Organizational effectiveness is the concept of how effective an organization is in achieving its goals. Every employee in a company contributes to organizational effectiveness. Taking into account skills, experience, motivation and rank, some employees play a bigger role than others. These are the people who contribute to the development of organization mainly with their knowledge.
There are three main historical concepts about the organizational effectiveness: of the American mechanical engineer Frederick Winslow Taylor (March 1856–March 1915); of the French mining engineer Henri Fayol (July 1841–November 1925); and of the Australian psychologist, sociologist and organization theorist George Elton Mayo (December 1880 – September 1949).
Frederick Taylor created a system he called scientific management, a form of industrial engineering that established the organization of work. His work moved management theory from early time-and-motion studies to the latest total quality control ideas. Taylor says that organizational effectiveness is determined by factors such as production maximization, cost minimization and technological excellence.
Henri Fayol developed a general theory of business administration. He suggests that there are five primary functions of management: planning, organizing, commanding, coordinating and controlling. Fayol defines organizational effectiveness as a function of clear authority and discipline within an organization.
Elton Mayo is known as the founder of the Human Relations Movement and with his research showing the importance of groups in affecting the behavior of individuals at work. Mayo says that organizational effectiveness is a function of productivity that results from employee satisfaction.
There are many ways to measure the effectiveness of an organization, which include different criteria such as productivity, profits, growth, turnover, stability and cohesion. Rational perspectives focus on the achievement of previously set goals and on output variables such as quality, productivity and efficiency. Natural system perspectives focus on the support goals of the organization such as employee satisfaction, morale and interpersonal skills. Open system perspectives focus on the exchanges with the environment; this includes information processing, profitability, flexibility and adaptability.
Effectiveness criteria also can be divided, depending on the goals set in time perspective, to short- term (up to one year), as well as medium and long-term. The short-term achievements that show an organization is effective include effectiveness in accomplishing its purposes; efficiency in the acquisition and use of scarce resources; and being a source of satisfaction to its owners, employees, clients and the society.
In achieving medium-term criteria, an effective organization must be adaptive to new opportunities and hurdles, as well as being capable of developing the abilities of its members and itself.
Longer term criteria (approximately five years) require that the effective organization should be capable of surviving in a world of uncertainties.
There are five main approaches in measuring organizational effectiveness, which include goal approach, internal process approach, system resource approach, constituencies approach and internal processes approach.
The goal approach measures the effectiveness of the ability of an organization to excel at one or more output goals. This is the most common effectiveness measurement approach. According to the goal approach, an organization is effective when it accomplishes its stated goals. This approach is most often applied when the set goals are clear, time bound and measurable. A hurdle to applying such an approach is that the goals can be difficult for defining and measuring, as organizations are not immune to ambiguity and measurement error.
According to the internal process approach effectiveness is the ability to excel at internal efficiency, coordination, motivation and employee satisfaction. This approach measures effort rather than the achieved effect. This type of efficiency measurement is an assessment of conformity of a given objective that can be decoupled from output performance.
The system resource approach defines effectiveness as the ability to acquire scarce and valued resources from the environment. It is preferred when there exists a clear connection between inputs and outputs.
Constituency approach measures the effectiveness of the ability to satisfy multiple strategic constituencies both within and outside the organization. This approach is very useful for organizations that depend highly on response to demands. Criteria depends on the constituency group. For owners the typical criteria would be the return on investment and profit growth, while for employees the criteria are compenzation, other benefits and job satisfaction. For clients the main criteria are satisfaction with the price, quality and service. Suppliers focus on payments and future sales, while creditors pay attention to credit payments.
According to the domain approach effectiveness is the ability to excel in one or more among several domains as selected by senior managers.