Introduction

Measuring effectiveness in an organization can be difficult because organizations perform numerous simultaneous activities, some of which are difficult to quantify. Leaders make decisions about which activities most significantly contribute to achieving the organization’s strategic purpose and establish goals with metrics for these areas. There are various approaches to measuring organizational effectiveness, including the goals or technical approach, the external resource approach, the internal systems approach, and the balanced effectiveness approaches, which include the balanced scorecard and the shareholder or constituency approaches.

Approaches to Measuring Organizational Effectiveness

The goals or technical approach measures the organization’s effectiveness by how effectively goods and services are produced form the existing resources (John & Gupta, 2012). This approach focuses on the quality of products and customer services and the reduction of production costs. This approach is effective in mechanistic structures focused on efficiency, such as Wal-Mart or Discount Tire.

The resource approach is particularly useful for not-for-profit organizations since not-for profit organizations are dependent on resources for survival. However, for profit organizations can use this approach as well.  Both tangible and intangible resources are important to the organization. As an example, leaders need to influence stakeholders’ perceptions of the organization to assure a positive view and confidence in the organization and its leaders, which are essential for the organization to survive.  In for profit organizations, leaders focus on stock price and sales as measures of stakeholders’ confidence in the organization. In for profit and in not-for-profit organizations, leaders need to be able to obtain and use scarce, valuable resources, including customers and markets, to retain a competitive advantage in the marketplace. Leaders compare their organization’s performance and products to those of other organizations to measure their effectiveness. A shortfall of the resource approach is that it lacks focus on the customer.

The internal systems approach measures effectiveness by the organization’s internal health and efficiency (Daft, 2013). This approach measures the organizations ability to innovate, and to be flexible and responsive. Other measures of success using the internal process approach are strong culture and positive work climate, team spirit, loyalty, confidence and trust, open horizontal and vertical communication, positive problem solving in the interest of the organization, and absence of conflict. An advantage of the internal systems or innovation approach is that it creates a positive work environment, engaged employees, and decreased turnover, as in the case of Southwest Airlines. Many leaders, particularly in the service industries, believe that happy, engaged employees contribute to the organization’s success. A limitation of the internal process approach is that it can be subjective and may lack focus on customers and the environment.

Balanced effectiveness approaches assess multiple goals and priorities and overall measures of an organization’s effectiveness.  Two balanced effectiveness approaches to organizational effectiveness are the balanced scorecard approach and the stakeholder or constituency approach.

The balanced scorecard was introduced in 1996 by Kaplan and Norton. In the balanced scorecard approach, leaders of the organization identify key measures and metrics that contribute to achieving organizational goals. These extend beyond financial goals to include the organization’s performance from the customers’ perspective, internal business processes, and learning growth (Kaplan & Norton, 1996). Leaders using the balanced scorecard approach measure these goals at regular intervals of time to assess the organization’s effectiveness.

The stakeholder or constituency approach measures how well the organization is meeting the needs of all stakeholders. Each stakeholder group will have different needs and expectations from the organization. For example, owners will expect financial return whereas employees want satisfaction with compensation and benefits, effective leadership, and positive, flexible working conditions. Customers expect quality of goods and fast, efficient services.  Creditors expect the organization to be creditworthy. The community expects contributions and participation in community affairs. Suppliers expect satisfactory business transactions and governmental agencies expect compliance with laws and regulations.

Recognizing Symptoms of Structural Deficiency

When the mix of vertical versus horizontal structure does not support the organization’s strategy and goals, the organization will suffer from structural deficiency. It is important that leaders recognize the symptoms of structural deficiency so that they can diagnose the problems and implement solutions.

The structures of organizations change over time as leaders strive to align structure with the organization’s life cycle and environment. Symptoms of deficiency include delayed or poor quality decision-making, inability to innovate to respond to changes in the environment, and excessive conflict (Simon & Gupta, 2012).

An organization may experience delayed or poor quality decision-making for several reasons. The vertical structure may be funneling too many problems to top decision makers. In this case, it may be more effective to delegate more decision making responsibility to lower levels with the organization. Another cause of delayed or poor quality decision making may be that information is not reaching the right people, signaling inadequate information sharing across vertical or horizontal structures.

An inability to respond to changes in the environment is a symptom that may signify a lack of horizontal coordination. This symptom is common in functional or silo organizations. For example, customer’s preferences need to be coordinated between front-line, customer contact employees and the marketing, research, and production departments. Senge (1994) spoke of shared vision and of systems thinking in which people have a holistic view of the organization and understand the impact that each area has on all others in the organization. This coordination requires collaboration and supports innovation and flexibility.

Excessive conflict is a symptom that may indicate a lack of alignment between departmental and organizational goals. When departments strive to meet departmental goals at the expense of organizational goals, there may be inadequate horizontal coordination.

Conclusion

Organizational structure must identify a plan for responsibilities within the organization. These include reporting relationships and work groups. Structure must also align the elements of an organization to achieve a synergistic whole. Leaders can choose a vertical or horizontal structure for these purposes. Strictly vertical structures are not effective in today’s fast-paced, changing environment. In organizations today, most organizations are a hybrid of vertical and horizontal structure with teams, task forces, and coordination between departments.

References

Daft, R. (2013). Organizational theory and design (11th ed.). Mason, OH: South-Western.

John, S., & Gupta, S. (2012). Organizational theory and design. [Kindle version].

Kaplan, R. S. & Norton, D. P. (1996). Using the balanced scorecard as a strategic management system. Harvard Business Review, 74(1), 75-87.

Senge, P. (1994.) The fifth discipline: The art & practice of the learning organization. New York, NY: Currency Doubleday.

Simon, J. & Gupta, S. (2012). Organizational theory and design. [Kindle version].