C H A P T E R- 7

ORGANIZATIONAL
EFFECTIVENESS

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 Learning Objectives
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

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mangers
 What is OE?
OE is defined as the degree to which an organization realized
its goals. But which goal? Short term or long term? Whose
goal? It is a goal that help organization to survive.
effective not allowed too survive
ineffective still survive

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 Approaches of Organizational
Effectiveness

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 1. The Goal -attainmentApproach
• 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,

bringing the enemy to surrender, winning the basketball
game, restoring patients to good health, and the like.
??????

• Their common denominator is that they consider the ends

to which the organization was created to achieve.

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 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

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 Making Goals Operative
• The goal-attainment approach is probably most explicit in
management by objectives (MBO).
• MBO is a well-known philosophy of management that
assesses an organization and its members by how well they
achieve specific goals that superiors and subordinates have
jointly established.
• Tangible, verifiable, and measurable goals are developed.
• The conditions under which they are to be accomplished is
specified.
• MBO represents the ultimate in a goal-oriented approach to
effectiveness.
• SMART

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 Problems
• The goal-attainment approach is troubled with 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? (officially stated or actual goals pursued)
• Top management’s?
• If so, who is included ? Who is excluded?
• It’s also possible that some of the decision makers with real power
and influence in the organization are not members of senior
management.
• There are cases in which individuals with rich experience or
particular expertise in an important area have a significant
influence on determining their organization’s goals
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 Problems

• What an organization states officially as its goals does not

always reflect the organization’s actual goals.
• Official goals tend to be influenced strongly by standards of
social desirability.
• Representative statements such as
 "to produce quality products at competitive prices,”
 "to be a responsible member of the community,”
 "to ensure that our productive efforts do nothing to damage the
environment,”
 "to maintain our reputation for integrity,” and
 “to hire the handicapped and members of minorities” were gleaned from
several corporate brochures.

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 Problems
• Official statements may sound good, but rarely do they
make any contribution to an understanding of what the
organization is actually trying to accomplish.
• Given the likelihood that official and actual goals will be
different, an assessment of an organization's goals should
probably include the statements made by the dominant
coalition plus an additional listing derived from
observations of what members in the organization are
actually doing.
• An organization's short-term goals are frequently different
from its long-term goals.
• In applying the goal-attainment approach, which goals—
short- or long term—should be used?
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 Problems
• The goal-attainment approach assumes consensus on goals.
Given that there are multiple goals and diverse interests within
the organization, consensus may not be possible unless goals
are stated in such ambiguous and vague terms as to allow the
varying interest groups to interpret them in a way favorable to
their self- interests.

• This, in fact, may explain why most official goals in large

organizations are traditionally broad and intangible.
• They act to satisfy many different interest groups within the
organization.

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 What does all this mean?

• It would appear that only the naive would accept the

formal statements made by senior management to
represent the organization’s goals.

• As one author concluded after finding that

 corporations issue one set of goals to stockholders, another to
customers, a third set to employees, a fourth to the public, and still a fifth
set for management itself.

 formal statements of goals may be" fiction produced by an

organization to account for, explain, or rationalize its existence to
particular audiences rather than as valid and reliable indications of
purpose.”
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 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, verifiable, and measurable goals rather than
relying on vague statements that merely mirror societal expectations
• Viewing goals as dynamic entities that change over time rather than
as rigid or fixed statements of purpose.

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 2. The SystemsApproach
• 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.
• This approach focuses not only on specific ends but also on the
means needed for the achievement of those ends.

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 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.
• Effectiveness requires awareness and successful
interactions with environmental constituencies.
Management cannot fail to maintain good relations with
customers, suppliers, government agencies, unions, and
similar constituencies that have the power to disrupt the stable
operation of the organization.
• Survival requires a steady replacement of those resources
consumed. Failure to replenish will result in the organization’s
decline and, possibly, death.
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 Organization as an Open System

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 Making Systems Operative
• 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, and
 The degree of employee job satisfaction.

• The systems approach focuses on the means necessary to

assure the organization’s continued survival.
• They question the validity of the goals selected and the measures
used for assessing the progress toward these goals.
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 Problems
• The measurement and the issue of whether means really
matter are the major shortcomings.
• Measuring specific end goals may be easy compared with
trying to measure process variables such as "flexibility of
response to environmental changes” or "clarity of internal
communications.”
• "It’s whether you win or lose that counts in sports, not how you
play the game!” the same holds true for organizations. If ends
are achieved, are means important?
• its focus is on the means necessary to achieve effectiveness
rather than on organizational effectiveness itself.

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 Value to Managers

• Managers who use a systems approach to OE are

less prone to look for immediate results.
• They are less likely to make decisions that trade off the
organization's long-term health and survival for ones
that will make them look good in the near term.
• The systems approach increases the managers’
awareness of the interdependency of
organizational activities.
• It is applicable where end goals either are very vague
or difficult to measure.

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 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/ satisfy only those in the

environment who can threaten the organization’s
survival. E.g. 20/80

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 Assumptions
• The strategic-constituencies approach views
organizations as political arenas where vested
interests compete for control over resources.

• organizational effectiveness becomes an assessment

of how successful the organization has been at
satisfying those critical constituencies, upon whom the
future survival of the organization depends.
• Managers must appease those constituencies who
have
the power to threaten their organization's survival.

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 Assumptions
• Organization has a number of constituencies, with
different degrees of power, each trying to satisfy its
demands.
• But each constituency also has a unique set of values, so it
is
unlikely that their preferences will be in agreement.
• This 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.
• No goal or set of goals that management selects is value
free. Each implicitly, if not explicitly, will favor some
constituency over others.
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 Assumptions- Goals and interestgroup

Priority area Interest group

• Profits • Owners

• Adaptability to the • Society

environment
• Clients
• Customer satisfaction
• Employees
• Supportive work climate

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 Making Strategic ConstituenciesOperative

• Firstly, 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.

• Secondly, this input can be combined and synthesized to

arrive at a list of strategic constituencies. This list could
then be evaluated to determine the relative power of
each.

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 Making Strategic ConstituenciesOperative
looking at each constituency in terms of how dependent on it
our organization is.
Does it have considerable power over us?
Are there alternatives for what this constituency
provides?
How do these constituencies compare in the impact they
have on the organization's operations?
• The third step requires identifying the expectations that these
constituencies hold for the organization. What do they want of
it?
• Ques: Given that each constituency has its own set of special
interests, what goals does each seek to impose on the
organization?
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 OE Criteria

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 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, what was

critical to the organization yesterday may not be so today.

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 Value to Managers
• If survival is important for an organization, then it is up to the
managers to understand just who it is (in terms of consti-
tuencies) that survival is contingent upon.

• By operationalizing the strategic-constituencies approach,

managers decrease the chance that they might ignore or
severely upset a group whose power could significantly hinder
the organization's operations.

• If management knows whose support it needs if the organization

is to maintain its health, it can modify its preference ordering of
goals as necessary to reflect the changing power relationships
with its strategic constituencies.
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 4. The Competing-values Approach

• Competing-values approach affirms that the criteria

you value and use in assessing an organization’s
effectiveness depend on who you are and the
interests you represent. (e.g. return on investment,
market share, new product innovation, job security
• It is not surprising that stockholders, unions,
suppliers, management, or internal specialists in
marketing, personnel, production, or accounting
may look at the same organization but evaluate its
effectiveness entirely differently.

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 Assumptions
• There is no “best” criterion for evaluating an
organization’s effectiveness.

• 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.
WHY YOU SAY???

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 How OE criteria change to reflect the interests of
the evaluator.
Evaluator Interest

• high profitability;
• Financial analysts

• focusing on the amount and

• Production executives quality of equipment
manufactured
• Marketing people • percentage of market that the
company products hold
• ability to hire competent
• Personnel specialists workers and absence of
strikes;
• Research-and-development • the number of new inventions
scientists and products that the company
generates;
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 Making Competing Valuesoperative:
This approach began with a search for common themes
among the thirty OE criteria. What was found were three
basic sets of competing values.

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, the latter emphasizing
final outcomes and the short term.
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Marketing, production, finance, and personnel

 5. Balanced ScorecardApproach

• The Balanced Scorecard method of Kaplan and

Norton is a strategic approach, and performance
management system, that enables organizations to
translate a company's vision and strategy into
implementation, working from 4 perspectives:
• Financial perspective.
• Customer perspective.
• Business process perspective.
• Learning and growth perspective.
• It balances financial and nonfinancial measures
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 Balanced Scorecard
• Financial measures: Traditional financial measures
such as profit and loss, operating margins,
utilization of capital, return on investment, and
return on assets are needed to ensure that the
organization manages its bottom line effectively.
• Internal business processes: Product and service
quality, efficiency and productivity, conformance
with standards, and cycle times can be measured
to ensure that the operation runs smoothly and
efficiently.

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 Balanced Scorecard

• Customer relations: Customer satisfaction, loyally, and

retention are important to ensure that the organization is
meeting customer expectations and can depend on
repeat business from its customers.
• Learning and growth activities: Employee training and
development, mentoring programs, succession planning,
and knowledge creation and sharing provide the
necessary talent and human capital pool to ensure the
future of the organization.

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 Balanced Scorecard

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 Objectives, Measures, Targets, andInitiatives

• Objectives: major objectives to be achieved, for example,

profitable growth.
• Measures: the observable parameters that will be used to
measure progress toward reaching the objective. For
example, the objective of profitable growth might be
measured by growth in net margin.
• Targets: the specific target values for the measures, for
example,7% annual decline in manufacturing disruptions.
• Initiatives: projects or programs to be initiated in order to
meet the objective

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 Discussion questions

• Discuss the difficulties of using the goal attainment

approach to assess organisational effectiveness.
• Evaluate whether politics and personal opinions will
always play a significant part in assessing organisational
effectiveness.
• Is it possible for an effective organisation to cease to
exist? Discuss.

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 CHAPTER-8:
Contemporary Issues in Organization Theory

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 A. Managing the Environment
• All organizations face some uncertainty, and many
environments are quite dynamic
• Not only do Managers interact with their
environment, but this interaction is necessary for the
organization's viability and survival
• But the question is Can the environment be managed?
• The population-ecology perspective, argues that
management can't affect its environment.
• The environment is treated as a given, and management
is depicted as helpless in reacting to it.

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 • But one of the critics for the perspective was that
management is not always impotent.
• Managers have discretion over the strategies they choose
and the ways in which organizational resources are
distributed.
• Moreover, large and powerful organizations clearly have the
means to shape major elements in their environment.
• They can respond by adapting and changing their actions to
fit the environment (Internal strategy), or they can attempt
to alter the environment to fit better with the organization’s
capabilities (External strategy).
• Consider the SWOT and PEST Analysis here

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 B. Managing Organizational Change
• Some organizations treat change as an accidental
occurrence.
• However, we’ll be addressing change activities that are
planned or purposeful.
• The types of change that management seeks to create are
varied that could depends on the target
(individual/Structural)
• However, Mangers are better to focus on structural changes

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 Model of Managing Organizational
Change

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 Obligations, Responsiveness, & Responsibility
• Social obligation: when a firm engages in
social actions because of its obligation to meet
certain economic and legal responsibilities
• Classical view: the view that management’s
only social responsibility is to maximize
profits
• Socioeconomic view: The view that
management’s social responsibility goes
beyond making profits to include protecting
and improving society’s welfare.
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 The Socioeconomic View

Companies must balance obligations to shareholders with

obligations to the public good.
• Social responsiveness: is when a company engages in
social actions in response to some popular social need
• Social responsibility: A business’s intention, beyond its
legal and economic obligations, to do the right things and
act in ways that are good for society

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 Should Organizations Be Socially
Involved? Conference Paper.pdf
• Does social involvement affects a company’s
economic performance?
 One way to view social involvement and economic performance is by
looking at socially responsible investing (SRI) funds, which provide a way
for individual investors to support socially responsible companies.
 Social screening: Applying social and environmental criteria
(screens) to investment decisions
 Social Investment Forum reports that the performance of most SRI
funds is comparable to that of non-SRI funds.
 company’s social actions don’t hurt its economic performance.
 Given political and societal pressures to be socially involved,
managers probably need to take social issues and goals into
consideration as they plan, organize, lead, and control.

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 Arguments For and Against Social Responsibility

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 Discussion Questions
• Take any organization that gone through changes
and discuss;
• who was the change agent?
• Why it undergone the change
• what result it got
Assume you are the CEO of a known Multinational
company. From the Responsibility pyramid elements
(According to Parrol), which one is your priority?
Economic, Legal, Ethical or Discretionary/ Philanthropic
Why

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