Organizational effectiveness is defined as an extent to which an organization achieves its predetermined objectives with the given amount of resources and means without placing undue strain on its members.
Sometimes efficiency and effectiveness are used as synonyms. However, there exists a difference between the two concepts. Therefore, it is important to explain the difference between the concepts of effectiveness and efficiency to understand why organizations may be effective but not efficient, or efficient but not effective. Effectiveness is a broad concept and takes into account a collection of factors both inside and outside an organization. It is commonly referred to as the degree to which predetermined goals are achieved. On the other hand, efficiency is a limited concept that pertains to the internal working of an organization. It refers to an amount of resources used to produce a particular unit of output. It is generally measured as the ratio of inputs to outputs. Further, effectiveness concentrates more on human side of organizational values and activities whereas efficiency concentrates on the technological side of an organization.
Approaches to Organizational Effectiveness
However the concept of organizational effectiveness is not simple because there are many approaches in conceptualizing this term. Such approaches can be grouped into following three approaches:
- Goal Approach
Goal attainment is the most widely used criterion of organizational effectiveness. In goal approach, effectiveness refers to maximization of profits by providing an efficient service that leads to high productivity and good employee morale. Several variables such as quality, productivity, efficiency, profit, turnover, accidents, morale, motivation and satisfaction, which help in measuring organizational effectiveness. However, none of the single variable has proved to be entirely satisfactory.
The main limitation of this approaches the problem of identifying the real goals rather than the ideal goals.
- Functional Approach
This approach solves the problem of identification of organizational goals. Parson states that since it has been assumed that an organization is identified in terms of its goal, focus towards attainment of these goals should also aim at serving the society. Thus, the vital question in determining effectiveness is how well an organization is doing for the super-ordinate system.
The limitation of this approach is that when organizations have autonomy to follow its independent courses of action, it is difficult to accept that ultimate goal of organization will be to serve society. As such, it cannot be applied for measuring organizational effectiveness in terms of its contributions to social system.
Both the goal and functional approach do not give adequate consideration to the conceptual problem of the relations between the organization and its environment.
- System Resource Approach
System-resource approach of organizational effectiveness emphasizes on inter-dependency of processes that relate the organization to its environment. The interdependence takes the form of input-output transactions and includes scarce and valued resources such as physical, economic and human for which every organization competes.
The limitation of this model is that an acquisition of resources from environment is again related to the goal of an organization. Therefore, this model is not different from the goal model.
Thus, discussion of organizational effectiveness leads to the conclusion that there is no single indicator of effectiveness. Instead, the approach should focus on operative goals that would serve as a basis for assessment of effectiveness.
Managerial effectiveness is a causal variable in organizational effectiveness. It has been defined in terms of organizational goal-achieving behavior, i.e., the manager’s own behavior contributes to achievement of organizational goals.
Organizational Effectiveness Model
The organizational effectiveness model can be presented in a more complex way i.e. at three different levels such as the individual, group and organizational levels in order to make the organization more effective. The effective organization is built of effective individuals who work collectively in groups.
The extent to which individual and organizational goals are integrated, affects the degree of organizational effectiveness, i.e., each individual tries to satisfy his goal by working in an organization and simultaneously satisfying organizational goals. He may see his goal satisfaction in satisfying organizational goals. If there is no perfect integration of individual and organizational goals then organizational effectiveness is affected adversely. However, organizational effectiveness is not a result of integration between individual and organizational goals only but there are other causal variables affecting it.
Factors Affecting Organizational Effectiveness
Likert has classified the factors affecting organizational effectiveness into following three variables:
- Causal Variables: Causal variables are those independent variables that determine the course of developments within an organization and the objectives achieved by an organization. These causal variables include only those independent variables, which can be altered by organization and its management. Causal variables include organization and management’s policies, decisions, business and leadership strategies, skills and behavior.
- Intervening Variables: Intervening variables according to Likert are those variables that reflect the internal state and health of an organization. For example, loyalties, attitudes, motivations, performance goals and perceptions of all the members and their collective capacity for effective interaction, communication and decision-making.
- End-Result Variables: End-Result variables are the dependent variables that reflect achievements of an organization such as its productivity, costs, loss and earnings.
Inter-Relationship of Variables
The three variables such as causal, intervening and end-result ore interrelated. The inter-relationship may be visualized as psychological process where stimuli or causal variables acting upon the organism or intervening variables and creating certain responses or end-result variables. The causal, intervening and end-result variables comprise a complex network with many interdependent relationships. The causal variables are the key to organizational effectiveness. Hence, to make organization effective, attempt should be made to improve the causal variables, while other variables will be corrected or improved automatically because of causal variables.