Defining Organizational Effectiveness

A professor at Saint Joseph’s College in Standish, Maine e-mailed me with a challenge. Dr. Mustard was searching for a generic definition of organizational effectiveness or a set of criteria, rules, or attributes that would define an effective organization. He also agreed the definition should be universal and apply equally to health care, not-for-profit, and for-profit environments.

Searching the academic as well as the popular business literature revealed authors use the ubiquitous term in many articles and studies but seldom share their working definition of the term. Many seem to know effective organizations when the see them and even list them – Fed Ex, 3M, and Merck, usually make the list. Fortune, Business Week, and other business magazines rank the best and the worse on a variety of criteria and the rankings are either exclusively financially-based or do include at least some financial performance measures as a proxy for effectiveness. This is appropriate as profit, financial control, or effective budgeting and cash-flow management ensure the long-term survival of any organization. Yet other researchers argue that pursuing a single objective, such as profit or creation of shareholder wealth, is self-defeating. Many CEOs agree that profit alone is not enough to create employee loyalty or address all business factors, including responsibilities to many stakeholders or constituencies.

Defining the Term

Effectiveness is an organizational dynamic that haunts managers. The concept of effectiveness is hidden within the cloak of more popularized notions. Popular theories of Total Quality Management (TQM), Continuous Quality Improvement (CQI), and organizational efficiency are seen as ways to effectiveness.

Internet searches for “organizational effectiveness” yield some 500,000 sites including courses, consultants offering organizational solutions on every imaginable business topics, strategic planning workshops, employee teambuilding sessions in the great outdoors or “ropes” courses, journal articles, human resources topics, employee training, city government sites offering a place for citizens to make comments to improve government, centers at various universities in business or psychology, and too many others to mention.

Four Academic Models

The issue of organizational effectiveness or OE, has been one of the most sought out yet elusive research subject since the early development of organizational theory. Although it seems intuitively apparent that a measure of organizational performance should be readily available in management literature, but quite the contrary is true. Four key models have been identified in the literature.

One model used production, commitment, leadership, and interpersonal conflict to measure organizational effectiveness. Production was defined as the flow of output from the organization. Commitment was established as a component to measure the degree of attachment to the organization. Leadership was defined as a degree of influence and personal ability, and interpersonal conflict refers to the degree of perceived misunderstanding between supervisors and subordinates.

A second OE model was proposed based on interrelated organizational processes and was developed primarily as a tool for management consultants. This model uses organizational survival and maximizing return as key variables of effectiveness along with self-regulation, which is responsible for orchestrating a balance between eight other minor variables including internal-external boundary permeability, sensitivity to status and change, contribution to constituents, transformation, promoting advantageous transactions, flexibility, adaptability, and efficiency.

A third model chose six selected indicators of organizational effectiveness including management experience, organizational structure, political impact, board of directors involvement, volunteer involvement, and internal communications.

The fourth and final academic model was used to compare for-profit and non-profit organizational effectiveness and is termed the competing value framework. This model used four quadrants representing (1) human relations, (2) open systems, (3) rational goals, and (4) internal process. (1) The human relations side stressed participation, discussion, and openness as ways to improve morale and achieve commitment. (2)The open system side relates insight, innovation, and adaptation as a path toward external recognition, support, acquisition, and growth. (3) Finally, the internal process side sees internal processes as measurement, documentation, and information management as methods to achieve stability, control, and continuity. (4)The rational goal side seeks profit and productivity through direction and goals. This model has been tested and validated more than the other three models in academic literature.

Lack of Consensus

While no true consensus exists regarding the definition or measurement of organizational effectiveness, individuals make effectiveness judgments regularly when they buy stock, choose a college or take their cars for repairs. We too know effectiveness when we see it, and more often, when we don’t. We use speed of service, friendliness of employees, cleanliness, value, quality, performance, and other measures as we judge effectiveness. We make value judgments of quality service in health care settings, on how not-for-profits use our donations and contributions, and we track the financial performance of our our individual stock holdings and mutual fund investments in the for-profit arena. In good times, organizational flaws easily go unaddressed, according to authors in the Journal of Organizational Excellence. In our current economy, there is no doubt many companies will experience a significant downturn. It will demand from managers a more strategic review or organizations, processes, and procedures as well as actions to ensure the maximum level of organizational effectiveness. In times like these, our organizational leadership will be tested. Thus, strong, competent leadership is a requirement for effectiveness.

In a study in Organizational Development Journal, researchers studied 700 CEOs from leading industrial and service companies representing both private and public companies, and developed characteristics for visionary companies. The companies were (1) premier institutions in their industry; (2) were widely admired by knowledgeable business people; (3) had multiple generations of chief executives; (4) had been through multiple product (or service) life cycles; and (5) had been founded before 1950.

Other variables often cited as requirements for organizational effectiveness include:

• Quality employees with a passion for their work and a level of satisfaction that leads to low turnover
• Communication strategy with consistent and energizing messages
• Clear practices, policies, and decisions
• An environment accepting of change and innovation for new product development
• Interdepartmental communication
• Effective management of human resources – increased information sharing, extensive training, financial and non-financial rewards, appraisal and extensive feedback
• Strategic choices about which markets to pursue and which opportunities to ignore but with flexibility to pursue experimentation
• An ability to anticipate competitor reactions to strategic responeses as well as anticipate employee responses
• A strategy linked to organizational goals and reviews
• All organizational levels participating in communicating core messages and communication flowing from top to bottom and bottom to top
• Good external communication – from new releases, fact sheets, annual reports, supervision and leadership
• Opportunities for employee advancement and growth
• An emphasis on planning, training, and support
• Adaptive organizational forms and structures
• High levels of organizational trust – which minimize the potential for destructive conflict, unnecessary bureaucratic control, administrative expenditures, and expensive overhead
• Consistency and congruency between words and actions
• Effective Boards of Directors
• Using information technology effectively
• Integrating employees from different organizational units; particularly important in multinational organizations
• An emphasis on ethics, the environment, and sustainability
• Customer focus and ability to optimize customer value
• Choosing the right partners and building trusting, durable relationships
• Empowerment and delegation of real decision-making authority to those closest to the customers
• Lean production and an emphasis on efficiency and efficient processes
• Strong culture and mission

So What is Effectiveness?

If the above lists and discussion seem like the textbook chapter titles from a principles of management book, they are. It seems organizational effectiveness is about doing everything you know to do and doing it well. The universals of management – planning, organizing, leading, direction, and controlling – have not changed. They are still important and executing them well remains challenging. The answer here is similar to the finding in the famous meeting between American and Japanese managers. When asked by American guests how the Japanese were making such quality cars, one Japanese manager smiled and said we are following the book. He then presented the “textbook” of assembly line production written by Henry Ford in the early 1920’s. Ironically, one of the leaders of the industrial revolution, Henry Ford, Sr., developed many of the fundamentals of what we now call “total quality practices” in the early 1900s. This approach was only discovered when Ford executives visited Japan in 1982 to study Japanese management practices. As the story goes, one Japanese executive referred repeatedly to “the book”, which the Ford people learned was a Japanese translation of My Life and Work, written by Henry Ford and Samuel Crowther in 1926 (New York: Garden City Publishing Co.) “The book” had become Japan’s standard while Ford Motor Company had strayed from its principles over the years. The Ford Executives could only find a copy at a used bookstore to when they returned to the United States.

Dr. Marilyn M. Helms is the Sesquicentennial Endowed Chair and Professor of Management at Dalton State College and welcomes your comments at mhelms@em.daltonstate.edu.