Definition
Despite being used quite often in evaluating the performance of an organization, as well as redefining the company’s goals and the means to achieve them, the phenomenon of organizational effectiveness is comparatively hard to nail down. Traditionally, the concept is viewed through the lens of management theories, whence the complexity of the phenomenon stems from. Indeed, the effectiveness of an organization is comprised of a range of elements, particularly, the performance of the staff, the efficacy of the financial transactions and the company’s operations in general, the quality of the source materials, the adequacy of the logistics strategy adopted, etc. Therefore, in most cases, the operational definition of organizational effectiveness is stretched to the efficacy, with which an organization meets its key objectives; thus, OE can be defined as “the notion of how effectual an organization is in accomplishing the results the organization aims to generate” (Manzoor, 2012, p. 37). Much to the credit of the recent researchers, the phenomenon has lately been viewed from the point of view of the company’s assets, therefore, relating the concept in question to the internal processes of an organization and not the outside factors: “Organizational effectiveness is a term often used to describe an organization’s capacity to achieve outcomes efficiently and effectively” (Lin & Lin, 2011, p. 364).
Drawing the line between organizational performance and organizational effectiveness, one must also add that the latter is a “broader construct that captures organizational performance, but with grounding in organizational theory that entertains alternate performance goals” (Richard, Devinney, Yip & Johnson, 2009, p. 718). Therefore, it would be wrong to consider the concept of OE solely as the measure of the revenues that a company has gained over a specific time period; quite on the contrary, the phenomenon should be related to a variety of concepts in order to represent its complexity properly. To be more exact, the evaluation of OE must be carried out with regard for both the internal factors, including the company’s assets, the direct and indirect costs, the net revenue, the profit margins, etc., and the external ones, particularly, the competition rates within the specified market, the amount of competitors, the type and structure of the market in question (e.g., in a monopolistic market, the chances for a company to survive the competition are close to nil), etc.
Theories
It should be noted that the phenomenon of OE can be viewed from a variety of theories, including Hanna and Freeman’s Theory of Organizational Effectiveness, also known as the Theory of Organizational Ecology, the Impartiality Theory, the Participant-Interest Theory, the Four-Factor Theory of Leadership, which allows for predicting OE in a specific organization, and, of course, the Theory of the Firm. It should be born in mind that the theories mentioned above are not the only frameworks that address the concept of OE; quite on the contrary there are a number of other theoretical approaches, which render the phenomenon of OE, the means of measuring it and the methods of maintaining OE in a company. Still, the theories listed above are considered the key ones in assessing OE and identifying the strategies for attaining it.
Hannan and Freeman’s Theory of Organizational Effectiveness (the Theory of Organizational Ecology)
According to Hannan and Freeman, OE depends on the environment, in which the members of the company in question operate. Consequently, Hannan and Freeman suggest that the means to sustain the environment, which is favorable for the organization’s operation, or, as they put it, organizational ecology, must be designed. Hannan and Freeman identify adaptation as the key mechanism allowing for creating the proper organizational ecology within a particular company. Adaptation should not be viewed as a passive acceptance of the negative factors affecting the company; instead, Hannan and Freeman define adaptation as flexibility in searching the avenues for addressing a particular problem with a limited amount of resources. More to the point, the theory in question helps identify the methods for fighting the so-called “organizational inertia,” i.e., the obstacle, which blocks the way towards adaptation for an organization (Frenken, 2011).
Participant-Interest Theory
Another theory that addresses the phenomenon of OE, the Participant-Interest Theory (PIT) presupposes that, to achieve high rates of efficacy, an organization must take the interests of its key stakeholders into account (Keeley, 1984). It should be noted, though, that PIT is, in fact, not a single framework, but an entity comprised of several participant-interest theories.
Four-Factor Theory of Leadership
Hannan and Freeman made it obvious that OE should be measured based on a range of factors affecting the company’s operations, the organizational behavior of the staff, etc. The Four-Factor Theory of Leadership (FFT) has narrowed the number of issues affecting OE to four. According to the key tenets of the FFT, support, interaction facilitation, goal emphasis, and work facilitation can be used to evaluate the efficacy of the company in a rather accurate manner (Bowers & Seashore, 1966). Indeed, the areas mentioned above address the major processes that occur within an average organization, i.e., the relationships between its members, the production process, the location of the firm’s goals and their subsequent achievement.
Theory of the Firm
Another way of looking at the OE, the Theory of the Firm (TF) provides a deeper insight onto the nature of entrepreneurship and, thus, helps realize what elements are needed to promote sustainability within the company. Though tending to view the OE through the prism of the company’s structure and processes, TF also analyzes the organizations’ relationship to the market, therefore, making it possible to locate the potential changes in the OE after the integration of the organization into the latter. The significance of the relationships between the company and the market is becoming increasingly high with the rise in the pace of globalization; therefore, with all due respect to the authors of the TF, one must admit that some of its postulates should be taken with a grain of salt; particularly, the consideration of the company’s assets should not be isolated from the analysis of the effects of the market and the related forces on the organization’s key processes (Fitzsimons, James & Denyer, 2011).
Methods
A variety of methods for improving OE have been suggested so far. Traditionally, the reconsideration of the company’s vision, mission and corporate ethics is viewed as the key to improving OE. The introduction of the principles of professional responsibility into the company is also often seen as the first step towards raising the OE rates. Together with professional responsibility, accountability and time management are also listed among the key concepts required for improving OE. Finally, a range of companies considering the satisfaction of their key stakeholders as their top priority often happen to be the firms with the highest OE rates (Amah & Ahiauzu, 2013).
Reference List
Amah, E. & Ahiauzu, A. (2013). Employee involvement and organizational effectiveness. Journal of Management Development, 32(7), 661–674.
Bowers, D. G. & Seashore, S. E. (1966). Predicting organizational effectiveness with a four-factor theory of leadership. Administrative Science Quarterly, 11(2), 238-263.
Fitzsimons, D., James, K. T. & Denyer, D. (2011). Alternative approaches for studying shared and distributed leadership. International Journal of Management Reviews, 13(3), 313–328.
Frenken, K. (2011). Firm entry and institutional lock-in: an organizational ecology analysis of the global fashion design industry. EconStor, 0714, 1–21.
Keeley, M. (1984). Impartiality and participant-interest theories of organizational effectiveness. Administrative Science Quarterly, 29(1), 1–25.
Lin, Y. W. & Lin, Y. Y. (2011). Health-promoting organization and organizational effectiveness of health promotion in hospitals: a national cross-sectional survey in Taiwan. Health Promotion International, 26(3), 362–375.
Manzoor, Q.-A. (2012). Impact of employees motivation on organizational effectiveness. European Journal of Business and Management, 3(3), 36–45.
Richard, P.J., Devinney, T., Yip, G. & Johnson, G. (2009). Measuring organizational performance: towards methodological best practice. Journal of Management, 35(3), 718–804.