Organizational Effectiveness

Perspectives of Effectiveness

Effectiveness—in the context of organization— is the optimal relationship among production, quality, efficiency, flexibility, satisfaction, competitiveness and development.

Effectiveness, therefore, can be viewed at individual, group and organizational level. Those who have interest in whether organizations perform effectively can focus on one or all three levels.

1.    Effectiveness at the Individual Level

Individual effectiveness emphasizes the task performance of specific employees in organizations. The causes of individual effectiveness include ability, skill, knowledge, attitude, motivation and stress.

These individual differences account for differences in effectiveness in individual performance. Individual effectiveness is evaluated through performance appraisals which form the basis for salary increase, promotions and other rewards available in organizations.

2.    Effectiveness at Group Level

In the modern day organization, employees usually work in groups and hence it is necessary to view effectiveness from the group perspective. In certain cases, group effectiveness could be more than the sum of the individual members’ contributions. Then we say that the group has synergy Opens in new window.

3.    Effectiveness at Organizational Level

Organizational effectiveness consists of individual and group effectiveness. Through synergistic effects, organizations should obtain more effectiveness than the sum of their parts.

The rationale for justifying organization’s existence is that they can do more work than the individuals that it comprise of.

The perspectives and causes of effectiveness are displayed in the Figure 4.1 below.

Figure 1. The perspectives and causes of effectiveness

The figure above reveals the relationship among individual group and organizational effectiveness. The connecting arrows imply that individual effectiveness leads to group effectiveness and individual and group effectiveness leads to organizational effectiveness.

The synergistic effect of the three perspectives is also explained. Thus, group effectiveness is larger than the sum of individual effectiveness because of the synergies realized through joint efforts of individuals. In the same way, organizational effectiveness is larger than the sum of individual and group effectiveness because of the synergies through individual and group efforts.

Corporate Insights: Fortune’s Survey of Most Admired Corporations

In 1992, Fortune magazine Opens in new window polled 8,000 senior executives, outside directors, and security analysts to rate 311 firms in 32 industries on attributes of performance that Fortune had used in previous surveys. The respondents rated the firms on scales of zero (poor) to ten (excellent) for each of the eight attributes of reputation. These eight attributes are:

  1. Quality of management.
  2. Quality of products or services.
  3. Innovativeness.
  4. Long-term investment value.
  5. Financial soundness.
  6. Ability to attract, develop and keep talented people.
  7. Community and environmental responsibility.
  8. Use of corporate assets.

According to Fortune, Merck Pharmaceuticals Opens in new window was the most admired company (at the time). The respondents gave Merck Opens in new window an average of 8.74 on the eight attributes. Other corporations rated similarly high were Rubbermaid Opens in new window (8.58). Walmart Opens in new window (8.42), 3M Opens in new window (8.41), Coca-Cola Opens in new window (8.19), Procter & Gamble Opens in new window (8.09), Levi Strauss Opens in new window (7.96), Liz Clairborne (7.95), J.P Morgan Opens in new window (7.93), and Boeing Opens in new window (7.88).

Merck not only had the highest average rating, it also rated either first, second, or third on all but one attribute – use of corporate assets. It ranked first on financial soundness, quality of products and services, and ability to attract, develop, and keep talented people.

The company no doubt owes much of its reputation for soaring profits and strong financial performance of its ability to attract highly talented employees. Merck’s then CEO, Dr. Roy Vegelos, has personally recruited some of the company’s brightest scientists out of the academic labs of the world’s greatest universities. Merck first appeared as number one in the ratings Fortune published in 1987 and has held that position in each of the intervening surveys.

Other firms with reputations for attracting and retaining high quality employees include Walmart, 3M, and Levi Strauss.Robert Haas, then Levi Strauss’ CEO, makes the point that a successful firm must create an environment in which every employee feels like a representative of the firm. Employees must fully understand what the firm stands for and how they contribute to that mission. Every Christmas, every year, Haas walks throughout the company’s headquarters in San Francisco talking to each of the 1,200 employees. He believes that this personal interaction maintains communication channels with employees and also reinforces the firm’s commitment to its human resources.

The design of Fortune magazine’s survey which includes eight attributes of performance (the bases for the “admiration” ratings and scores) bears out the importance of thinking of effectiveness as consisting of multiple dimensions. Individuals who rate firms take into account more than one attribute. Whether these eight attributes reflect all the attributes that go into judgments of effectiveness can be debated. A sobering note should be added. Performance and admiration can be fleeting: IBM has fallen in each successive survey from number 1 in 1986 to 20th in 1992.

Source: Jennifer Reese, “America’s Most Admired Corporations,” Fortune, January 8, 1993, Page 44 – 47, and 53.

The job of management is to identify the causes of organizational, group and individual effectiveness. The distinction between cases of effectiveness and indicators of effectiveness can be difficult for both managers and researchers. Overall effectiveness is difficult to measure in organizations.

Organizations are large, diverse and fragmented. They pursue multiple goals and generate many outcomes (both intended and unintended). But the reality of organizational life is that there are few unambiguous cause-and-effect relationships.

In most instances, evaluation judgments must take into account multiple causes and circumstances. However, when managers tie performance measurement to strategy execution, it can be a valuable tool for helping organizations reach their goals.