Organizational Effectiveness And Operations Management Essay
A useful concept views an organization as a system of inputs, throughputs and outputs. Inputs (raw materials) are imported from the outside environment, transformed or modified (e.g., every day tons of steel are moulded into automobile bodies), and finally exported or sold back into the environment as outputs (finished products). Although there are a bewildering variety of inputs to organizations (energy, raw materials, information, etc.), people are the basic ingredients of all organizations and social relationships are the cohesive bonds that tie them together (Cascio, 1991, p.2).
Organizations can survive only if they operate effectively in the present and have the foresight and capability to anticipate and prepare for the future (Connors, 1979). An organizational effectiveness measure is appropriate to the extent that it provides a reading on the organization’s fitness for the future. Organizational fitness requires performance appropriate for the key constituencies and the important domains (Thompson, 1967 as cited in Hitt, 1988, p.34).
Zammuto (1984, p.610) explained that organizational effectiveness would appear to be the net satisfaction of all constituents in the process of gathering and transforming inputs into output in an efficient manner. He also emphasized to note this definition highlighted the combined utility of all parties in the acquisition and transformation of a product or service. It was also important to note that measures of organizational effectiveness were value based and time specific.
According to Jain & Triandis (1997) “OE is a vector that includes quantifiable and nonquantifiable outputs, and reflects the quality and the relationship of outputs to broad organizational goals and objectives” (as cited in Jain, 1997, p.43). Effectiveness for organizations can be defined in terms of the degree to which the organization achieves its stated goals (Price, 1972, p.6-13).
Thibodeaux & Favilla (1996, p.23) defined the organizational effectiveness as the extent to which an organization, by the use of certain resources, fulfilled its objectives without depleting its resources and without placing undue strain on its members and/or society.
Lok and Crawford (2000, p.111) characterized organizational effectiveness (OE) as how well goals and objectives are achieved. This approach is based on the ideas of goal theory and the assumption that organizations are rational and purposive entities. For instance, goal-setting theory supports the notion that agreement on goals and objectives between employers and employees leads to great OE and performance. The other main OE theory is systems theory, which is based on the measurement of inputs, processes, and outputs in relation to the internal and external environment.
Other approaches include shared value theory and stakeholder theory, both of which explicitly address OE. Each approach identifies dimensions, which potentially contribute to the overall effectiveness of an organization.
The construct domain of organizational effectiveness deals with criteria of effectiveness and their relationships. Goodman and Pennings (1980) believes that the importance of criteria for assessing effectiveness reflects the values or preferences influencing choices of criteria and the organizational model being used (as cited in Walton & Dawson, 2001, p.180-199). Also Van de Ven (1980) maintains that value judgements revolve around the goals and standards chosen in assessing effectiveness
(as cited in Walton & Dawson, 2001,p.180-199), whereas organizational models reflect mind maps about how organizations function. For example, an employee’s organizational model may depict a simple link between work and pay.
The Birth and Development of OE
Organizational effectiveness (OE) has been one of the most extensively researched issues since the early development of organizational theory (Rojas, 2000, p.101).
Organizational effectiveness has served as a unifying theme for more than a century of research on the management and organization design, yet no universal theory has been developed (Lewin & Minton, 1986, p.514). They also continued as;
“This concern with effectiveness, productivity, efficiency, or excellence, however, is not new. It has been a subject of lasting interest and has motivated the writings of economists, organization theorists, management philosophers, financial analysts, management scientists, consultants, and practitioners ever since Adam Smith published his treatise Wealth of Nations (1776), arguing that efficiency results from specialization and division of labour. The modern era of research on management theory (principles of management, organization behaviour, managerial leadership, organization theory, etc.) dates back to the Scientific Management movement and the publication by Taylor (1911) of Principles of Scientific Management.”
In the past, management has developed many ways for analyzing and controlling performance of the production, sales, engineering and other departments.
Normally, some forms of tangible measure is available. In production it may be the number of completed units per man-hour or departmental direct labour cost versus standard. In sales it may be sales department performance against a budgeted sales figure. Such practices have become standardized and accepted as essential guides to promote maximum performance and intelligent planning. They provide top management with periodic control over the functions which are being supervised directly by subordinate executives and establish a basis for measuring progress and taking corrective action. (Saltonstall, 1952, p.95)
Organisational theorists and researchers have commonly used employee satisfaction, effort or commitment (Cummings, 1980) as the keys to enhancing effectiveness, whereas those in policy look to strategic planning and structure interactions as a solution to increase effectiveness (Rumelt, 1974 as cited in Luthans et al., 1988, p.153). Also many with a financial perspective equate profit with effectiveness. (Kircoff, 1977, p.350- 355)
The classical management movement has two fundamental thrusts – scientific management and general administrative management. Scientific management centres on ways to improve productivity. Administrative management theory examines organizations as total entities and focuses on ways to make them more effective and efficient. The frame of reference normally used for the classical management movement runs from 1895 to around 1940. In recent years, there has been renewed interest in classical management theory as a method to cut costs, increase productivity and re examine organizational efficiency and effectiveness (Pindur et al, 1995, p.60).
Henri (2004, p.94-120) evoked the Soho Engineering Foundry in Great Britain was founded in 1796 by the inventors and developers of the steam engine. The management of the foundry was turned over to the sons, James Watt Jr. and Matthew Robinson Boulton, who systematically implemented several management techniques in order to provide effectiveness, including :
market research and forecasting,
planned machine layout and work-flow requirements,
planned site location,
production process standards, and
standardization of product components.
These traditional views primarily focus on the overall effectiveness of the organization. However, because of dynamic changes within organizations (for example, technological changes or a goal setting program), some organization theorists suggest that effectiveness should focus on the subunit level (Van de Ven & Ferry, 1980 as cited in Luthans et al., 1988, p.159-162). This is translated into better quality or more quantity of goods or services. This is especially true as today’s organizations attempt to become more competitive in the global marketplace (Luthans et al., 1988, p.159-162).
As organizations became increasingly international and global in nature, they have been facing greater level of competition day by day. Enhancing or improving an organization’s competitiveness and effectiveness has therefore gained increasing importance. Gertz and Baptista explained as;
“Competitive pressure is often initially met by a focus on cutting costs. Given slow revenue growth, heavy expenses, and limited time frames within which to improve profitability, cost cutting has been the most obvious solution to anomie at the bottom line” (1995, p.1, as cited in Pfeffer, 1997).
Organizational Effectiveness Models
Since the 1950s, numerous studies within the organizational theory literature have focused on understanding the concept of effectiveness. Initially focused on the achievement of goals (goal models), the OE models gradually considered the resources and processes necessary to attain those goals (system models) the powerful constituencies gravitating around the organization (strategic constituencies model) the values on which the evaluation of effectiveness are grounded (competing values model) and the absence of ineffectiveness factors as a source of effectiveness (ineffectiveness model; Henri, 2004, p.100-123).
Organizational effectiveness models are Gola Model, System Model, Strategic-
Constituencies Model, Competing-Values Model, Ineffectiveness Model and Constituency Model.
Goal Model: Goodman et al. explained that the traditional model relies on a vision of the organization as a rational set of arrangements oriented toward the achievement of goals (1977 as cited in Henri, 2004, p.103). Effectiveness is measured in terms of accomplishment of outcomes. (Etzioni, 1960, p.263) The focus is exclusively on the ends: achievement of goals, objectives, targets, etc.
System Model: The system model, while not neglecting the importance of the ends, emphasizes the means needed for the achievement of specific ends in terms of inputs, acquisition of resources and processes (Yuchtman and Seashore, 1967, p.891-903).
Strategic-Constituencies Model: This model broadens the scope of the two previous models by adding the expectations of the various powerful interest groups (the owners, employees, customers, suppliers, creditors, community and government) that gravitate around the organization (Connolly et al, 1980, p.211-219).
Competing-Values Model: The competing-values model constitutes a synthesis and an extension of the previous models It views the assessment of OE as an exercise grounded in values. Using organizational values as a starting point, three sets of competing values are arranged to form different definitions of effectiveness. (Quinn and Rohrbaugh, 1983, p.122-140)
Ineffectiveness Model: By focusing on the factors that inhibit successful organizational performance, this model evinces a different perspective by conceiving the organization as a set of problems and faults. Its basic assumption is that it is easier, more accurate, more consensual and more beneficial to identify problems and faults (ineffectiveness) than criteria of competencies (effectiveness). (Cameron, 1984, p.66-80)
Constituency Model: This model depicts organizations as “intersections of particular influence loops, each embracing a constituency biased toward assessment of the organization’s activities in terms of its own exchanges within the loop” (Connolly et
al., 1980, p.211-219)
Organizational Effectiveness Indicators
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).
Relationship between Organizational Effectiveness and Human Resources
Needless to say, people are the most important asset of nations, communities, organizations and institutions. Therefore, the role of citizens and employees who have the knowledge, skills, experience, motivation, commitment, and the willingness to use them for the betterment of their organizations cannot be overemphasized.
Most of the early reviews of the literature were published by notable industrial psychologists, such as Shartle (1950), Brown & Ghiselli (1952), and Harrell (1953 as cited in Ferris et al., 1999). As a consequence, these reviews tended to emphasize applied individual-level issues, such as employee testing, training and motivation.
Gilmer’s (1960) discussion of situational variables explicated the importance of matching personnel strategies with organizational strategies. Further, Gilmer invited researchers to design measures to assess the relationship between “individual personalities” and “company personalities” (1960 as cited in Ferris et al., 1999).
Some researchers have proposed that evaluations of effectiveness should be based on financial measures (e.g., profit) and for years, human resources issues have been secondary to such measures. Today, many CEOs agree that profit alone is not enough to hold the enthusiasm and loyalties of employees or to call attention to the vital elements of a business that must receive attention if it is to perform effectively (Watson, 1991 as cited in Zellars & Fiorito, 1999). Under the threat of exit (Hill & Jones, 1992), organizations now recognize that they must fulfil responsibilities to many constituencies (Baumhart, 1968; Clarkson, 1991 as cited in Zellars & Fiorito, 1999), including employees.
Mohrman & Lawler III, (1997) advocates that an organization is created in which the human resource management practices of the past no longer fit. Organizations are faced with a situation that cries out for new solutions to the thorny challenges of integrating business and people needs. Acquaah (2004) states that human resource management practices enhance organizational effectiveness and performance by attracting, identifying, and retaining employees with knowledge, skills, and abilities, and getting them to behave in a manner that will support the mission and objectives of the organization. Thus, the effectiveness of HRM practices depends on how it engenders the appropriate attitudes and behaviours in employees, in addition to its implementation.
Today, HR departments are expected to contribute to organizational performance (Ettore, et al. 1996; Fitz-enz, 1994; Mathes, 1993), and many organizations now believe that the success of the strategic management process largely depends on the extent to which the HR function is involved (Butler, et al. 1991 as cited
in Zellars & Fiorito, 1999). Increased employee involvement also entails increased exercise of discretion by employees.
Studies at the last decade (e.g., Arthur, 1994; Delery & Dory, 1996; Huselid,
1995; Huselid & Becker, 1996; Huselid, Jackson & Schuler, 1997 as cited in Dyer &
Shafer, 1998) have reported rather large effects on such outcomes as employee turnover, productivity, quality, profits, and even stock prices. Trouble is, for a variety of methodological reasons – including unreliable measures of HRM and OE, common method variance, poorly specified models, and cross-sectional rather than longitudinal research designs – these estimates strain credibility to the point of incredulity (Becker & Gerhart, 1996 as cited in Dyer & Shafer, 1998).
Over time, employees who feel neglected will seek alternatives and may withdraw either through increased absenteeism and turnover or decreased commitment. This may threaten the firm’s survival or at least hinder its success as other sources of competitive advantage such as scale economies and protected markets wane – “what remains as a crucial, differentiating factor is the organization, its employees, and how they work” (Pfeffer, 1994, p.14 as cited in Zellars & Fiorito, 1999).
Boxall (1996) suggested that human resource advantage (i.e., the superiority of one firm’s HRM over another) consisted of two parts. First, human capital advantage refers to the potential to capture a stock of exceptional human talent “latent with productive possibilities”. Human process advantage can be understood as a “function of causally ambiguous, socially complex, historically evolved processes such as learning, cooperation, and innovation.” A second task is to develop employees and teams in such a way as to create an organization capable of learning within and across industry cycles. Successful accomplishment of this task results in the organizational process advantage.
Jain (1997) emphasizes on the congruence of individual and organizational goals. If the individual’s activities are quite consistent with the activities and goals of the organization, this will result in a better organization than one in which individuals try to do “their own thing” and are not really concerned with what happens to the organization.
An effective organization needs to satisfy the needs of its workers by providing adequate inducements to sustain their required work contribution. It must also insure that the workers’ actions are controlled by goals and decision making processes (Adas, 1996, p.17). HRM practices contribute to firm performance by leveraging human capital, discretionary effort and desired attitudes and behaviours (e.g. Becker & Gerhart, 1996; Lado & Wilson, 1994; Wright et al, 1994).
It is important that a firm adopt HRM practices that make best use of its employees. This trend has led to increased interest in the impact of HRM on organizational performance, and a number of studies have found a positive relationship between so-called “high-performance work practices” (Huselid, 1995) and different measures of company performance. Furthermore, there is some empirical support for the hypothesis that firms, which align their HRM practices with their business strategy, will achieve superior outcomes (Bae & Lawler, 1999).
In their study, Ostroff & Schmitt (1993) found that both human resources and employee-oriented processes were important in explaining and promoting effectiveness. They also summarized that organizational theorists have proposed that the effort a worker was willing to put forth on behalf of an organization depended largely on the way the worker felt about the job, co-workers and supervisors. A positive internal environment, participation, and mutual trust (cited from Likert, 1967) were likely to promote employee satisfaction and positive attitudes, which might have resulted in workers producing up to potential, thereby increasing organizational effectiveness (Ostroff & Schmitt, 1993).
There are, of course, other studies that have examined the relationship between aggregated employee attitudes and organizational performance. For example, Denison (1990 as cited in Schneider et al., 2003) measured employee attitudes in 34 publicly held firms and correlated aggregated employee attitudes with organizational financial performance for 5 successive years after the attitude data were collected. He found that organizations in which employees reported that an emphasis was placed on human resources tended to have superior short-term financial performance. In addition, he reported that whereas organizations in which employees reported higher levels of participative decision-making practices showed small initial advantages, their financial performance relative to their competitors steadily increased over the 5 years.
Recent years have witnessed burgeoning interest in the degree to which human resource systems contribute to organizational effectiveness. Pfeffer (1994, 1998 as cited in Datta, Guthrie & Wright, 2005), for example, argued that success in today’s hypercompetitive markets depends less on advantages associated with economies of scale, technology, patents, and access to capital and more on innovation, speed, and adaptability. Pfeffer further argued that these latter sources of competitive advantage are largely derived from firms’ human resources. On the basis of these and similar arguments, Pfeffer (1994, 1998) and others (e.g., Kochan & Osterman, 1994; Lawler, 1992, 1996; Levine, 1995) have strongly advocated greater firm investments in highperformance or high-involvement human resource systems, which are systems of human resource (HR) practices designed to enhance employees’ skills, commitment, and productivity (as cited in Datta, Guthrie & Wright, 2005).
The human resource function can deliver immense value to corporations and to society by helping them to navigate the uncharted waters of the new era. If it can create human resource management systems that fit the new organizations designs that are appearing, the function can not only survive, it can thrive because it will make a major contribution to organizational effectiveness (Mohrman & Lawler III, 1997).
HRM practices elicit some behavioral outcomes in addition to the improvement of skills and abilities of employees. In fact, Pfeffer (1998) proposed that the following seven HRM practices are characteristic of successful organizations:
•€ Employment security.
•€ Selective hiring of new personnel.
•€ Self-managed teams and decentralization of decision making as the
basic principles of organization design.
•€ Comparatively high compensation contingent on organizational
•€ Extensive training.
•€ Reduced status distinctions and barriers, including dress, language,
office arrangements, and wage differences across levels.
•€ Extensive sharing of financial and performance information throughout
A source of sustained competitive advantage requires that a resource must be scarce and impossible to imitate (involving specific knowledge, skills, and abilities), and it must also generate value for the customer (Barney, 1991). As Lepak and Snell
(2002) pointed out, human capital was valuable to the extent that it contributed to a firm’s competitive advantage or core competence by improving efficiency and effectiveness, exploring opportunities, or neutralizing threats. It seems clear that the core employee should be “valuable” because the value of human capital is tightly related to it’s potential to contribute to core competence (Lepak & Snell, 1999; Wright & McMahan, 1992). Core assets are vital to competitive advantage, and their value is high, because other firms are willing to pay for them (Porter, 1985 as cited in Lopez- Cabrales et al., 2006). Also, Barney (1995) stated that firm resources were not valuable in a vacuum, but rather were valuable only when they exploited opportunities and/or neutralized threats”.
A growing body of evidence indicates that HR can be a value added function in organizations. The most important work on the relationship between firm performance and HR practices has been conducted by Becker and Huselid (1998). In their study of 740 corporations, they found that firms with the greatest intensity of HR practices that reinforce performance had the highest market value per employee. They go on to argue that HR practices are critical in determining the market value of a corporation and that improvements in HR practices can lead to significant increases in the market value of corporations. They conclude that the best firms are able to achieve both operational and strategic excellence in their HR systems.
Organizational outcomes, such as productivity, quality, and cycle time, appear from time to time, as do human resource outcomes such as employee morale and turnover. But, researchers rarely justify their choice of measures, and, indeed, a degree of eclecticism may not matter much so long as the primary goal is to demonstrate plausible potential effects from investing in HR activities and/or strategies (Dyer & Shafer, 1998).