ORGANIZATIONAL THEORY

ORGANISATIONAL EFFECTIVENESS

ESSAY

By :

Delfiera Cakti Oktaria 041511233039

Dyah Ayu Ratna Cantika 041511233076

Gadis Alif Widaningrum 041511233112

University of Airlangga

2017
 Measuring Organizational Effectiveness

Organizational effectiveness is critical to success in any economy. In order to achieve

increased and sustainable business results, organizations need to execute strategy and engage
employees. Organizational effectiveness can be defined as the efficiency with which an
association is able to meet its objectives. This means an organization that produces a desired
effect or an organization that is productive without waste.

Review of the organizational effectiveness (OE) literature, there is a number of study

especially reveal the criterions/dimensions of effectiveness (Etzioni, 1960; Yuchtman and
Seashore, 1967; Campbell, 1974; Connolly, Colon and Deutch, 1980; Quinn & Rohrbaugh, 1986,
1983; Edwards, 1986; Cameron, 1983, 1986; Quinn & Cameron, 1988).

Although Thorndike (1949) was the first to make note of the trend to measure
effectiveness by defining the statement of some ultimate criterion, Campbell (1974) identified
nineteen different variables used to measure effectiveness. The most commonly used univariate
measures include: (a) overall performance (measured by employee or supervisory ratings); (b)
productivity (actual output data); (c) employee satisfaction (self-report questionnaires); (d) profit
(accounting data); and (e) withdrawal (turnover or absenteeism data; Luthans et al., 1988, p.149).

There are many researches conducted by scholars. One of them is the study applied by
Reimann (1974, p.693-708). He decided to base the measure of the organization's relative
effectiveness on the perceptions of its top executives. In his study, executives were asked to rate
their organization's performance but on each of eight different criteria. The first two were the
financial criteria of average growth for the past five years in (a) sales and (b) profits. The six
non-financial indicators included: (a) the firm's ability to attract and retain high-level manpower,
(b) satisfaction and morale of employees, (c) quality of the firm's products, (d) service to
customers, (e) future growth potential (sales and/or profits), and (f) the rating which its
competitors would be expected to give the firm for its overall performance.
 Campbell et al. (1979 as cited in Adas, 1996) and Steers (1975, p.346-348), found many
variables that are being used as indicators of effectiveness that can be categorized into four types.
These include economic indicators such as profit, growth in sales or business volume; technical
indicators such as productivity, quality of products and services; organizational indicators such as
organizational flexibility and adaptation to changing environment, organizational control quality,
stability; and finally, social indicators such as turnover rate, absenteeism rate, satisfaction levels,
degree of conflicts between units in the organization, and workers' involvement, morale, and
participation.

Review of the literature does, however, reveal that organizational effectiveness

formulated as a competing values framework or model (Quinn & Rohrbaugh, 1981, 1983) has
provided an analytical framework for over 40 studies. In fact, its authors' claim of "general
paradigm" status is borne out to some degree by the extent of the model's use in organizational
and management studies. The competing values framework contains nine criteria or dimensions
of effectiveness (productivity efficiency, quality, cohesion, adaptability-readiness, information
management communication, growth, planning-goal setting, human resource development,
stability control), which have "prima facie" relevance to organizations in general.

Another is Thibodeaux & Favilla's study (1996, p.21-25). They found the concepts of
organizational effectiveness like; (a) planning and goal setting, (b) flexibility and adaptation, (c)
information management and communication, urgency, (d) productivity, quality, (e) morale,
value of human resources, (f) customer, conflict. Also, Harrison (1994 as cited in Adas, 1996)
grouped and classified the domains or criteria used to measure effectiveness into three types.
These are output-goals (goal-attainment, quantity of outputs, quality of outputs), internal systems
state (production/services costs, human outcomes, consensus/conflict, work and information
flow, interpersonal relations/culture, participation, fit), and adaptation & resource position
(resource-quantity, resource-quality, legitimacy, competitive-strategic position, impact on
environment, adaptiveness, innovativeness, fit).

Organizational effectiveness is about each individual doing everything they know how to
do and doing it well; in other words organizational efficiency is the capacity of an organization to
produce the desired results with a minimum expenditure of energy, time, money, and human and
material resources. The desired effect will depend on the goals of the organization, which could
be, for example, making a profit by producing and selling a product. An organization, if it
operates efficiently, will produce a product without waste. If the organization has both
organizational effectiveness and efficiency, it will achieve its goal of making a profit by
producing and selling a product without waste. In economics and the business world, this may be
referred to as maximizing profits. Therefore, an organization should establish an ideal goal to
become an appropriate measure of effectiveness.

How would managers operationalize the goal-attainment approach ? The key decision
makers would be the group from which the goals were obtain. After establishing organizations
specific goals, it would be necessary to develop some measurement device to see how well they
were being met. For example, the consensus goal was profit maximization, measures such as
return on investment, return on sales or some similar computation would be selected. Thus every
organization needs MBO (management by objectives). Management by Objectives is a
philosophy of management that assesses an organization and its members by how well they
achieve specific goals that have been jointly established. MBO represents the ultimate in a goal-
oriented approach to effectiveness.

The main measure of organizational effectiveness for a business will generally be expressed in
terms of how well its net profitability compares with its target profitability. Additional measures
might include growth data and the results of customer satisfaction surveys.
Highly effective organizations exhibit strengths across five areas: leadership, decision making
and structure, people, work processes and systems, and culture. For an organization to achieve
and sustain success, it needs to adapt to its dynamic environment. Evaluating and improving
organizational effectiveness and efficiency is one strategy used to help insure the continued
growth and development of an organization.
Measuring organizational effectiveness can be an inexact science, since each individual entity
will have a different list of criteria and priorities to weight and consider through self-assessment.
Understanding a company's level of organizational effectiveness is important for several reasons:
it serves as a check-in to see how well internal procedures are meeting an initial vision, it
provides investors, donors, or employees with an idea of the company's strengths, and it
highlights areas of ineffectiveness that can be the focus of improvements. In many cases, a
business' success or failure cannot be measured by financial performance as well. Even a
company that is currently making a profit may be ineffective if it is failing to meet the core
values of its mission statement, attract and retain talented workers, and plan for the next projects.
Organizational effectiveness measures the big-picture performance of a business, across a broad
range of criteria. Financial performance, long-term planning, internal structure, and adherence to
core values may all be critical components in understanding organizational effectiveness.
To get a clear idea of an organization's effectiveness, it is important to create a clear list of
criteria to assess. No two organizations will have the same list of criteria, which is why many
for-profit and non-profit groups measure effectiveness through self-assessment. Employees and
company personnel are often in the best position to intimately understand the needs, goals, and
performance of their company. Self-assessment of effectiveness can also help company
personnel reconnect with the initial mission of an organization. By working creatively to invent
new business strategies for areas of ineffectiveness, workers may develop a stronger sense of
loyalty, purpose.
Since organizational effectiveness is difficult to express in a concrete formula, a company may
choose to state the results of an assessment through specific goals achieved or desired. Turning
up areas of ineffectiveness can also be tremendously beneficial to an organization. Areas that
need improvement give a company a concrete strategy for the future, and allow workers,
shareholders, donors, or customers to get excited about the improvements coming down the
pipeline. Treating current weaknesses as a road map for future changes is a great way to increase
effectiveness.
Study Case : How Effective is The Body Shop ?

Questions :

1. Using the goal-attainment approach, the systems approach and the strategic-
constituencies approach, evaluate the effectiveness of The Body Shop.
Goal-attainment Approach
Based on goal-attainment approach, rather than to maximize profit, The Body Shop
has attained their own goals, which are to support products that are not tested on
animals, raise awareness of human rights, and support community trade.
The Systems Approach
Based on systems approach, The Body Shop is not so effectives in running their
organization, because Anita neglect the basic management, as stated, she conducted
no market researches, did not pay attention on advertising and marketing, had no
strategic plan. and so on. Because these subparts performed poorly, it negatively
affected the performance of the whole systems.
 customer, a shareholder, a senior manager, or Anita Roddick ?
3. How effective would you consider The Body Shop to be if you were a franchisee, a
Alliance with cosmetics Customer
Redesign the stores, better
New values and quality
New market shares: New products and services Market
Selling in new market
New structure
more creative and innovative
Leadership Brand
Innovative culture
Increase of the share price
Better communication
Products line and distribution
Financial
Refocus on retailing Perspectiv
Increase their satisfaction e
Reinvention of The Body Shop
Training of employees to be
Internal
Increase their market share all over the world Perspectiv
e
be a leader in natural products
have a better brand awareness
2. Using the balanced scorecard approach, draw up goals and measures for The Body Shop.
 If we were the franchisee, I'd Make the specific contract with The Body Shop, so
economically, we wont be disadvantaged materially.
If we were the customer, I'd love to buy and even loyal to The Body Shop because
the products are environment friendly.
If we were a shareholder, I won't invest at The Body Shop because it's not profitable.
If we were the senior managers, I'd learned about the system that implemented in The
Body Shop and might be fixed or changed the system that not fit with the nowadays
condition roomates is combine the business and environment factors for this case.
If we were Anita Roddick, we'd combined the business and environment factors for
this case.

4. From above observations, is it possible to come to a consensus about organizational

effectiveness? What other possible measures of organizational effectiveness can you
think of that may be universally applicable ?
We think that we could combine all the approaches. The Body Shop will be
succeeded if the owner, the managers, the shareholders, the franchisees, and the
customers has the same visions (-goal Attainment approach) by creating the right
systems and strategic agree that all the Doers (-systems & strategic contituencies
approach) and then, they could balanced all the aspects and the barriers so they could
reach Reviews their visions together.