Organizational effectiveness assesses a company’s overall performance based on a variety of factors. Understanding organizational success may require taking into account factors including financial performance, long-term planning, internal organization, and adherence to fundamental values.
What is an effective organization?
The effectiveness with which a company can achieve its goals is known as organizational effectiveness. This refers to a business that achieves its goals or a lucrative business without wasting resources. For an organization to be productive, everyone must perform to the best of their abilities. In other words, it refers to an organization’s ability to achieve the required outcomes with a minimal expenditure of effort, time, money, and material and human resources. The organization’s objectives will determine the desired outcome.
A company can increase its earnings by producing and selling a product with minimal waste to meet its financial objectives. The two facets of organizational effectiveness are organizational development. The body of knowledge known as organizational development places emphasis on the growth of organizational effectiveness, particularly during times of transition.
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Organizational Effectiveness Models
There are multiple angles to look at organizational effectiveness. The table below shows 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 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.
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 can 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.
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.
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Benefits of an effective organization
1. Engage your staff
Businesses know how important employee engagement is to their bottom line. Engaged staff contribute more, are more productive, and tend to stay long term, reducing your overall hiring costs. They go above and beyond their job descriptions, increasing efficiency and as they are less likely to leave, you avoid the time and expense of having to find replacements. Listening, and acting on feedback, is the starting point of improving engagement. This needs to be regular and tailored to their needs – companies should move away from a single, annual employee survey to bring in more timely quarterly pulse and weekly ‘heartbeat’ monitoring.
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2. Aligning culture and strategy
Engagement is great, but it needs to be channeled if it is to achieve maximum impact. That means employees need to be focused on your company strategy, and working on the areas that fit with your business objectives for employee engagement. Doing this means you’ll have to break down any barriers in your organization and create an open culture that is driven by always-on feedback. In the beginning this can be unnerving – employees have the chance to share their thoughts, whenever they want – and they then expect you to act on their feedback. This means you need to be transparent and open with a flatter corporate structure. However, the benefits considerably outweigh any concerns. Staff are both engaged and aligned with the organization’s goals and managers have access to broader insight, direct from your people. You create a culture of continuous improvement, with your employees operating effectively at all times.
3. Create leaders across the organization
The old model of top-down leadership cannot cope with today’s hypercompetitive markets. To drive real organizational effectiveness, you need all managers to feel empowered to act as leaders, wherever they sit in the business. They need to continually look at how they improve their performance by listening to, and acting on, feedback from those around them. To underpin this continuous performance management, managers have to be able to ask for and receive, feedback at any time. This means they can check how they are performing, as well as collaborate with their teams to create innovations and solve any issues that are holding the business back.
Getting the best out of your people is crucial to thriving in today’s increasingly competitive and fast-moving markets. You need to create a strategy that delivers organizational effectiveness– beginning by listening to your employees and acting on their feedback.