Organizational Effectiveness

Katz and Kahn propose defining organizational effectiveness as 'the maximization of

return to the organization'. [1] There are several outlooks to measure organizational
effectiveness. It can be measured in terms of how well they fit with the external
environment, or how well they satisfy the needs of key stakeholders. Organizational
effectiveness can be broadly divided in four perspectives that have been discussed below
in detail. [2]

Open System Perspective:

Open systems perspective is the classical way of measuring organizational effectiveness.

In open system model the organization is treated as a system that interact with external
environment through feedbacks and outputs. Organizations need input such as human
resources, raw materials, etc. from the external environment. Organizations also comprise
of different sub-systems. There are process systems such as communication, appraisal;
there are different departments such as production, marketing; there are technology
systems such as information system, etc. All these subsystems transform inputs into
various outputs. Some of these outputs are desirable to the external environment such as
products and services and some are undesirable output such as pollution. Organizations
also receive feedback about their output (in the form of sales and market share) and
feedback about availability of inputs in the future. [2]

Organizations, which are accurately able to observe, predict and maintain a good fit with
the external environment are effective. Such organizations adapt to the changes in
external environment by changing its internal sub systems or by redesigning outputs. For
example, Morgan Stanley changed its appraisal systems, mission and vision to emphasize
more on cross-selling in order to adapt with the changing external environment. Some
organizations need to be more responsive and adaptive than others. For example, Mobile
phone manufacturing companies needs to incorporate the new technology and designs
into their newer models quickly. The faster they can incorporate and come up with new
features the more effective they are.

Organization Learning Perspective:

The classical perspective had its major focus on the how effectively inputs are getting
transformed into outputs. However the organic organizations of the modern world, where
most valued input are its employees such perspective fail to measure effectiveness
accurately. The talent and knowledge the organizations possess in the form of its
employees are the key drivers of competitive advantage in todays economy. Through
Knowledge Management outlook, organizational effectiveness depends on the
organizations capacity to acquire, use, share, and retain valuable knowledge. Distribution
of knowledge is also important among organizations. [2] For example Pixar deliberately
kept its cafeteria at the center so that people get more chance to interact and share
knowledge with all the employees rather than just within there team. Google is another
excellent example of learning organization. Its mandatory for employees to devote 20%
of there time to discover new knowledge. It has a cultural that encourages employees to
share information as part of their job. Google also encourages knowledge use by
encouraging its employees to apply its newfound knowledge.

A similar approach is being undertaken in Public Sector enterprises like SAIL, where the
enterprise has shifted its focus to in-house developmental activities. Earlier they relied on
later entry system but moving in line with international trends, now they favor growth
within the organization. [3]

High performance work practices (HPWP) perspective

High-performance work practices is one of the most valuable subsystem traits of

organizational effectiveness. Every organization has bundles particular to its
organizational structure, which it uses to gain competitive advantage over other firms.
HPWP perspective revolves around the idea of human capital- involving knowledge,
abilities and skills possessed by the employees. Human capital helps the organization to
better adjust to fluctuations in externalities, and create and utilize existing opportunities.
In addition, human capital is one resource, which cannot be easily replicated or
substituted. It is limited and unique. For example, a new entrant in a particular market
segment cannot expect to replicate the human capital of the existing market leader. It has
to come up with its own bundles to better utilize the potential of its employees. [2]

Although many work practices have been examined over the years, there are four basic
practices with enough research backing- job autonomy, employee involvement, employee
competence, and performance-based rewards.

The Indian PSUs have recently started to focus their attention towards strategic human
capital management. Their training programs cater to the need of increasing
competencies of their employees, and at the same time bringing about changes in
knowledge, skill and attitude. These factors, they believe, can help them sustain in the
highly competitive national and international environment. [3]

Stakeholder perspective

Generally organizations are so engrossed in handling internals factors and processes that
they do not pay enough attention to all the stakeholders. Stakeholders play a very integral
part in the organizations well being. Stakeholders include individuals and entities that
directly or indirectly affect or get affected by the goals and motives of the organization.
They include anyone who is somehow interested in the activities of the company-
shareholders, government, employees, labor unions, consumer, suppliers and
environmental interest groups. The basic idea behind shareholder perspective is that
organizations should keep track of how their activities affect others. [2]

Stakeholders have varied interests and agendas. Besides, stakeholders interests are
dynamic; they keep changing from time to time. In order to understand, manage and
satisfy the interests of stakeholders, it is very important for an organization to prioritize
since they cannot satisfy all stakeholders simultaneously at the same time. Prioritizing
generally involves satisfying the most powerful stakeholder but that may create problems
if the minor stakeholders form coalitions or seek the help of government.

As we see, human resource is an important component in all the perspectives to measure

organizational effectiveness. In the classical open-system perspectives, human resources
are important to have effective sub systems and to increase productivity. In Learning
perspective, its main focus is on knowledge management of employees. How employees
share and use their knowledge defines organizational effectiveness. High-performance
work practices perspective talk about human capital and the use specific bundles of
work practices to enhance their capability. It could be inferred that a well-groomed
human capital can help the organization to tackle externalities. Finally the stakeholder
perspective helps us to understand the causal-effect relationship among all entities
involved.

References
1. The Study of Organizational Effectiveness, James L. Price, The Sociological
Quarterly, Volume 13, Issue 1, pages 315, January 1972
2. Introduction to the Field of Organizational Behavior, McShane, S. and Von
Glinow, Organizational Behavior, 5th Ed., McGraw-Hill, pages 7-15, 2009
3. Talent Development process of CPSEs: A Reflection on Practices and
Requirements, Dipak Kumar Bhattacharyya, The Journal of Institute of Public
Enterprise, Volume 37, No. 3&4, 2014