization’s objectives and situation. Thompson (1967) employed an alternative strategy and attempted to reconcile these conflicting views of organizational effectiveness by distinguishing three organizational levels: The technical level, that part of the organization carrying on the productive function. The managerial level comprising those activities that relate to the control of the production function. The institutional level consisting of those activities that relate to the organization’s larger community and institutional sectors. He argued that the conflicting perspectives applied differently to these three levels and to different types of organizations.

Robert Hogan of Hogan Assessment Systems (2010) proposes nine themes that can serve as provisional general rules for organizational effectiveness. The first theme concerns long term perspective—which contrasts dramatically with the “pump and dump” mentality of many U.S. organizations. The second theme concerns kaizen. Kaizen refers to continuous, steady improvement. It means never being satisfied. It means continuous improvement in processes as well as products. If a company pursues kaizen, it will be able to produce higher quality products for less money than their competitors. The third theme is customer service which is more than being nice to people in a showroom. It means taking the customer into account during the product design phase it means not assuming that if you build it, they will come.  The fourth theme concerns the effort puts into Research and Development (R&D). They understand that they must plough profits back into R&D.  The fifth theme concerns organization-wide teamwork. Teamwork is a self-conscious value: the goal is to eliminate turf wars and fiefdoms. To create new products like the I-Pod or the Prius is much easier than developing a new manufacturing process. The former involves a few individuals; the latter involves the entire organization. Toyota practices teamwork better than almost anyone. The next theme is an extension of the notion that company should serve every kind of customer. They believe in customization in short runs.

Henry Ford once said that Ford customers could have cars in any color they wanted as long as it was black. Toyota is the polar opposite. There are 21 versions of the Tundra pickup. This is a very hard problem—how to customize profitably.  The seventh theme concerns organic growth. Toyota wants to grow organically but steadily. And they have—they talk about moving jojo, the Japanese term for step by step, getting more efficient all the time. When a plant changes production to a new model, production slows down while parts, processes, and systems are updated. In 2001, their huge Georgetown, Kentucky plant needed 59 days to complete the conversion to the new model of Camry. In 2006, the transition took 16 days. The extra cars they produced yielded $100,000,000 in additional revenue—and just by improving processes incrementally. Toyota says it doesn’t want GM to collapse, it wants GM to go away slowly so that Toyota can fill in behind in a high quality way. The eighth theme concerns how Toyota handles mistakes. It is human nature to cover up mistakes rather than call attention to them. Toyota has deemed it a virtue and an achievement to identify problems; because that is the only way they can befixed. Obviously identifying problems publicly is a corollary of kaizen. The final theme concerns leadership. Academics define leadership in terms of who is in charge: e.g., George Bush is the leader of the free world. Leadership should be defined in terms of the performance of the group of which the leader is in charge.

Dr. Robert S. Kaplan and Dr. DavidP. Norton addressed the complexity of measuring and managing organizational performance: “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

Michael O’Neill (2003), who leads a program of research into organizational effectiveness for Herman Miller, notes that the value of an approach such as the balanced scorecard is that it attempts to quantify the capacity an organization has to conduct work and ultimately create value. “In traditional productivity measures,” O’Neill notes, “the unit of analysis is the individual. In terms of knowledge work, that may be irrelevant because increases in individual productivity, no matter how they’re measured, do not automatically transfer to the productivity of the organization. Instead, the team, or functional group, becomes the unit of analysis. This requires managers to make a conceptual shift in their thinking, to understand that it’s more relevant to measure activities that contribute to overall business goals and strategies, such as the speed of organizing around new opportunities and the quality of business processes.”

Every employee contributes to organizational effectiveness. Taking into account skills, experience, motivation, and rank, some play a bigger role than others. PeterDrucker coined a term for one category of these high-level performers. He wrote of “knowledge workers,” defining them as anyone who works for a living at the tasks of developing or using knowledge. Richard Florida (2002) says anyone whose work creates “meaningful new forms” is vital to the success of an organization. According to Florida, professionals “work in a wide range of knowledge-intensive industries such as high-tech sectors, financial services, the legal and healthcare professions, and business management. These people engage in creative problem-solving, drawing on complex bodies of knowledge to solve specific problems.”

The three main theoretical perspectives on organizational effectiveness are:
(1) the goal-based approach,
(2) the system approach, and
(3) the multiple approaches.

Considerable differences exist among theoretical (and empirical) approaches. ChesterI. Barnard views effectiveness as the degree to which the organization accomplishes its specific objectives. This is the central point of the goal-based approach. The system approach defines organizational effectiveness in terms of an organization's bargaining position, as reflected in the ability of the organization, in either absolute or relative terms, to exploit its environment in acquiring scarce and valued resources. Another perspective on organizational effectiveness focuses on constituent definitions of effectiveness and proposes that the criterion of organizational effectiveness should include measures relevant to employees, society, and management. Without a universal theoretical perspective that adequately treats the concept of organizational effectiveness, research efforts have, for the most part, proceeded unsystematically, failing to consider the conceptual aspects of organizational effectiveness. Several observers have argued that the structure of an organization is closely related to its context, and that much of the variation in organizations might be explained by structural or contextual factors.

Some researchers have conceptualized organizational effectiveness as the extent to which an organization is financially viable. The reasons for conceptualization of effectiveness as profitability in terms of financial viability are as follows: First, financial viability is relatively easy to measure. Acquisitions of land and equipment may be relatively easily ascertained, but the quality of labor and managerial knowledge are not so simple to evaluate. Second, financial viability appears to be strongly and positively correlated with traditional views of effectiveness. This is central to the goal-based approach. Third, financial viability allows one to formulate a theoretical model of the determinants of effectiveness.

According to John R. Kimberly, size can be conceptualized in several ways, namely,
(1) physical capacity of an organization (e.g., numbers of beds in hospitals),
(2) financial characteristics (e.g., assets),
(3) amount of input or output (e.g., sales), and
(4) human resources (e.g., numbers of employees).

Generally, these four categories are strongly interrelated. The size of an organization is conceptualized in the present study as asset volume and as human resources, measured by the number of employees.  The use of financial performance as the basis for the analysis of organizational effectiveness allows more kinds of organizations to be included. For example, when the work process requires expensive equipment or automation, the number of employees or organization members is not very meaningful in investigating organizational effectiveness. Of the various structural variables, size is perhaps the one most likely to be associated with other organizational characteristics.

Conceptual and empirical examinations of economies -of scale have sought an optimum firm-size one that results in the lowest cost per unit of production. In addressing the size-effectiveness relationship, some researchers find it a negative one, and others, a positive one. Despite their contrasting findings, each study holds that size may influence organizational effectiveness. The relationship of borrowed funds to effectiveness is also important. Debt is problematic for a firm, for debt requires fixed interest payments on specific dates and eventual repayment. Unusual business operations are another potential influence on organizational effectiveness. In Korea there are many cases of capital gains from selling of real estate by firms. It’s easy to find firms that own undeveloped industrial sites and are waiting for the land price to rise. As a financial term, "unusual income" includes such infrequent events as the disposal of fixed assets, including land and buildings.

Previous studies have examined the effects of organization age on change in organization structure and activities. According to Carroll, two characteristics — age and size — appear to affect organization mortality rates, regardless of environmental conditions. He finds that organization death rates decrease with age, and that organization dissolution rates are also consistently higher for small organizations than for large ones. This suggests that both factors are important to organizational effectiveness in terms of the organization's survival.

Organizational effectiveness is both a cause and a consequence of the evolution of the dynamics of technical progress and accumulation of capital resources. Some empirical studies suggest that organizations in high-technology industries, such as machinery, electrical equipment, and electronics are more effective organizations than those in low-technology industries, such as textiles. It is, therefore, necessary to control for industry in assessing organizational effectiveness.

A study performed on contemporary Indian organizations proposes that organizational structure has the potential to improve the overall perceived effectiveness of the organization (Bhargava & Sinha, 1992). In this study, a 7-point scale applied to four specific components was used to predict organizational effectiveness. Specifically, the components were production, commitment, leadership and interpersonal conflict. This study shows that an organization with a hierarchical structure was perceived as having higher degrees of production, commitment and effective leadership with less interpersonal conflict than a hierarchical structure. Although these results are derived from the public sector the outcomes of this study suggest research possibilities for the non-profit sector.

Despite its simplicity, a major difficulty in using this as a measure of organizational effectiveness in comparing for-profit and non-profit organizations is the relative interpretation of the commitment and productivity components. It is thought that commitment in the for-profit domain is tied to career progression, personal income and business survival, whereas commitment for non-profits is based on generosity and volunteerism, which may not have a bearing on organizational effectiveness. The concept of productivity in the non-profit sector is less tangible and more perceptual than in the for-profit sector. With the noted refinements the model might be used for both sectors. The second organizational effectiveness construct is also based on interrelated organizational processes and was recently developed primarily as a tool for management consultants (Ridley & Mendoza, 1993). This integrates foundational concepts of systems theory, organizational theory and consultation theory, is formulated on the most basic processes of organizational effectiveness, namely the need for organizational survival and the maximization of return on contributions.

The theoretical framework is based on a series of assumptions, such as the availability of “organizational energy reserves”, the ability to benefit from returns, the presence of resource utilization metric, and a long term perspective. These assumptions lead the authors to develop eleven key processes that are posited as contributing to organizational effectiveness. The first two processes, organizational survival and maximization of return, are defined as super-ordinate processes. The third process is self-regulation, which is responsible for orchestrating balance among the super-ordinate and subordinate processes. The eight subordinate processes are listed as internal-external boundary permeability, sensitivity to status and change, contribution to constituents, transformation, promoting advantageous transactions, flexibility, adaptability and efficiency.