CHAPTER 3

Organizational
Effectiveness
 After studying this chapter, you
should be able to:
• Define four approaches to organizational
effectiveness
• List the assumptions of each OE approach
• Describe how managers can operationalize each
approach
• Identify key problems with each approach
• Explain the value of each approach to practicing
managers
• Compare the conditions under which each is
useful for managers
 Definition of Organizational
Effectiveness (OE)
OE is conceptually complex, and, therefore, so is
its definition.
Organizational effectiveness can be defined as the
degree to which an organization attains its short-
term and long-term goals, the selection of which
reflects strategic constituencies (factions of the
organization, systems, owners, public,
stockholders), the self-interest of the evaluator, and
the life stage of the organization.
 What makes an Organization
Effective?
Answer is: Proper organization structure.

OT clarifies which Organization Structure will lead to or

improve OE.
• The way we put people and jobs together & define
their roles and relationships is an important element
to assess whether an organization is successful.
• Those managers who understand their structural
options and the conditions under which each is
preferred will have a definite advantage over others.
• Some structures work better under certain conditions
than do others.
 Importance of Organizational
Effectiveness
• Every discipline in the administrative sciences contributes in
some way to helping managers make organizations more
effective.
•Marketing – Expanding revenues
•Production and operations – Designing efficient processes
•Accounting – Information to enhance quality of decision
•Organization Theory – As a discipline, it clarifies which
organization structure will lead to or improve organizational
effectiveness.

The effectiveness of an organization depends on its structure.

 Organizational Effectiveness Criteria
There are thirty different criteria to
measure “organizational effectiveness”.
• Organizational • Motivation • Managerial task
effectiveness • Morale skills
• Productivity • Control • Information mgt
• Efficiency • Conflict • Readiness
• Profit • Flexibility • Environment
• Quality • Planning utilization
• Accidents • Goal consensus • External evaluation
• Growth • Internalization of • Stability
• Absenteeism orgnz. goals • Value of human
• Turnover • Role and norm resources
• Job satisfaction • Managerial • Participation
• Interpersonal skills • Shared influence
• Training and
development
• Achievement
Four Approaches to Organizational
Effectiveness

1. The Goal Attainment Approach

2. The Systems Approach
3. The Strategic-Constituencies Approach
4. The Competing-Values Approach
 1. The Goal Attainment Approach
The goal attainment approach states that an organization’s
effectiveness must be appraised in terms of the accomplishment of
ends rather than means.
Popular goal attainment criteria include profit maximization.
a) Assumptions
The goal attainment approach assumes that organizations are
deliberate, rational, goal-seeking entities.
•Organizations must have ultimate goals.
•These goals must be identified and defined well enough to be
understood.
•These goals must be few enough to be manageable.
•There must be general consensus or agreement on these goals.
•Progress toward these goals must be measurable.
b) Making Goals Operative
The goal-attainment approach is probably most explicit in
management by objectives (MBO)

c) Problems
The goal-attainment approach contains a number of
problems that make its exclusive use highly questionable.
And these are related directly to the assumptions.
It is one thing to talk about goals in general, but when you
operationalize the goal attainment approach you have to ask:
• Whose goals?
• Top management’s?
• If so, who is included ?
• Who is excluded?
d) Value to Managers
The validity of the identified goals can probably be increased
significantly by:
• Ensuring that input is received from all those having a major
influence on formulating the official goals, even if they are
not part of senior management
• Including actual goals obtained by observing the behavior of
organization members
• Recognizing that organizations pursue both short-and long-
term goals
• Insisting on tangible (actual), verifiable, and measurable
goals rather than relying on vague statements that merely
mirror expectations
• Viewing goals as dynamic entities that change over time
rather than as rigid or fixed statements of purpose.
 2. The Systems Approach
Organizations acquire inputs, engage in transformation processes, and
generate outputs.
In the systems approach, end goals are not ignored; but they are only
one element in a more complex set of criteria.
Systems models emphasize criteria that will increase the long-term
survival of the organization—such as the organization’s ability to
acquire resources, maintain itself internally as a social organism, and
interact successfully with its external environment.
a) Assumptions
A systems approach to OE implies that organizations are made up of
interrelated subparts. If anyone of these subparts performs poorly, it
will negatively affect the performance of the whole system.
b) Making Systems Operative
The systems view looks at factors such as:
• relations with the environment to assure continued receipt
of inputs and favorable acceptance of outputs
• flexibility of response to environmental changes
• the efficiency with which the organization transforms inputs
to outputs
• the clarity of internal communications
• the level of conflict among groups
• the degree of employee job satisfaction.

The systems approach focuses on the means necessary to

assure the organization’s continued survival.
c) Problems
• Measuring end goals may be easy compared with trying to
measure process variations such as flexibility of response to
environmental changes or clarity of internal communications
• The development of valid and reliable measures for
assessing their quantity or intensity may not be possible.
d) Value to Managers
Managers who use a systems approach to OE are less prone to
look for immediate results.

It has been suggested that the critical systems interrelationships

can be converted into OE variables or ratios. These could
include:
output/input (O/I)
transformations/input (T/I)
transformations/output (T/O)
changes in input/input (AI/I)
and so on
 Examples of Effective Measures of Systems for
Different Types of Organizations
System Business Firms Hospital College
Variables

O/I Return on investment Total Patients Faculty

treated Publications

T/I Inventory turnover Capital investment in Cost of inf system

medical tech
T/O Sales volumes Total Patients Students
treated graduated
I/I Change in working Change in number of Change in student
capital patients treated enrolment
 3. The Strategic-Constituencies
Approach
The strategic-constituencies approach proposes that an effective organization
is one that satisfies the demands of those constituencies in its environment
from whom it requires support for its continued existence.
It seeks to appease only those in the environment who can threaten the
organization’s survival.
a) Assumptions
The goal-attainment approach views organizations as deliberate, rational, and
goal-seeking entities. The strategic-constituencies approach views
organizations very differently. They are assumed to be political arenas where
vested interests compete for control over resources
The strategic-constituencies approach assumes that:
•Managers pursue a number of goals and that the goals selected represent
a response to those interest groups that control the resources necessary
for the organization to survive
b) Making Strategic Constituencies Operative
The manager wishing to apply this perspective might
begin by asking members of the dominant coalition to
identify the constituencies they consider to be critical
to the organization’s survival. This input can be
combined and integrated to arrive at a list of strategic
constituencies.
c) Problems
The task of separating the strategic constituencies
from the larger environment is easy to say but difficult
to do in practice.
Because the environment changes rapidly so what was
critical to the organization yesterday may not be so
today.
d) Value to Managers
• Managers must understand that who is it that
survival is depends upon.
• By operationalizing the strategic-constituencies
approach, the managers decrease the chance that
they might ignore or severely upset a group whose
power could severely hinder the organization’s
operations.
• If the management knows whose support it needs
if the organization is to operate smoothly, it can
modify its preference of goals.
 4. The Competing-Values
Approach
Competing-values approach is that the criteria you value
and use in assessing an organization’s effectiveness—return
on investment, market share, new product innovation, job
security—depends on who you are and the interests you
represent
a) Assumptions
There is neither a single goal that everyone can agree upon
nor a consensus on which goals take precedence over
others.
Therefore, the concept of OE, itself is subjective, and the
goals that an evaluator chooses are based on his or her
personal values, preferences, and interests.
b) Making Competing Values Operative

• The first set is flexibility versus control

• The second set deals with whether emphasis
should be placed on the well-being and
development of the people in the organization or
the well-being and development of the
organization itself.
• The third set of values relates to organizational
means versus ends; the former stressing internal
processes and the long term and the latter
emphasizing final outcomes and the short term
c) Problems
The competing-values model encompasses both
ends and means; it overcomes the problems of
using merely the goal-attainment or systems
approaches.
Competing values include strategic constituencies
but do nothing to alleviate the problems we
pointed out with this approach.
d) Value to Managers
By reducing a large number of effectiveness criteria
into four conceptually clear organizational models,
the competing-values approach can guide the
manager in identifying the appropriateness of
different criteria to different constituencies and in
different life-cycle stages.
 8 Common Characteristics of Well-
Managed & Highly Effective Companies
• Flexibility •Able to adjust well to shifts in external conditions & demands

• Acquisition of •Increase external support and expand size

Resource
• Planning •Goals are clear and well understood
• Productivity & •Volume of output is high; ratio of output to input is high
Efficiency
• Availability of •Channels of communication facilitate informing people about
Information things that affect their work
• Stability •Sense of order, continuity & smooth operations
• Cohesive •Employee trust, respect and work well with each other
workforce
• Skilled work •Employee have the training skills & capacity to do their work
force
properly
 A Best-Seller’s Definition of OE
‘Search of Excellence’ by Tom Peters & Robert Waterman’ (1982): 8
Common Characteristics of Well-Managed & Highly Effective Companies:

1. Bias for action & getting things accomplished.

2. They stayed close to their customers to fully understand the customers’
needs.
3. They allowed employees a high degree of autonomy and encouraged
entrepreneurial spirit.
4. They looked to increase productivity through employees participation.
5. Their employees knew what the company stands for & their managers
were actively involved in problems at all levels.
6. They stood close to the businesses they knew and understood.
7. They had simple organization structures with a minimal number of
people in staff support activities.
8. They had tight, centralized controls for protecting the company’s core
values with loose controls in other areas to encourage risk-taking &
innovation.
 Comparing the 4 OE Approaches
Approach Definition
Goal Attainment An organization is effective to
the extent that…it achieves its
stated goals.
Systems It acquires needed resources.
Strategic Constituencies All strategic constituencies are Constituencies have
at least minimally satisfied.
Competing Values The emphasis of the
organization in the four major
areas matches constituent
preferences.
When Useful
The approach is preferred
when…. goals are clear,
time bound and
measurable.
A clear connection exists
between inputs & outputs.
powerful influence on the
organization & the
organization must respond
to demands.
The organization is unclear
about its own emphasis or
changes in criteria over
time are of interest.