Organizational Effectiveness

Organizational Effectiveness is the concept of how effective an organization is in achieving the outcomes the organization intends to produce. Organizational Effectiveness groups in organizations directly concern themselves with several key areas. They are talent management, leadership development, organization design and structure, design of measurements and scorecards, implementation of change and transformation, deploying smart processes and smart technology to manage the firm's human capital, and formulating the broader Human Resources agenda.[1]

Organizational Effectiveness Models[2]

Below are the seven most common perspectives on effectiveness (also known as effectiveness models) and what effectiveness means for each of these.

  • The Goal Approach gauges effectiveness by measuring to what degree the organization reaches the goals it set out to achieve. This is the most traditional way of measuring organizational effectiveness. Goals can include a product or service quality and quantity, financial goals, shareholder value, societal impact, or all of these. The goal approach is less actionable as it measures output but does not provide information about the input or the process.
  • The Internal Process Model looks not at the outcome but at what happens inside the organization. This approach assesses effectiveness through the smooth functioning of organizational operations. This is achieved through information management, documentation, and continuous consolidation. The best-known example is the lean process approach, which focused on continuous improvement and efficiency. The drawback is that the focus is often more on efficiency than on effectiveness and that the focus is more on inward processes than on outward opportunities.
  • The Resource-based Model looks at the input as a measure of effectiveness. According to the Resource-Based View (RBV), firms achieve a competitive advantage by exploiting resources that are valuable, rare, and hard to imitate or copy. Examples of such resources include proprietary software like Instagram or Microsoft’s Windows, advanced technology like Apple’s iPhone, or a strong company brand or reputation like Apple, Coca-Cola, or McKinsey. Bundling these resources helps the advantages become more profound. Take, for example, Apple’s technology in combination with the strong Apple brand. Organizations become effective by securing the supply of these resources.

Measuring Organizational Effectiveness
source: AIHR Digital

  • The Strategic Constituency Model assesses effectiveness by measuring the degree to which it satisfies those in the environment who can threaten the organization’s survival – i.e., its strategic constituencies or interest groups. Each constituency has a degree of power and pursues different goals. Constituencies include owners, management, employees, customers, suppliers, government, and customer groups. Here, it is key to identify the relevant strategic constituencies, identify their expectations, and the way to meet these expectations.
  • A similar approach is the Stakeholder Approach. This includes strategic constituencies but also those who are indirectly affected by the organization but may not have power over it (e.g., families of workers, activists, and communities).
  • The Competing Values Model is based on Cameron and Quinn’s competing values framework. This approach measures effectiveness by the ability of an organization to simultaneously promote competing values. For example, an organization may want to satisfy customers and maximize profits while also taking care of employees, promote internal structure and coordination while also promoting innovation and novel initiatives, and have a clear direction while also providing autonomy to people to help the organization get there. The ability of an organization to reconcile these competing values is key to being effective.

Organizational Effectiveness Models
source: AIHR Digital

  • The Abundance Model proposes that effectiveness equates to unleashing the highest potential of human systems. This is about bringing forward positive values and virtuousness. To do this effectively, there has to be a balance between positive and negative values. For example, excellence and flourishing cannot exist without difficult challenges and struggles. Both positive and negative elements and emotions are required to push the potential of human systems.

Steps to Organization Effectiveness[3]

  • Leadership: The first step in organizational effectiveness is ‘Leadership.’ In this step, management and project leaders set forth the overall vision of the organization. What goals do they hope to accomplish with this project, how to carry them out, and what results they must strive for in Leadership?
  • Communication: Of course, Leadership is only as effective as the group’s overall communication. In the second step, Communication focuses on evenly spreading the goals, guidelines, and aspirations derived from Leadership. Furthermore, project managers must focus on strategic communication and relation information in the forms other project members need to complete their tasks.
  • Accountability: In the third step, Accountability, project managers and leaders must uphold other employees to their tasks and responsibilities. Typically, project team members receive awards or consequences based on their performance. As a result, Accountability greatly determines how smoothly and effectively a project performs.
  • Delivery: Your products and services are only successful if customers can receive them. In the next step, Delivery focuses on ensuring an effective delivery system is in place. When your organization has a long, complex delivery process, errors will occur, and efficiency is at risk. With smaller, more concise processes, your end products can be delivered on time to the right people.
  • Performance: As a project manager, you must hire the right people for the correct jobs. Of course, not everyone fits in the same position. At the ‘Performance’ step, the goal is to hire, train, and retain the perfect applicants for the processes and tasks you have.
  • Measurement: A business process is only effective if you can measure it. At the final stage of organizational effectiveness, you must measure and analyze your project, process, or other systems. Likewise, you must measure your organization with the correct metrics. Failing to do so will result in accurate or non-usable data.

Assessing Organizational Effectiveness[4]

Organizational effectiveness can be defined as the efficiency with which an association is able to meet its objectives. This means an organization that produces a desired effect or an organization that is productive without waste. Organizational effectiveness is about each individual doing everything they know how to do and doing it well; in other words, organizational efficiency is the capacity of an organization to produce the desired results with a minimum expenditure of energy, time, money, and human and material resources. The desired effect will depend on the organization's goals, which could be, for example, making a profit by producing and selling a product. An organization, if it operates efficiently, will produce a product without waste. If the organization has both organizational effectiveness and efficiency, it will achieve its goal of making a profit by producing and selling a product without waste. In economics and the business world, this may be referred to as maximizing profits.

The main measure of organizational effectiveness for a business will generally be expressed in terms of how well its net profitability compares with its target profitability. Additional measures might include growth data and the results of customer satisfaction surveys. Highly effective organizations exhibit strengths across five areas: leadership, decision-making and structure, people, work processes and systems, and culture. For an organization to achieve and sustain success, it needs to adapt to its dynamic environment. Evaluating and improving organizational effectiveness and efficiency is one strategy used to help ensure the continued growth and development of an organization. Measuring organizational effectiveness can be an inexact science since each individual entity will have a different list of criteria and priorities to weigh and consider through self-assessment. Understanding a company's level of organizational effectiveness is important for several reasons: it serves as a check-in to see how well internal procedures are meeting an initial vision, it provides investors, donors, or employees with an idea of the company's strengths, and it highlights areas of ineffectiveness that can be the focus of improvements. In many cases, a business's success or failure cannot be measured by financial performance. Even a company that is currently making a profit may be ineffective if it is failing to meet the core values of its mission statement, attract and retain talented workers, and plan for the next generation of projects.

Organizational effectiveness measures the big-picture performance of a business across a broad range of criteria. Financial performance, long-term planning, internal structure, and adherence to core values may all be critical components in understanding organizational effectiveness. To get a clear idea of an organization's effectiveness, it is important to create a clear list of criteria to assess. No two organizations will have the same list of criteria, which is why many for-profit and non-profit groups measure effectiveness through self-assessment. Employees and company personnel are often in the best position to intimately understand the needs, goals, and performance of their company. Self-assessment of effectiveness can also help company personnel reconnect with the initial mission of an organization. By working creatively to invent new business strategies for areas of ineffectiveness, workers may develop a stronger sense of loyalty, purpose, and dedication to the job.

Since organizational effectiveness is difficult to express in a concrete formula, a company may choose to state the results of an assessment through specific goals achieved or desired. Turning up areas of ineffectiveness can also be tremendously beneficial to an organization. Areas that need improvement give a company a concrete strategy for the future and allow workers, shareholders, donors, or customers to get excited about the improvements coming down the pipeline. Treating current weaknesses as a road map for future changes is a great way to increase effectiveness.

Criteria for Assessing Effectiveness[5]

To evaluate performance, criteria must be selected, and then work must be sampled and compared to developed standards (Scott . 352).

  • Setting Standards: Cyert and March (1963) use an aspiration-level perspective and argue that organizational goals are a function of previous goals, experience with these previous goals, and other organizations' experience with these previous goals. Thompson (1967) notes that the appropriate effectiveness criteria depend on how clear the standards and cause-effect relationships are.
  • Selecting Indicators: There are three basic types of indicators-- those based on outcomes, processes, and structures (Scott p. 353).
  • Outcomes: Outcomes focus on materials or objects on which the organization has performed some operation (Scott p. 353). These are the most common effectiveness measurements but can be the most difficult to define and measure and are not immune to ambiguity and measurement error.
  • Processes: Process measures assess effort rather than effect (Scott p. 355). Some measure work quantity or quality. Though they are, in some respects, a pure measurement of organizational performance, they are an assessment of conformity of a given objective that can be decoupled from output performance (and ultimately survival itself). Substituting process criteria for outcome criteria can compromise service in some situations, though.
  • Structures: "Structural indicators assess the capacity of the organization for effective performance" (Scott p. 357). These include organizational features (equipment age or type) or participant characteristics (degree attained, licensing, etc.). Structural indicators form the basis for accreditation reviews and licensing systems; these criteria can displace the goals of the organization sometimes.

The Importance of Organizational Effectiveness[6]

The benefits of effectiveness in an organization can include improved:

  • Employee engagement and performance. Employee productivity is directly tied to the outcomes and performance of individual business units. This, in turn, affects the organization’s performance.
  • Better management. Improved management can mean better manager training, increased communication between managers and frontline employees, and updated managerial policies and procedures, among other things.
  • Decreased costs. Efficiency in any business unit can decrease costs. Those savings can come from any area causing waste – outdated processes, obsolete technology, ineffective workflows, and so forth.
  • Improved customer engagement and value. The main goal of any business is to maximize customer value. By improving the effectiveness of customer-related departments – such as customer care or the customer experience – businesses can enhance relationships and boost customer value.
  • More efficient use of technology. Today, all organizations use digital technology. But they don’t always use it well. Effective digital adoption efforts can improve digital workflows, data insights, business processes, employee training, and many other business areas.
  • Better organizational outcomes. It should be apparent that a more effective organization will be better at achieving its goals and strategic priorities. And the better it can achieve its goals and meet its aims, the more profitable it will be.

The derived benefit for any organization will, of course, depend on the business function in question. For business professionals, the main concern around organizational effectiveness isn’t just “What is the importance of organizational effectiveness?” It should be: “How do we improve organizational effectiveness?”

See Also

Organizational Performance