CHAPTER 7 Theories of Organizational Culture and Change Organi.docx

CHAPTER 7
Theories of Organizational Culture and Change
Organizational culture is the culture that exists in an
organization, something akin to a societal culture. It is
composed of many intangible phenomena, such as values,
beliefs, assumptions, perceptions, behavioral norms, artifacts,
and patterns of behavior. It is the unseen and unobservable
force that is always behind the organizational activities that can
be seen and observed. According to Kilmann and his colleagues
(1985), “Culture is to the organization what personality is to the
individual—a hidden, yet unifying theme that provides meaning,
direction, and mobilization.”
Since the 1980s, the literature on organizational change has had
a dominant theme— lasting organizational reform requires
changes in organizational culture. Organizational cultures that
reflect unwanted values, such as hierarchy, rigidity,
homogeneity, power based on authority and associations in
closed networks, and reliance on rules restrict flexibility and
can be formidable barriers to effecting lasting change (Cameron
& Quinn, 2011). Organizational members often hang onto
familiar “tried and true” beliefs, values, policies, and practices
of the organizational culture even when these “old ways” have
ceased to serve the organization well. The task is to replace
these with cultures where horizon- tal relations, open and
accessible networks, flexibility, responsiveness, individual and
group empowerment, diversity, and customer service are valued.
Advocates and advisers of organizational reform have shared a
commitment to increase organizational effectiveness,
competitiveness, flexibility, and responsiveness by changing
organizational cultures. “Command-and-control” cultures must
be replaced with cultures that encourage and support an
increasingly diverse workforce and employee participation and
empowerment approaches for individuals in work teams.
Therefore, understanding and appreciating the theory of

organizational culture—the organizational culture perspective—
as well as the existing culture of a particular organization, is
necessary for effecting lasting organizational change.
THE ORGANIZATIONAL CULTURE PERSPECTIVE
The organizational culture perspective is a set of theories with
their own assumptions about organizational realities and
relationships. It is yet another way of viewing, thinking about,
studying, and trying to understand organizations. Like power
and politics organization theory (Chapter 6), the assumptions,
units of analysis, research methods, and approaches of the
organizational culture perspective differ markedly from those of
the rational, “modern” structural, organizational economics,
and systems/environment theories.
292
Theories of Organizational Culture and Change 293
The organizational culture perspective challenges the basic
views of these more rational perspectives about, for example,
how organizations make decisions and how and why orga-
nizations—and people in organizations—act as they do.
In the classical, neoclassical, “modern” structural,
organizational economics, and systems/environment theories of
organization, organizations are assumed to be rational-
utilitarian institutions whose primary purpose is to accomplish
established goals. People in positions of formal authority set
goals. The primary questions for organization theory thus
involve how best to design and manage organizations so they
achieve their declared purposes effectively and efficiently.
The personal preferences of organizational members are
restrained by systems of formal rules, authority, and norms of
rational behavior. In a 1982 Phi Delta Kappan article, however,
Karl Weick argued that four organizational conditions must
exist for the basic assumptions of the rational theories to be
valid:
1. a self-correcting system of interdependent people; 2.
consensus on objectives and methods; 3. coordination achieved
through sharing information; and 4. predictable organizational

problems and solutions.
But, Weick concludes, these conditions seldom if ever exist in
large modern organizations. The organizational culture
perspective thus assumes that many organizational behaviors
and decisions are not determined by rational analysis. Instead,
they are, in effect, pre- determined by the deep patterns of basic
assumptions held by members of an organization. These patterns
of assumptions continue to exist and influence behaviors in an
organization because they have repeatedly led people to make
decisions that worked in the past. With repeated use, the
assumptions slowly drop out of people’s consciousness but
continue to influence organizational decisions and behaviors
even when the environment changes and different decisions are
needed. They become the underlying, unquestioned, but largely
forgotten, reasons for “the way we do things here”—even when
the ways may no longer be appropriate. They are so basic, so
ingrained, and so completely accepted that no one thinks about
or remembers them—thereby our claim that organizational
culture can be a
formidable barrier to effecting lasting organizational change. A
strong organizational culture can exert considerable influence
on organizational
behavior; for example, an organizational culture can block an
organization from making changes that are needed to adapt to
new market dynamics or new information technologies. From
the organizational culture perspective, systems of formal rules,
authority, and norms of rational behavior do not restrain the
personal preferences of organizational members. Instead, they
are controlled by cultural norms, values, beliefs, and
assumptions. To understand or predict how an organization will
behave under varying circumstances, one must know and
understand the organization’s patterns of basic assumptions—its
organizational culture.
Organizational cultures differ for several reasons. First, what
has worked repeatedly for one organization may not work for
another, so basic assumptions may differ. Second, an

organization’s culture is shaped by many factors, including, for
example, the societal culture in which it resides; its
technologies, markets, and competition; the profession of many
employees and executives, and the personality of its founder(s)
or dominant early leaders. Some organizational cultures are
more distinctive than others; some organizations
294 Theories of Organizational Culture and Change
have strong, unified, pervasive cultures, whereas others have
weaker or less pervasive ones; some organizational cultures are
quite pervasive, whereas others may have many subcul- tures
existing in different functional or geographical areas (Ott, 1989,
Chapter 4).
Knowledge of an organization’s structure, information systems,
strategic planning processes, markets, technology, goals, and so
forth can provide clues about an organization’s culture, but
not accurately or reliably. As a consequence, an organization’s
behavior cannot be understood or predicted by studying only
its structure and systems; its organizational culture must be
studied. And the positivist, quantitative, quasi-experimental
research methods favored by the “modern” structural,
organizational economics, and systems/environment schools
cannot identify or measure unconscious, virtually forgotten
basic assumptions. Yet, quantitative research using quasi-
experimental designs, control groups, computers, multivariate
analyses, heuristic models, and the like are the essential tools of
the rational schools. The organizational culture theories (along
with theories from the power and politics school) have
principally relied on qualitative research methods such as
ethnography and participant observation (Schein, 2006). In sum,
the organizational culture perspective believes that the
“modern” structural, organizational economics, and
systems/environment schools of organization theory are using
the wrong tools (or the wrong “lenses”) to look at the wrong
organizational elements in their attempts to understand and
predict organizational behavior.
ORIGINS OF THE ORGANIZATIONAL CULTURE

PERSPECTIVE
Essentially all the literature about the organizational culture
perspective has been published since 1980. Although phrases
such as organizational culture and culture of a factory can be
found in a few books on management written as early as the
1950s (for example, Elliott Jaques’s 1951 book, The Changing
Culture of a Factory, and William H. Whyte Jr.’s 1956 book
about conformity in business, The Organization Man), few
students of management or organizations paid attention to the
nature and content of organizational culture until the 1980s.
During the 1960s and early 1970s, several books and articles on
organizational and professional socialization processes received
wide attention. As useful as these earlier works were, they
assumed the presence of organizational or professional cultures
and pro- ceeded to examine issues involving the match between
individuals and cultures. Some of the more widely known of
these included Becker, Geer, Hughes, and Strauss’s analysis of
the processes used to socialize students into the medical
profession, Boys in White (1961); Herbert Kaufman’s
groundbreaking study of how the U.S. Forest Service developed
the “will and capacity to conform” among its remotely stationed
rangers, the 1960 study, The Forest Ranger (1960); Edgar H.
Schein’s “Organizational Socialization and the Profession of
Management” (1968); and John Van Maanen’s “Police
Socialization” (1975) and “Breaking In: Socialization to Work”
(1976).
ORGANIZATIONAL CULTURE AND SYMBOLIC
MANAGEMENT
The symbolic frame or symbolic management—an approach to
cultures in organizations—that had roots in Berger and
Luckmannn’s highly influential, Social Construction of Reality
(1967),
started to appear in the organization theory literature during the
late 1970s and reached full-bloom in the mid-1980s. Bolman
and Deal (2013) identify the basic tenets of symbolic

management as follows:
1. The meaning or the interpretation of what is happening in
organizations is more important than what is actually
happening.
2. Ambiguity and uncertainty, which are prevalent in most
organizations, preclude rational problem-solving and decision-
making processes.
3. People use symbols to reduce ambiguity and to gain a sense
of direction when they are faced with uncertainty.
In The Social Construction of Reality, Berger and Luckmann
defined meanings as “socially constructed realities” and thereby
paved the way for the symbolic frame. Things are not real in
and of themselves; the perceptions of them are, in fact, reality.
As W. I. Thomas (1923) wrote, “If people believe things are
real, they are real in their consequences.” According to the
organizational culture perspective, meaning (reality) is
established by and among the people in organizations—by the
organizational culture. Experimenters have shown that there is a
strong relationship between culturally determined values and
the perception of symbols. People will distort the perceptions of
symbols according to the need for what is symbolized (Davis,
1963). Thus, organizational symbolism is an integral part of the
organizational culture perspective.
The turning point in the acceptance of the organizational
culture/symbolic management perspective emerged suddenly
and swiftly between 1980 and 1984. Organizational culture and
symbolism became hot topics in publications aimed at
management practi- tioners and academicians, including Thomas
Peters and Robert Waterman Jr.’s 1982 best seller, In Search of
Excellence and its sequels; Terrence Deal and Allan Kennedy’s
1982 Corporate Cultures; Organizational Symbolism, by Pondy,
Frost, Morgan, and Dandridge; Fortune magazine’s 1983 story
“The Corporate Culture Vultures”; and Business Week’s May
14, 1984, cover story, “Changing a Corporate Culture.”
The first comprehensive, theoretically based, integrative
writings on organizational culture were published between 1984

and 1986, including Thomas Sergiovanni and John Corbally’s
Leadership and Organizational Culture (1984); Edgar Schein’s
pioneering Organizational Culture and Leadership (1985); Vijay
Sathe’s Culture and Related Corporate Realities (1985); the first
of Ralph Kilmann’s books, Gaining Control of the Corporate
Culture (1985); and the first edition of Gareth Morgan’s highly
influential book on organizational metaphors, Images of
Organization (1986).
REFORM MOVEMENTS REQUIRE CHANGES IN
ORGANIZATIONAL CULTURE
Many of the best-known organizational and management reform
movements of the past 35 years required changes in
organizational culture. A few notable examples include:
Total Quality Management (TQM) (Crosby, 1979, 1984;
Deming, 1986, 1993; Juran, 1992; Walton, 1986); Japanese
Management (Ouchi, 1981; Pascale & Athos, 1981); The Search
for Excellence (Peters & Waterman, 1982; Peters, 1987);
296
Theories of Organizational Culture and Change
Sociotechnical Systems or Quality of Work Life (QWL)
(Weisbord, 1991); Learning Organizations (Argyris, 1999;
Cohen & Sproull, 1996; Cook & Yanow, 1993; Senge, 1990);
Productivity Measurement/Balanced Scorecard (Berman, 2006;
Eccles, 1991; Kaplan & Norton, 1992, 1993, 1996); Reinventing
Government (Gore, 1993; Osborne & Gaebler, 1992);
Reengineering, Process Reengineering, or Business
Reengineering (Hammer & Champy, 1993); New Public
Management (NPM) (Fattore, Dubois, & Lapenta, 2012;
Kearney & Hays, 1998; Lane, 2000; Lynn, 2006; Patrick &
French, 2011; Pollitt, C. & G. Bouckaert, 2012); Performance
Management (Berman, 2006; Koliba, Campbell & Zia, 2011;
Kotter & Heskett, 2011; Newcomer & Caudle, 2011; Poister,
Pasha, & Edwards, 2013; Pollitt & Dan, 2013); Appreciative
Inquiry (Bushe, 1995; Cooperrider & Whitney, 2005)
All these reform movements have sought to increase
performance, productivity, flexibility, responsiveness,

accountability, and customer service by reshaping
organizational cultures. Empowered employees, work teams,
and outsourced contractors are granted autonomy and discretion
to make decisions. Work teams coordinate tasks and discipline
their own members. Policies, procedures, and layers of
hierarchy are eliminated. Accountability to bosses is replaced
by primary accountability to customers or clients. Data-based
information systems provide the information needed to
coordinate and correct actions in real time. Levels of middle
managers and supervisors are eliminated because they are not
needed, do not add value, cost too much, and get in the way of
empowered workers.
READINGS REPRINTED IN THIS CHAPTER
The first selection reprinted here is a chapter from the fourth
edition of Edgar H. Schein’s Organizational Culture and
Leadership (2011), “The Concept of Organizational Culture:
Why Bother?” Schein articulates a formal definition of
organizational culture that has gained wide—but not universal—
acceptance. His definition consists of a model with three levels
of culture that is particularly useful for sorting through myriad
methodological and substantive problems associated with
identifying an organizational culture. Schein also takes a unique
stand on behalf of using a “clinical” rather than an
“ethnographic” perspective for gaining knowledge about an
organization’s culture. He argues that an ethnographer seeks to
understand an organizational culture for “intellectual and
scientific” reasons, and organization members “have no
particular stake in the intellectual issues that may have
motivated the study.” Thus, the ethnographer must work to
obtain cooperation. In contrast, when clients call in an
“outsider” (a consultant) to help solve problems, “the nature of
the psychological contract between client and helper is
completely different from that between researcher and subject,
leading to a different kind of relationship between them, the
revelation of different kinds of data, and the use of different
criteria for when enough has been ‘understood’ to terminate the

inquiry.”
“Pyramids, Machines, Markets, and Families: Organizing
Across Nations,” by Geert Hofstede, Gert Jan Hofstede, and
Michael Minkov explains how organizational culture is
influenced by and partially reflects dimensions of national
cultures and how nationality affects organizational rationality.
[Organization] theories, models, and practices are basically
culture specific: they may apply across [national] borders, but
this should always be proved. The naïve assumption that man-
agement ideas are universals is not found in popular literature:
in scholarly journals ... the silent assumption of universal
validity of culturally restricted findings is frequent. Hofstede,
Hofstede, and Minkov caution against trying to export
organization and management practices and approaches without
understanding important dimensions of the national culture of
the receiving organization.
In the final reading reprinted in this chapter, “Appreciative
Inquiry” (2005), David Cooperrider and Diana Whitney assert
that Appreciative Inquiry (AI)
turns the practice of change management inside out. It proposes,
quite bluntly, that organizations are not, at their core,
problems to be solved.... Organizations are centers of vital con-
nections and life-giving potentials: relationships, partnerships,
alliances, and ever-expanding webs of knowledge and action
that are capable of harnessing the power of combinations of
strengths.... AI offers a positive, strengths-based approach to
organization development and change management.
Successful organizational improvement requires organizational
culture changes. The AI approach to organizational development
and change represents a conceptual reconfigu- ration of action
research (McNiff & Whitehead, 2006) based on a socio-
rationalist view of science that engages organizational members
in a process of appreciating and valuing “what could be” rather
than focusing on fixing existing problems and their causes.

Read Selection 32 (pg. 389) ("External Control of
Organizations: A Resource Dependence Perspective") in
Classics of Organization Theory by by Shafritz, Ott, and Jang.
32 External Control of Organizations: A Resource Dependence
Perspective Jeffrey Pfeffer & Gerald R. Salancik
... To understand the behavior of an organization you must
understand the context of that behavior—that is, the ecology of
the organization. This point of view is important for those who
seek to understand organizations as well as for those who seek
to manage and control them. Organizations are inescapably
bound up with the conditions of their environment. Indeed, it
has been said that all organizations engage in activities which
have as their logical con- clusion adjustment to the environment
(Hawley, 1950:3).
At first glance, this position seems obvious. An open-systems
perspective on organizations is not new (Katz and Kahn, 1966),
and it is generally accepted that contexts, organizational
environments, are important for understanding actions and
structures. One of the purposes of [this chapter] is to note that,
in spite of the apparent obviousness of this position, much of
the literature on organizations still does not recognize the
importance of context; indeed, there are some reasons why such
a neglect of contextual factors is likely to be maintained.
OVERVIEW
Most books about organizations describe how they operate, and
the existence of the organizations is taken for granted. This
book discusses how organizations manage to survive. Their
existence is constantly
in question, and their survival is viewed as problematic. How
managers go about ensuring their organization’s survival is
what this book is about.
Our position is that organizations survive to the extent that they
are effective. Their effectiveness derives from the management

of demands, particularly the demands of interest groups upon
which the organizations depend for resources and support. As
we shall consider, there are a variety of ways of managing
demands, including the obvious one of giving in to them.
The key to organizational survival is the ability to acquire and
maintain resources. This problem would be simplified if organi-
zations were in complete control of all the components
necessary for their operation. However, no organization is
completely self-contained. Organizations are embedded in an
environment comprised of other organizations. They depend on
those other organizations for the many resources they
themselves require. Organizations are linked to environments by
federations, associations, customer-supplier relationships,
competitive relationships, and a social-legal appara- tus
defining and controlling the nature and limits of these
relationships. Organizations must transact with other elements
in their environment to acquire needed resources, and this is
true whether we are talking about public organizations, private
organizations, smallorlargeorganizations,ororganizations which
are bureaucratic or organic (Burns and Stalker, 1961). ...
Excerpts from The External Control of Organizations: A
Resource Dependence Perspective by Jeffrey Pfeffer and Gerald
Salancik. Copyright © 1978 Harper and Row; 2003 by 1978 the
Board of Trustees of the Leland Stanford Jr. University. All
rights reserved. With the permission of Stanford University
Press, www.sup.org
389
390
Theories of Organizations and Environments
The fact that organizations are dependent for survival and
success on their environments does not, in itself, make their
existence problematic. If stable supplies were assured from the
sources of needed resources, there would be no problem. If the
resources needed by the organization were continually
available, even if outside their control, there would be no
problem. Problems arise not merely because organizations are

dependent on their environment, but because this environment
is not dependable. Environments can change, new organizations
enter and exit, and the supply of resources becomes more or less
scarce. When environments change, organizations face the
prospect either of not surviving or of changing their activities in
response to these environmental factors. ...
Both problems of using resources and problems of acquiring
them face organizations, but the use of resources always pre-
supposes their existence. A good deal of organizational
behavior, the actions taken by organizations, can be understood
only by knowing something about the organization’s
environment and the problems it cre- ates for obtaining
resources. What happens in an organization is not only a
function of the organization, its structure, its leadership, its
procedures, or its goals. What happens is also a consequence of
the environment and the particular contingencies and con-
straints deriving from that environment.
Consider the following case, described by a student at the
University of Illinois. The student had worked in a fast-food
restaurant near the campus and was concerned about how the
workers (himself) were treated. Involved in what he was
studying, the student read a great deal about self-actualizing,
theories of motivation, and the management of human resources.
He observed at the restaurant that workers would steal food,
make obscene statements about the boss behind his back, and
complain about the low pay. The student’s analysis of the
situation was a concise report summarizing the typical human
relations palliatives: make the bor- ing, greasy work more
challenging and the
indifferent management more democratic. The student was
asked why he thought management was unresponsive to such
sug- gestions. He considered the possibility that management
was cruel and interested only in making a profit (and the
operation was quite profitable). He was then asked why the
employees permitted management to treat them in such a
fashion—after all, they could always quit. The student

responded that the workers needed the money and that jobs were
hard to obtain.
This fact, that the workers were drawn from an almost limitless
labor pool of students looking for any kind of part-time
employment was nowhere to be found in the student’s
discussion of the operation of the restaurant. Yet, it was
precisely this characteristic of the labor market which permitted
the operation to disregard the feelings of the workers. Since
there were many who wanted to work, the power of an
individual worker was severely limited. More critical to the
organization’s success was its location and its ability both to
keep competition to a minimum and to maintain a steady flow of
supplies to serve a virtually captive market. If the workers
were unsatisfied, it was not only because they did not like the
organization’s policies; in the absence of any base of power and
with few alternative jobs, the workers had neither the option of
voice nor exit (Hirschman, 1970).
More important to this organization’s success than the
motivation of its workers was its location on a block between
the campus and dormitories, the path of thou- sands of students.
Changes in policies and facilities for housing and transportation
of students would have a far greater effect than some
disgruntled employees. Our example illustrates, first, the
importance of attending to contextual variables in understanding
organizations, but also that organizational survival and success
are not always achieved by making internal adjustments.
Dealing with and managing the environment is just as important
a component of organizational effectiveness.
External Control of Organizations: A Resource Dependence
Perspective 391
A comparison of the phonograph record and the pharmaceutical
industries (Hirsch, 1975) illustrates this point more directly.
These two industries, Hirsch noted, are strikingly different in
profitability. This difference in profits is more striking
because the industries in many ways are otherwise similar: both

sell their products through intermediaries, doctors in the case of
phar- maceuticals, disc jockeys in the case of records; both
introduce many new products; both protect their market
positions through patent or copyright laws. What could account
for the difference in profit? Hirsch argued that the pharmaceuti-
cal industry’s greater profits came from its greater control of its
environment; a more concentrated industry, firms could more
effectively restrict entry and manage distribution channels.
Profits resulted from a favorable institutional environment.
Aware of the importance of the institutional environment for
success, firms spent a lot of strategic effort maintaining that
environment. They would engage in activities designed to
modify patent laws to their advantage and in other efforts to
protect their market positions.
The Environment as Treated in the Social Sciences The social
sciences, even if not frequently examining the context of
behavior, have long recognized its importance. The demog-
raphy of a city has been found to affect the particular form of
city government used, and particularly the use of a city manager
(Kessel, 1962; Schnore and Alford, 1963). Some political
economists have argued that party positions are developed with
reference tothedistributionofpreferencesforpolicies in the
population (e.g., Davis and Hinich, 1966), which means that
political platforms are affected by context. The importance of
external influences on individual vot- ing behaviors has been
recognized, while participation in political activities, as well as
other forms of voluntary associations, is also partially
determined by the context,
particularly the demographic and socioeco- nomic dimensions
of the community.
As in the case of political science, some theorists writing about
organizational behavior have recognized that the organi-
zation’s context shapes the activities and structures of formal
organizations. Katz and Kahn (1966) argued for the necessity of
viewing organizations as open systems, and Perrow (1970)
forcefully illustrated the analytical benefits to be gained by

considering the environment of the organization in addition to
its internal operating characteristics. Bendix (1956) showed
how ideologies shaped the use of authority in organizations, and
Weber (1930) proposed a theory of economic development that
held the religion of a country to be critical. He suggested that
the development of mercantile capitalism depended on a legiti-
mating ideology which stressed hard work and delayed
gratification, such as that provided by Protestantism, as
contrasted with Catholicism.
Economists were even more explicit in giving critical
importance to the context of organizations, but they tended to
take the environment as a given. Competition is a critical
variable distinguishing between the applicability of models of
monopoly, oligopoly, imperfect competition, or per- fectly
competitive behavior. The study of oligopoly is explicitly the
study of interor- ganizational behavior (e.g., Fellner, 1949;
Phillips, 1960; Williamson, 1965). And, the study of antitrust
policy implicitly recognizes the fact that organizations do
make efforts to limit or otherwise manage the competitiveness
of their environments.
In recent years, it has become fashion- able for those writing
about management and organizations to acknowledge the
importance of the open-systems view and the importance of the
environment, particularly in the first chapter or in a special
section of the book. Except for some special terminology,
however, the implications of the organization’s context for
analyzing and managing organizations remains undevel- oped. .
. . ` Prescriptions for, and discussions
392
of, the operation of organizations remain predominantly
concerned with the internal activities, organizational
adjustments, and the behavior of individuals.
INTERNAL VERSUS EXTERNAL PERSPECTIVES ON
ORGANIZATIONS
The interest in intraorganizational phenomena is not difficult

to understand. First, internal processes are the most visible.
Walking into any organization, one finds people who are
involved in a variety of activities important to the performance
of the organization. As Perrow (1970) aptly noted, at first
glance, the statement that organizations are, after all, composed
of people is patently obvious.... People inside the organization
are visible, accessible, and willing to express their opinions.
They are a convenient, if not always adequate, research focus.
In addition to convenience, attention to intraorganizational
phenomena is fostered by a cognitive bias to attribute causality
to the actions of individuals. Research on the behavior of
individuals asked to select caus- ative factors suggests that
while actors and participants in an event tend to attribute the
outcome to situational factors, observers tend to interpret
outcomes as the result of the personal motivation and
capabilities of the actors (Jones and Nisbett, 1971). The
observers of organizations and organizational behavior share
this bias. In one recent illustration of this phenomenon
(Wolfson and Salancik, 1977), individuals were given the task
of controlling an electric car as it traveled over a model track.
Unknown to the individuals, their performance was controlled
by alterations in the amount of electrical power reaching
various sections of the track. All the actual subjects were
motivated to do well, but observers tended to see a performer’s
success as reflecting the amount of effort expended. In fact, it
was the result of the experimenter’s manipulation of electricity.
...
Kelley (1971) perceptively noted that attributions are guided
not only by the desire to be correct, but also to provide a
feeling of control over situations. Clearly, by attributing
outcomes to individual action, the observer has a theory of
behavior that implies how to control outcomes. When one does
not like what is going on, the simple solution is to replace the
individual or change the activities. When, on the other hand, a
model is used which attributes causality to contextual factors,
one faces a much more difficult task in altering activities or

outcomes. Therefore, the feelings of control that derive from
attributing organizational actions to individuals reinforce the
perceptual and cognitive biases, tending to produce a consistent,
self-reinforcing system of perception and attribution that
empha- sizes the importance of individual action. ...
The Importance of Individuals in Organizations The basic,
important question of how much of the variance in
organizational activities or outcomes is associated with context
and how much with individuals has been infrequently
addressed. Pfeffer (1977) noted various theoretical reasons for
expecting that individuals would have less effect on
organizational outcomes than would an organization’s context.
First, he argued that both personal and organizational selection
processes would lead to similarity among organizational
leaders. This means that there is a restriction on the range of
skills, characteristics, and behaviors of those likely to achieve
positions of importance in organizations. Second, even when a
relatively promi- nent position in the organization has been
achieved, the discretion permitted to a given individual is
limited. Decisions may require the approval of others in the
organization; information used in formulating the decisions
comes from others; and persons may be the targets of influence
attempts by others in their role set—these social influences
further constrain the individual’s discretion. Finally, it is
simply the case that many of the things that affected
organizational results are not controlled by organizational
participants. In the case of business firms, the economic
Perspective 393
cycle, tariff and other regulations, and tax policies are either
not subject to control by
theorganizationorarecontrolledonlyindi- rectly through
persuasion. In school districts, budgets and educational
demands, which are largely a function of state legislative
action, local economic growth, and demographic factors are

largely outside the control of the district administration.
Considering all these factors, it is not likely administrators
would have a large effect on the outcomes of most
organizations.
In a study of 167 companies, Lieberson and O’Connor (1972)
attempted to partition variance in sales, profit, and profit
margin to the effects of year (economic cycle), industry,
company, and finally, administrators. While the estimate of
administrative impact varied by industry and was largest in the
case of profit margin, the magnitude of the administrative
effect was dwarfed by the impact of the organization’s industry
and the stable characteristics of a given organization.
Extending this perspective, Salancik and Pfeffer (1977)
examined the effects of mayors on city budget categories for a
sample of 30 United States cities. These authors found that the
mayoral impact was greatest for budget items such as parks and
libraries not directly the subject of powerful interest-group
demands, but that, in general, the mayor accounted for less than
10 percent of the variation in most city budget expenditures.
The conditions under which there would be more or less
administrative effect is an important issue, and the theoretical
perspective developed in this book will suggest some answers.
But, it is fair to state that, based on the presently available
research evidence, there is much less evidence for profound
administrative effects than is reflected in the predominance of
an internal orientation in the literature on organizations.
BASIC CONCEPTS FOR A CONTEXTUAL PERSPECTIVE
...In the remainder of this chapter, we will briefly describe a
number of key concepts
that develop this perspective. These concepts will assist in
bringing coherence to the large body of work on organization
and environment and will provide us with the tools for
systematically understanding the effect of environments on
organizations and the effect of organizations on environments.

Perspective 393
cycle, tariff and other regulations, and tax policies are either
not subject to control by
theorganizationorarecontrolledonlyindi- rectly through
persuasion. In school districts, budgets and educational
demands, which are largely a function of state legislative
action, local economic growth, and demographic factors are
largely outside the control of the district administration.
Considering all these factors, it is not likely administrators
would have a large effect on the outcomes of most
organizations. In a study of 167 companies, Lieberson and
O’Connor (1972) attempted to partition variance in sales, profit,
and profit margin to the effects of year (economic cycle),
industry, company, and finally, administrators. While the
estimate of administrative impact varied by industry and was
largest in the case of profit margin, the magnitude of the
administrative effect was dwarfed by the impact of the
organization’s industry and the stable characteristics of a
given organization. Extending this perspective, Salancik and
Pfeffer (1977) examined the effects of mayors on city budget
categories for a sample of 30 United States cities. These authors
found that the mayoral impact was greatest for budget items
such as parks and libraries not directly the subject of powerful
interest-group demands, but that, in general, the mayor
accounted for less than 10 percent of the variation in most city
budget expenditures. The conditions under which there would
be more or less administrative effect is an important issue, and
the theoretical perspective developed in this book will suggest
some answers. But, it is fair to state that, based on the presently
available research evidence, there is much less evidence for
profound administrative effects than is reflected in the
predominance of an internal orientation in the literature on
organizations. BASIC CONCEPTS FOR A CONTEXTUAL
PERSPECTIVE ...In the remainder of this chapter, we will
briefly describe a number of key concepts that develop this

perspective. These concepts will assist in bringing coherence
to the large body of work on organization and environment and
will provide us with the tools for systematically understanding
the effect of environments on organizations and the effect of
organizations on environments. Organizational Effectiveness
The first concept is organizational effectiveness. ... The
effectiveness of an organization is its ability to create
acceptable outcomes and actions. It is important to avoid con-
fusing organizational effectiveness with organizational
efficiency, a confusion that is both widespread and more a real
than a semantic problem. The difference between the two
concepts is at the heart of the external versus internal
perspective on organizations. Organizational effectiveness is
an external standard of how well an organization is meeting
the demands of the various groups and organizations that are
concerned with its activities. When the automobile as a mode of
transportation is questioned by consumers and governments, this
is an issue of the organizational effectiveness of automobile
manufacturers. The most important aspect of this concept of
organizational effectiveness is that the acceptability of the
organization and its activities is ultimately judged by those
outside the organization. As we shall see, this does not imply
that the organization is at the mercy of outsiders. The
organization can and does manipulate, influence, and create
acceptability for itself and its activities. The effectiveness of an
organization is a sociopolitical question. It may have a basis in
economic considerations, as when an individual declines
purchase of a product because it is priced too high. The concept
is not restricted, however, to decisions that are economically
motivated. Rather, it reflects both an assessment of the use-
fulness of what is being done and of the resources that are being
consumed by the organization.
394
Organizational efficiency is an internal standard of

performance. The question whether what is being done should
be done is not posed, but only how well is it being done.
Efficiency is measured by the ratio of resources utilized to
output produced. Efficiency is relatively value free and inde-
pendent of the particular criteria used to evaluate input and
output. Because efficiency involves doing better what the
organization is currently doing, external pressures on the
organization are often defined internally as requests for greater
efficiency... .
The difference between efficiency and effectiveness can be
illustrated easily. In the late 1960s, Governor Ronald Reagan of
California curtailed the amount of money going to the state
university system. He was concerned that state university
campuses, particularly Berkeley, were indoctrinat- ing students
in radical, left-wing ideas. In response to these political
pressures and to forestall further budget cuts, the adminis-
trators attempted to demonstrate that they were educating
students at an ever lower cost per student. Not surprisingly, this
argument had little impact on the governor; indeed, it missed
the point of his criticism. Producing revolutionaries at lower
cost was not what the governor wanted; rather, he questioned
whether the universities produced anything that justified
giving them state funds.
Organizational Environment
The external basis for judging organizational effectiveness
makes the concept of environment important. The concept of
environment, however, is elusive. In one sense, the environment
includes every event in the world which has any effect on the
activities or outcomes of the organization. Primary schools are
a part of other organizations’ environment. Thus, when primary
schools fail to teach reading and grammar properly, some
organizations may be affected more than others. An organiza-
tion which does not require people to read as part of their task
may be minimally affected.
Other organizations may feel profound effects, as in the case of

universities which found themselves spending more and more
resources teaching basic reading, grammar, and mathematics
skills. Even more affected were publishers, who found it
necessary to rewrite many of their textbooks at a sev- enth- or
eighth-grade reading level. The Association of American
Publishers had to revise the pamphlet “How to Get the Most Out
of Your Textbook” because the college students for whom it
was written could not understand it.
Although one can conceive of an organization’s environment
as encompassing every event that affects it, doing so would not
be useful for understanding how the organization responds.
Every event con- fronting an organization does not necessarily
affect it. A baking company which has a large inventory of
sugar will be less affected by changes in the price of sugar than
one which must purchase supplies on the open market
continually. Thus, one reason why elements of an environment
may have little impact is that the organization is isolated or
buffered from them. A second reason why organizations do not
respond to every event in the environment is that they do not
notice every event, nor are all occurrences important enough to
require a response. The term “loosely coupled” has been used to
denote the relationship between elements in a social system,
such as those between organizations. The effects of
organizations on one another are frequently filtered and
imperfect (March and Olsen, 1975; Weick, 1976). Loose-
coupling is an important safety device for organizational
survival. If organizational actions were completely determined
by every changing event, organizations would constantly con-
front potential disaster and need to monitor every change while
continually modifying themselves. The fact that environmental
impacts are felt only imperfectly provides the organization with
some discretion, as well as the capability to act across time
horizons longer than the time it takes for an environment to
change.
395

Perspective 395
Perhaps one of the most important influences on an
organization’s response to its environment is the organization
itself. Organizational environments are not given realities; they
are created through a process of attention and interpretation.
Organizations have information systems for gathering,
screening, selecting, and retaining information. By the existence
of a department or a position, the organization will attend to
some aspects of its environment rather than others.
Organizations establish subunits to screen out information and
protect the internal operations from external influences.
Organizational perception and knowledge of the environment
is also affected because individuals who attend to the
information occupy certain positions in the organization and
tend to define the information as a function of their position. If
the complaint department is located in the sales division, the
flow of information may be interpreted as problems with the
marketing and promotion of the product. If it is located in the
public relations department, the complaints may be seen as a
problem in corporate image. If the function were located in the
production department, the complaints might be interpreted as
problems of quality control or product design. Since there is no
way of knowing about the environment except by interpreting
ambiguous events, it is important to understand how
organizations come to construct perceptions of reality.
Organizational information systems offer insight to those
seeking to analyze and diagnose organizations. Information
which is not collected or available is not likely to be used in
decision making, and information which is heavily represented
in the organization’s record keeping is likely to emphatically
shape decisions. Some organizations, such as Sears, collect
information on a regular basis about worker opinions and
morale, while others do not. It is inevi- table that those
organizations not collecting such information will make
decisions that do not take those factors into account.
Information systems both determine what

will be considered in organizational choice and also provide
information about what the organization considers important....
Information, regardless of its actual validity, comes to take on
an importance and meaning just because of its collection and
availability.
The kind of information an organization has about its
environment will also vary with its connections to the
environment. Organizational members serve on boards of
directors, commissions, and are members of clubs and various
other organizations. By sending representatives to governmental
hearings or investigatory panels, organizations learn about
policies that may affect their operations. Research personnel in
industry maintain regular contacts with university research
projects that may result in knowledge vital to their interests. In
one instance, the director of research for the Petroleum
Chemicals Research Division of the Ethyl Corporation, a major
producer of lead additives for gasoline, made a personal visit to
a university research group one month after it had received a
large grant to study the impact of lead in the environment
(Salancik and Lamont, 1975). Ethyl had learned of the project
from contacts in the government. As the project’s major
objective was to determine the impact of lead on the
environment so that policies regarding the manufacture, sale,
and distribution of lead might be assessed, the project was of
obvious concern to Ethyl.
How an organization learns about its environment, how it
attends to the environment, and how it selects and processes
information to give meaning to its environment are all
important aspects of how the context of an organization affects
its actions.
Constraints
A third concept important for understanding organization-
environment relationships is constraint. Actions can be said to
be constrained whenever one response to a given situation is
more probable than any

396
other response to the situation, regardless of the actor
responding. That is, constraint is present whenever responses
to a situation are not random. A person driv- ing down a city
street will tend to drive between 25 and 35 miles per hour. The
same person on a state or federal highway will tend to drive
between 50 and 65 miles per hour. Whatever the reason, the fact
that behavior—of drivers, for example—is not random or, in
other words, is somewhat predictable suggests that something is
con- straining behavior in these situations.
Constraints on behavior are often considered to be
undesirable, restricting creativ- ity and adaptation. However, in
most cases action is not possible without constraints, which can
facilitate the choice and decision process. Consider an
undergraduate student attempting to decide on a course of study
for a given semester. At a large university, there
maybehundredsofcourses,andiftherewere no constraint, literally
millions of possible program combinations could be
constructed. Deciding among these millions of programs would,
of course, be difficult and time con- suming, if not impossible.
Fortunately, program choices are constrained. First, there may
be a limit on the number of courses a student is allowed to take,
and then, there is the constraint of not being able to be in two
places at the same time. A third constraint is that some courses
are defined as being appropriate for certain categories of
student, such as graduate courses or freshman courses, while
others have necessary prerequisites that limit their being
chosen. Further constraints are added by general university
requirements, and then, requirements particular to the stu-
dent’s own department and chosen degree program. Thus, out of
millions of possible programs of study, only a few options will
be feasible, permitted by all the various constraints. Instead of
facing a difficult information-processing task, the student need
choose only among a very limited set of alternatives.

Behavior is almost inevitably constrained—by physical
realities, by social influence, by information and cognitive
capacity, as well as by personal preferences.
And, in many cases, constraints can be manipulated to promote
certain behaviors. In the study of human behavior, when an
experimenter designs an experimental situation, he
presupposes that he has imposed enough constraints on the
situation so that most individuals will behave as he predicts. In
a similar fashion, the behavior of larger social units, such as
groups and formal organizations, is generally constrained by
the interests of others—governments, consumers, unions,
competitors, etc.
The concept of constraint explains why individuals account for
relatively little variance in the performance and activities of
organizational systems. Every individual operates under
constraint. Even leaders are not free from it. In a recent study of
leadership behavior in an insurance company, it was found
that the extent to which supervisors were able to do as their
workers wanted was inversely related to the extent to which
the supervisors were constrained by other departments
(Salancik et al., 1975). Supervisors forced to coordinate and
meet the demands of other departments had to behave in ways
necessary to meet those demands; they did not have the
opportunity to satisfy the desires of their subordinates. The
point is that behaviors are frequently constrained by situational
contingencies and the individual’s effect is relatively small.
THE ROLE OF MANAGEMENT
We have emphasized the importance of contexts, or situational
contingencies, as determinants of organizational behavior. We
have attempted to question the internal perspective of
organizational functioning and the concomitant belief in the
omnipotence of individual administrative action. We have not,
however, defined the role of the manager out of existence. It is
important to conclude this introductory chapter by making
explicit our view of the role of the manager within the
theoretical perspective we are developing.

397
Perspective 397
The Symbolic Role of Management
As has been noted by others (e.g., Kelley, 1971; Lieberson and
O’Connor, 1972), individuals apparently desire a feeling of
control over their social environments. The tendency to attribute
great effect to individual action, particularly action taken by
persons in designated leadership positions, may be partially
accounted for by this desire for a feeling of personal effec-
tiveness and control. Thus, one function of the leader or
manager is to serve as a symbol, as a focal point for the
organization’s successes and failures—in other words, to
personify the organization, its activities, and its outcomes. Such
personification of social causation enhances the feeling of
predictability and control, giving observers an identifiable,
concrete target for emotion and action....
The symbolic role of administrators is, occasionally,
constructed with elaborate ritual and ceremony. The
inauguration of the president is an uncommon event invested
with pomp and expectation. This even though three months
earlier both voters and commentators were saying that there was
no difference between the can- didates. The ritual, however, is
necessary.
Why organizations vary in the ritual they associate with their
offices of power is little understood. One possibility is that
more care and trouble is taken in selecting and installing
organizational leaders when they do have influence. Another
possibility is just the reverse. The very impotence of leader-
ship positions requires that a ritual indicat- ing great power be
performed. People desire to believe in the effectiveness of
leadership and personal action. When, in fact, administrators
have only minor effects, it might be plausibly argued that ritual,
mythology, and symbolism will be most necessary to keep the

image of personal control alive. When the administrator really
does make a difference and really does affect organizational
performance, his effect will be obvious to all and there will be
little need to make a show of power and control. It is only when
the administrator makes little or no
difference that some symbol of control and effectiveness is
needed.
It is interesting to note that the ritual of the inauguration of
American presi- dents has grown over time as the executive
bureaucracy has grown. The president personally probably has
come to have less and less effect on the basic operations of
government, while the rituals associated with the office have
increased in scope and grandeur.
That managers serve as symbols is not to deny their importance.
Important social functions are served by the manipulation of
symbols. The catharsis achieved by firing the unsuccessful
football coach or the company executive, or by not reelecting
some political figure, is too real to dismiss as unimportant.
Those who remain in the organization are left with the hope that
things will be improved. And, belief in the importance of
individual action itself is reinforced—a belief which, even if
not completely true, is necessary to motivate individuals to act
at all.
The manager who serves as a symbol exposes himself to
personal risks. He is accountable for things over which he has
no control, and his personal career and fortunes may suffer as a
consequence. The sportscasters’ cliche that managers are hired
to be fired reflects a great amount of truth about all managers.
One of the reasons for having a manager is to have someone
who is responsible, accountable for the organization’s
activities and outcomes. If the manager has little influence
over these activities or outcomes, it is still useful to hold him
responsible. His firing itself may permit loosening some of the
constraints facing the organization.
Since most organizational researchers have assumed that
managers were the critical element in actual organizational

outcomes, the symbolic role of management has been virtually
neglected, except for the brief mention by Mintzberg (1973).
We would argue that this is one of the more important
functions of management, deserving of more explicit empirical
attention.
398
The Possibilities of Managerial Action
Saying that managers are symbols to be held accountable does
not suggest many purposeful actions for them; yet, there are
many possibilities for managerial action, even given the
external constraints on most organizations. Constraints are not
predes- tined and irreversible. Most constraints on
organizational actions are the result of prior decision making or
the resolution of various conflicts among competing interest
groups. For instance, the requirement for companies doing
business with the government to develop (and, possibly,
implement) affirmative action hiring plans for recruit- ing
minorities and women did not suddenly materialize. This
constraint has a lengthy history and resulted from the
interaction of a variety of groups and individuals. The fact that
a constraint exists indicates that sufficient social support has
been mustered to bring it into existence. In the social context of
organizations, behind every constraint there is an interest group
that has managed to have that constraint imposed. Since this is
the case, the constraint is potentially removable if it is possible
to organize the social support and resources sufficient to
remove it.
The social context of an organization is, itself, the outcome of
the actions of social actors. Since many constraints derive from
the actions of others, one important function of management is
influencing these others as a means of determining one’s own
environment. Organizations frequently operate on their
environments to make them more stable or more munificent.
One function of management, then, is to guide and control this

process of manipulating the environment. Much of this book
will describe just how organizations attempt to influence and
control their social context.
Another component of managerial action involves both the
recognition of the social context and constraints within which
the organization must operate and the choice of organizational
adjustments to these social realities. Even when there is no
possibility for managerial alteration of
the social environment, management can still be difficult, for
recognizing the realities of the social context is not easy or
assured. Many organizations have gotten into diffi- culty by
failing to understand those groups or organizations on which
they depended for support or by failing to adjust their activities
to ensure continued support.
One image of the manager we have developed is that of an
advocator, an active manipulator of constraints and of the social
setting in which the organization is embedded. Another image
is that of a processor of the various demands on the
organization. In the first, the manager seeks to enact or create
an environment more favorable to the organization. In the
second, organizational actions are adjusted to conform to the
constraints imposed by the social context. In reality, both sets
of managerial activities are performed. We would like to
emphasize that both are problematic and difficult. It requires
skill to perceive and reg- ister accurately one’s social context
and to adjust organizational activities accordingly. And, it
requires skill to alter the social context that the organization
confronts. Both images of the role of management imply a
sensitivity to the social context in which the organization is
embedded and an understanding of the relationship between
the organization and its environment. Both, in other words,
require the adoption of an external orientation to guide the
understanding of organizational functioning.
SUMMARY
... We have noted that we are dealing with the problems of the
acquisition of resources by social organizations, of the

organization’s survival, as well as of the use of such resources
within organizations to accomplish something. To acquire
resources, organizations must inevitably interact with their
social environments. No organization is completely self-
contained or in complete control of the conditions of its own
existence. Because organizations import
399
Perspective 399
resources from their environments, they depend on their
environments. Survival comes when the organization adjusts to,
and copes with, its environment, not only when it makes
efficient internal adjustments.
The context of an organization is critical for understanding its
activities. Despite considerable pro forma acknowledgment of
the environment, managers and researchers continue to
attribute organizational actions and outcomes to internal
factors. Such attributional processes flow from cognitive and
perceptual biases that accom- pany the observation of
organizations, as well as from the desire to view social behavior
with a feeling of control. These attributions have led to the
neglect and serious underestimation of the importance of social
context for understanding organizational behavior. Studies
estimating the effects of administrators (e.g., Lieberson and
O’Connor, 1972; Salancik and Pfeffer, 1977) have found them
to account for about 10 percent of the variance in organi-
zational performance, a striking contrast to the 90 percent of the
intellectual effort that has been devoted to developing theories
of individual action.
While organizational actions are constrained, and contextual
factors do predict organizational outcomes and activities, there
are several perspectives on the role of management in
organizations consistent with such a theoretical position. In the
first place, management serves as a symbol of the organization

and its actions. Managers are people to fire when things go
poorly, an act that reinforces the feeling of control over
organizational actions and results. The symbolic role of
management, though as yet unexplored, can be systematically
empiri- cally examined. In addition to its symbolic role,
management can adjust and alter the social context surrounding
the organization or can facilitate the organization’s adjustment
to its context. Both activities require understanding the social
context and the interrelationship between context and the
organization. Even as a processor of external demands,
management has a problematic
task. Many organizational troubles stem from inaccurate
perceptions of external demands or from patterns of dependence
on the environment. Indeed, we would argue that the image of
management as a processor of demands is one that implies a
high degree of skill and intelligence. After all, anyone can make
decisions or take actions—it requires much more skills to be
correct.
REFERENCES
Bendix, R. 1956. Work and Authority in Industry. New York:
Wiley.
Burns, T., and G. M. Stalker. 1961. The Manage- ment of
Innovation. London: Tavistock.
Davis, O. A., and M. Hinich. 1966. “A mathematical model of
policy formulation in a democratic society.” In J. L. Bernd
(ed.), Mathematical Applications in Political Science II, 175–
208. Dallas, Tex.: Southern Meth- odist University Press.
Fellner, W. 1949. Competition Among the Few. New York:
Knopf.
Hawley, A. H. 1950. Human Ecology. New York: Ronald Press.
Hirsch, P. M. 1975. “Organizational effectiveness and the
institutional environment.” Administrative Science Quarterly,
20: 327–344.
Hirschman, A. O. 1970. Exit, Voice, and Loyalty. Cambridge:
Harvard University Press. Jones, E. E., and R. E. Nisbett. 1971.
The Actor

and the Observer: Divergent Perceptions of the Causes of
Behavior. Morristown, N.J.: General Learning Press.
Katz, D., and R. L. Kahn. 1966. The Social Psychology of
Organizations. New York: Wiley.
Kelley, H. H. 1971. Attribution in Social Interac- tion.
Morristown, N.J.: General Learning Press.
Kessel, J. H. 1962. “Government structure and political
environment: a statistical note about American cities.”
American Political Science Review, 56: 615–620.
Lieberson, S., and J. F. O’Connor. 1972. “Lead- ership and
organizational performance: a study of large corporations.”
American Sociological Review, 37: 117–130.
Chapter 10
Organizational Performance and
Change
OVERVIEW
Formal organizations are, presumably, created for some
purpose; hence, at the end of the day, one key
outcome involves the evaluation of an organization’s
performance in terms of its achievement of this
purpose. Moreover, if the performance is deemed inadequate,
another outcome is change, “righting” the
organization to achieve its purpose. Although on the surface
these issues seem straightforward, a long line of
theoretical and empirical studies provide testimony to how
complicated they really are. In this chapter, we
review this literature to help you understand why both
assessment of organizations’ performance and efforts
to bring about intended, significant changes in organizations are
so difficult.

Many if not most definitions of formal organizations include the
concept of “goal” or “purpose” as a key
element. For example, Blau and Scott (1962:5) assert:
In contrast to the social organization that emerges whenever
men are living together, there are organizations that have
been deliberately established for a certain purpose. If the
accomplishment of an objective requires collective effort,
men set up an organization designed to coordinate the activities
of many persons and to furnish incentives for others to
join them for this purpose.
The idea of a shared goal as a defining feature of organizations
is consistent with commonsense notions of
organizations as being deliberately created to accomplish some
task collectively that individuals, acting alone,
cannot. Barnard’s classic epitome of an organization as five
people trying to move a large rock also reflects this
notion. In line with this, it seems reasonable to step back, at
various points in an organization’s life, to assess
how well it’s performing with respect to its goals. This idea
underlies the definition of organizational
effectiveness as the degree to which “an organization realizes
its goals” (Etzioni, 1964:8). It did not take long,
however, for organizational theorists and researchers to
recognize the problems inherent in conceptualizing
effectiveness this way and in trying to use this approach in
assessing organizational performance (Simon,
1964). Below, we discuss some of the problems of specifying
exactly what the goals of an organization are, and
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some of the ways this is dealt with in different proposals for
assessing organizational performance.
PROBLEMS OF DEFINING ORGANIZATIONAL GOALS
Let’s begin by thinking about how we might determine what the
goals of an organization are. One tack we
could take would be to examine the mission statement or some
other document that offers a formal statement of
the organization’s key objectives. The plural term, “objectives,”
should signal one potential problem here: most
organizations have multiple and, not infrequently, conflicting
aims. ExxonMobil’s Financial and Operating
Review section of their 2006 annual report (pp. 4–5) provides
one example of this. The company’s focal
business operations involve the production and sale of gas and
oil, and you might assume that its goal is to
maximize profits in this business. However, its list of key
objectives includes the following
(http://exxonmobil.com/corporate/files/corporate/xom_2006_SA
R.pdf):
Promoting safety, health, and the environment
Demonstrating sound corporate governance and high ethical
standards
Capturing quality investment opportunities
Maintaining one of the strongest financial positions of any
company
These goals are not necessarily inconsistent, but it is not hard to
imagine circumstances under which the aim of
ensuring individuals’ health and the maintenance of the natural
environment in this industry might be at odds

with that of maintaining a strong financial position. Thus, in
gauging the extent to which the organization has
realized its goals, one problem is: Which goal should be used?
Along with the multiplicity of goals that characterize most
organizations, this list also serves to highlight
another common problem in defining goals, the difference
between what Perrow (1961:855) refers to as
“official” and “operative” goals. He defines official goals as
“the general purposes of the organization as put
forth in the charter, annual reports, public statements by key
executives and other authoritative
pronouncements.” Official goals are usually stated in very
abstract, broad, and hard-to-measure terms, such as
those shown above from ExxonMobil. Operative goals, on the
other hand, “designate the ends sought through
the actual operating policies of the organization; they tell us
what the organization actually is trying to do,
regardless of what the official goals say are the aims.”
Examining the operative goals entails examining the
allocation of organizational resources: to what kinds of
activities is the organization devoting relatively more of
its money, time, and personnel? Operative goals may be linked
directly to official goals, but the fact that they
are defined by the relative allocation of organizational
resources means that they probably reflect choices
among competing values embodied in the latter. Thus, they
could contribute to one official goal, while
subverting another. An illustration of this is provided by an
early study of two state employment agency units
by Blau (1955), who found that although the agencies had the
same official goals, they were clearly
differentiated in terms of what they really were attempting to
accomplish. One unit was highly competitive,
with members striving to outproduce each other in the numbers
of individuals placed, regardless of whether the

placements resulted in a good “fit” for individuals and thus job
retention. In the other unit, cooperation among
the members and quality of placement for job seekers was
stressed.
To make matters even more complicated, operative goals may
develop that are unrelated to official goals.
Perrow (1961) goes on to note:
Unofficial operative goals, on the other hand, are tied more
directly to group interests, and while they may support, be
irrelevant to, or subvert official goals, they bear no necessary
connection with them. An interest in a major supplier
may dictate the policies of a corporate executive. The prestige
that attaches to utilizing elaborate high speed
computers may dictate the reorganization of inventory and
accounting departments. Racial prejudice may influence
the selection procedures of an employment agency. The
personal ambition of a hospital administrator may lead to
community alliances and activities which bind the organization
without enhancing its goal achievement. On the other
hand, while the use of interns and residents as “cheap labor”
may subvert the official goals of medical education, it
may substantially further the official goal of providing a high
quality of patient care. (p. 856)
•
•
•
•

Thus, another issue in defining the goals of an organization is
whether to take the official or operative goals as
the “real” ones.
Even if we were able to construct a reasonable rationale for
making the choice between using official or
operative goals and for assigning primacy to one or two as the
critical goals, we would encounter yet another
definitional problem—specifying the temporal boundary of the
goals. Attaining a particular goal in the short
run, such as maximizing stock price, could be disastrous for a
company in the long run if it achieved this by
failing to invest sufficient resources in technology or basic
staffing. Not making such investments might raise
profits and lead investors and analysts to increase the stock
value in the short run but create serious functional
problems at a later date. This is a key limitation of the classic
economic definition of business organizations’
goals, which is simply to “maximize shareholder value” (Davis,
2005). A rather ironic illustration of the
importance of considering time in the context of defining goals
and assessing goal achievement is provided by
the once-popular management book In Search of Excellence
(Peters and Waterman, 1982). In the early 1980s,
the authors identified a number of companies as high achievers
and sought to define the common properties of
the companies that contributed to this position. Within five
years of the book’s publication, however, a
substantial number of the companies were in very serious
financial trouble. Thus, it may be difficult to decide
what the appropriate time frame for assessing goal attainment
should be.
Apart from examining documents that specify official goals, or

examining the allocation of resources to
ascertain the operative goals, another tack to take in
determining what the goals of an organization are might
simply be to ask current members. You could even ask them to
specify what the single most important goal is.
This approach, however, would likely lead to the identification
of another, rather different problem with the
concept of organizational goal, one summed up by Cyert and
March (1963:26), who assert, “People (i.e.,
individuals) have goals; collectives of people do not.” This
distinction partly reflects concern over the potential
confounding of individuals’ motivation for cooperating in an
organizational context with the outcomes of that
cooperative effort. To go back to Barnard’s favorite example of
five people trying to move a stone, each person
may have a different reason for wanting the stone moved (e.g.,
to make it easier to travel some route, to provide
a dam in a stream, to test a theory of how to move stones with
minimal effort). Thus, if you asked them what
the goal of the enterprise is, each might well provide you with a
different answer.
One way that Cyert and March (1963) propose to deal with this
issue is to conceive of the goals of an
organization as the intersection of the goals of key participants,
or what they call “the dominant coalition” (pp.
30–31). The goal in Barnard’s example (the intersection of the
five individuals’ personal goals) would be
moving the rock to some particular spot. Given this objective,
other individuals may be recruited to participate
in the enterprise in exchange for “side payments,” or
inducements that the key participants provide; in
exchange for these, individuals agree to contribute their
activities to achieve the goals as defined. (You may
remember this model of organizations being discussed in
Chapter 6 on decision-making.) This doesn’t quite get

us out of the thicket of trying to define goals by asking
members, however, since members are still apt to have
different perceptions of what “the organization’s goals” are, and
these will probably be closely allied to what
their main duties are in the organization (Barnard, 1968:231).
Thus, the members of the research and
development group at ExxonMobil might be expected to
perceive the development of new technology as the
key goal of the organization, members of the legal department
might see maintaining safety and health (thus
avoiding crippling lawsuits) as the key goal, and so forth.
Temporal boundaries are also a problem with this approach,
since subjectively defined organizational
goals may also shift over time. This can be the result of a
number of forces, including environmental changes
that lead to new emphases within the organization as well as
changes in members of the dominant coalition
(i.e., turnover in top executives) who set new priorities for the
organization. Michels’s (1949) classic study of
the development of oligarchy in political parties and labor
unions is illustrative of this. As an oligarchical elite
becomes entrenched, the goals that the elites once shared with
the rank and file tend to be displaced by other
goals among elites—such as perpetuating themselves in office
(Tolbert and Hiatt, forthcoming).
There are other sources of shifts in goals, of course.
Organizations may begin to emphasize goals that are
easily quantifiable, at the expense of those that are not so easily
quantified. Universities look at the number of
faculty publications rather than at the more-difficult-to-measure
goal of classroom teaching; business firms
look at output per worker rather than at “diligence, cooperation,
punctuality, loyalty, and

of 16Organizations
responsibility” (Gross, 1968:542). If organizations do begin to
emphasize that which is easily quantifiable,
then there is a shift of goals in that direction. Goal shifts are
also possible when there is slack in the
organization and it is secure. A study of the National Council of
Churches found that staff interactions guided
by a new professional ideology and strong purposive
commitments contributed to major and radical goal shifts
within the organization (Jenkins, 1977). This study also
suggests that threats to the organization’s domain
would probably lead to a more conservative stance. Finally, an
additional source of goal shifts lies outside the
organization and involves indirect pressures from the general
environment. Economic conditions lead to
expansion or contraction of operations; technological
developments must be accommodated; core social values
and legal requirements shift. Organizational goals are adjusted
to these environmental conditions.
A classic study of changing goals is provided by Sills’s (1957)
analysis of the March of Dimes
Foundation, which had been created to raise funds for the
treatment of individuals who suffered the crippling
effects of polio and for research on this disease. A technological
development, the discovery of an effective
vaccine, essentially eliminated the need for the continued
existence of the organization. You could say that its
effectiveness created the conditions for the organization’s
demise. Since the organization had grown very large

at this point, with a regular, salaried staff that ran it, as well as
legions of volunteer workers, closing down the
organization was not viewed as a desirable option. Hence it
shifted its goals, to raising funds for research on
and ultimately elimination of all kinds of birth defects; this is
not a goal that is likely to be achieved any time
soon.
APPROACHES TO ORGANIZATIONAL EFFECTIVENESS
The preceding discussion of the nature of organizational goals
has convinced you, we hope, that the seemingly
straightforward approach to assessing organizational
performance in terms of goal achievement is fraught with
problems (Campbell, 1977). Nonetheless, the desire of
investors, government agencies, charitable foundations,
and others to be able to evaluate the performance of
organizations spurred efforts to develop other ways of
assessing effectiveness, leading to a variety of proposed
approaches, or models (Georgiou, 1973; Pennings and
Goodman, 1977; Seashore and Yuchtman, 1967; Steers, 1977;
Yuchtman and Seashore, 1967). We describe
some of these below.
System-Resource Approach
One approach advocated by Seashore and Yuchtman (1967),
labeled as the system-resource model, defines an
effective organization in terms of its “ability to exploit its
environment in the acquisition of scarce and value
resources to sustain its functioning” (p. 393). Implicitly, this
approach assumes that the key goal of an
organization is to survive; this is, in the authors’ terminology,
the ultimate criterion of effectiveness, which can
only be assessed over a long period of time. However, they
suggest that there are also penultimate criteria,

whose level of attainment at given points in time will affect the
ability of the organization to achieve the
ultimate goal. In their conception, penultimate criteria have a
number of defining characteristics:
[T]hey are relatively few in number; they are “output” or
“results” criteria referring to things sought for their own
value; they have trade-off value in relation to one another; they
are in turn wholly caused by partially independent sets
of lesser performance variables; their sum in some weighted
mixture over time wholly determines the ultimate
criterion. (p. 379)
These penultimate criteria, in turn, are determined by a large
number of short-term performance measures;
Seashore and Yuchtman refer to these as “subsidiary variables.”
Thus, the conception of effectiveness reflects
the idea that the long-run performance of an organization
depends on how well it performs overall on a variety
of dimensions, even though performance on any single
dimension at any given point in time may be unrelated
(or even inversely related) to its performance on another.
They applied these ideas in a study of seventy-five insurance
companies, from whom they collected all
kinds of financial and other information (over two hundred
variables!) for an eleven-year time period, 1952–
1962. They reduced the number of variables to seventy-six

based on redundancy, missing or poor-quality
information, and so forth, and conducted a factor analysis to
determine which variables “hung together” as
indicators of performance. This resulted in a set of ten factors,
such as business volume (e.g., number of
policies written), new member productivity (relative number of
policy sales by new sales staff compared to
those of older staff), and manpower growth. Some of these
factors, such as business volume, were very stable
over time, whereas others, such as new member productivity,
varied considerably across time—that is, the level
of new member productivity at one point in time was not related
to the level of the same factor at a later point.
Moreover, the strength of the relations among the different
factors was not very consistent. They conclude:
These sales organizations are maximizing their ability to get
resources when they optimize, as an interdependent set,
the ten performance factors isolated. This optimizing process
involves balancing off some exploitative strategies
against others; for example, increased market penetration
against temporarily higher production costs; short-run gains
against deferred gains; exploiting the manager for current sales
as against exploiting him for staff growth and
development. The optimum pattern of performance for each of
the organizations may be unique to the extent that their
histories and environments differ, and they may fall into a
limited number of types of alternative general strategies
that are equally effective as long as each type maintains its own
internal balancing principle. (p. 394)
From the standpoint of thinking about how to assess the
effectiveness of an organization, the primary
implications of this approach are that the conclusions one draws
will depend on what measures are chosen and
at what point in time the data are collected on these measures

(since not all measures of performance at a given
point in time are positively related), and the autocorrelations of
a given measure over time may not be very
high, or even negative. Thus, it offers important caveats, though
not necessarily clear directions for how to
assess effectiveness.
Participant-Satisfaction Approach
Barnard (1968) set the tone for participant-satisfaction models
in his discussion of efficiency, which he defined
in terms of the ability of the organization to attract
contributions from members that were needed for the
organization to continue to exist. (Note that Barnard used the
term efficiency in a way that is a little confusing,
given contemporary definitions of efficiency as the ratio of
inputs to outputs—that is, maximizing outputs with
minimal inputs.) Thus, organizational success was not viewed as
the achievement of goals but rather as
survival of the organization through securing contributions by
providing sufficient rewards or incentives.
Georgiou (1973), building on the work of Barnard, argues:
[T]he emergence of organizations, their structure of roles,
division of labor, and distribution of power, as well as their
maintenance, change, and dissolution can best be understood as
outcomes of the complex exchanges between
individuals pursuing a diversity of goals. Although the primary
focus of interest lies in the behavior within
organizations, and the impact of the environment on this, the
reciprocal influence of the organization on the
environment is also accommodated. Since not all of the
incentives derived from the processes of organizational
exchange are consumed within the interpersonal relations of the
members, organizational contributors gain resources
with which they can influence the environment. (p. 308)

The implication of Georgiou’s argument for effectiveness is that
incentives within organizations must be
adequate for maintaining the contributions of organizational
members and must also contain a surplus for
developing power capabilities for dealing with the environment.
A basic problem with this argument is that it
does not disclose how the incentives are brought into the
organization in the first place. If a major incentive is
money, the money must be secured. To be sure, money is
brought into the organization through exchanges with
the environment, but it appears that the system-resource
approach or a goal model dealing with profit is
necessary before considering individual inducements.
Cummings (1977) approaches effectiveness from a related
perspective. He states:
One possibly fruitful way to conceive of an organization and the
processes that define it is as an instrument or an
arena within which participants can engage in behavior they
perceive as instrumental to their goals. From this
perspective, an effective organization is one in which the
greatest percentage of participants perceive themselves as
free to use the organization and its subsystem as instruments for
their own ends. It is also argued that the greater the
degree of perceived organizational instrumentality by each
participant, the more effective the organization. Thus, this

definition of an effective organization is entirely psychological
in perspective. It attempts to incorporate both the
number of persons who see the organization as a key instrument
in fulfilling their needs and, for each person, the
degree to which the organization is so perceived. (pp. 59–60)
According to this approach, factors such as profitability,
efficiency, and productivity are necessary conditions
for organizational survival and are not ends in themselves. The
organization must acquire enough resources to
permit it to be instrumental for its members. A loosely related
approach argues that more effective
organizations are those in which the members agree with the
goals of the organization and thus work more
consistently to achieve them (Steers, 1977).
Approaching organizational effectiveness from the perspective
of individuals and their instrumental gains
or their goals has three major problems. The first problem,
which is particularly the case for Steers’s approach,
is that individuals have varying forms of linkages to the
organizations of which they are a part. People’s
involvement in organizations can be alienative, calculative, or
moral (Etzioni, 1961, 1975). These different
forms of involvement preclude the possibility of individual and
goal congruence in many types of
organizations. A second, and more basic, problem in these
psychological formulations is that their focus on
instrumentality for individuals neglects the activities or
operations of the organization as a whole or by
subunits. Although the instrumentality approach is capable of
being generalized across organizations, it misses
the fact that organizational outputs do something in society. The
outputs may be consumed and enjoyed by
some, but they also could be environmentally harmful in
general. The outputs may affect people in other

organizations as much as people within a focal organization.
The psychological approach also downplays the
reality of conflicts among goals and decisions that must be
made in the face of environmental pressures. The
problem is basically one of overlooking a major part of
organizational reality. For example, some research
indicates that there is a positive relationship between workers’
commitment to the organization and some
effectiveness indicators such as adaptability, turnover, and
tardiness. No such relationship was found with the
effectiveness indicators of operating costs and absenteeism,
however (Angle and Perry, 1981). Reducing
effectiveness considerations to the individual level misses the
point that there can be conflicts between
desirable outcomes, such as lowered operating costs and
lowered turnover.
A third problem with this individualistic approach is that it
misses the fact that individuals outside the
organization are affected by what organizations do. A study of
the juvenile justice system found that the
“clients” of a juvenile justice system network had clearly
different views of the effectiveness of organizations
such as the police, courts, and probation departments from those
of the members of those agencies (Giordano,
1976, 1977). That is hardly surprising, of course, since the
clients in this case were juveniles who had been in
trouble with the law. Nonetheless, a client perspective on
effectiveness would seem to be a critical component
of any comprehensive effectiveness analysis.
Stakeholder Approach
Inherent in many of these models and in the debates surrounding
them is the idea that it is folly to try to
conceptualize organizations as simply effective or ineffective

(Campbell, 1977). Some (e.g., Pennings and
Goodman, 1977; Perrow, 1977) began to suggest that the
concept of effectiveness requires a referent: you need
to specify for which set of interests an organization can be said
to be effective. This view underlies what has
come to be called a stakeholder approach (or sometimes,
multiple constituency approach) to assessing
effectiveness (Cameron and Whetten, 1981; Connolly, Conlon,
and Deutsch, 1980; Tsui, 1990). This approach
recognizes that different sets of people who contribute to and
are important for the organization are apt to have
differing objectives they seek to satisfy through the
organization and that these differences should be explicitly
recognized (Donaldson and Preston, 1995). Although work in
this tradition shares the recognition that there are
different (and probably conflicting) organizational goals
associated with different (and also possibly
conflicting) groups, it differs in terms of the relative weight
that is assigned to the preferences of different
groups in coming up with an overall assessment of the
organization. Zammuto (1984) identified four distinct
stakeholder approaches on this basis, what he terms relativistic,
power, social justice, and evolutionary.
A relativist approach entails identifying key constituencies,
collecting information from each set of
constituents about the effectiveness of the organization based
on their own criteria, and then presenting the
results to whatever audience seeks it (e.g., Connolly, Conlon,

and Deutsch, 1980). According to Zammuto
(1984), in this approach
an overall judgment of organizational effectiveness is viewed as
being neither possible nor desirable because the
approach does not make any assumptions concerning the
relative primacy of one constituency’s judgments over those
of any other constituency. Instead the relativist evaluator takes
the position that overall judgments should be made by
someone else, preferably the consumer of the evaluative
information. (p. 607)
While the agnosticism of this approach to the question,
“effective for whom?” has some appeal, it’s worth
noting that it provides little or no guidance for possible
organizational change, unless of course all
constituencies converge in a common assessment—intuitively,
an unlikely outcome (Meyer and Zucker, 1989).
It also ignores the likelihood that the constituency that
commissions such collection of data is very likely to be
one controlling critical resources.
A power approach, on the other hand, explicitly uses assessment
criteria based on the goals of the group
that is most critical to the organization, or what has been
referred to as the “dominant coalition.” One way to do
this, presumably, is to let the organizational members negotiate
the criteria to be used in assessing an
organization’s performance; the outcome of such negotiation
can be assumed to reflect the preferences of the
most powerful internal constituents of the organization
(Pennings and Goodman, 1977). Pennings and
Goodman recognize that there are requirements set by both
internal and external stakeholders that must be met
if an organization is to survive, but just meeting these
constraints does not imply that an organization has a high

degree of effectiveness. Rather, effectiveness is indicated by the
degree to which an organization meets or
exceeds the objectives defined by the dominant coalition. If an
organization is a publicly traded firm, many
economists would argue that effectiveness is indicated very
simply in the stock price of the firm (Jensen,
2002); this is the logic behind the notion that “maximizing
shareholder value” should be the goal of all publicly
held businesses. Of course, this ignores the fact that
shareholders are not an undifferentiated group with a
single objective. Employee shareholders, small investors, and
large investors may have very different time
frames for their investments and thus different values at any
given point. In this context, a power approach is
consistent with making “maximize shareholder value” equate to
“maximize the current goals of a few large
investors.” A logical problem with this approach is that
achieving these goals may result in the demise of the
organization, insofar as keeping current stock value high results
in inability of the organization to function in
the long run, as it did at Enron (McLean and Elkind, 2004).
Interestingly, partly in response to the power of
external shareholders, many corporations have in recent years
launched stock repurchase plans, allowing
business firms to buy back stock. Although this practice runs
counter to the logic of “market discipline,” it may
have acquired increased legitimacy as a result of some of the
failures of market discipline, as exemplified by
Enron (Zajac and Westphal, 2004).
The exact opposite of a power approach is what is referred to as
the social justice approach, as advocated
by Keeley (1978, 1984). Building on the work of the social
philosopher John Rawls, Keeley suggests that a
guiding principle for organizational evaluation should be
“maximization of the least advantaged participants in

a social system” (1978:285). Keeley proposes that this approach
could be operationalized by minimizing the
regret that participants experience in their interactions with the
organization. Keeley’s (1984) later work shifts
to the idea of minimizing organizational harm but retains the
same flavor. He recognizes the difficulties
associated with the actual application of the approach but
claims that the approach contains an optimization
principle that goal models do not contain. He argues that it is
possible to specify the manner in which group
regret or harm can be minimized across organizations, though it
is not possible to specify how goal attainment
can be optimized across organizations, given the diversity of
goals. Although this seems hopelessly idealistic at
first blush, Keeley argues for its essential pragmatism in the
long run:
It may seem perverse to focus on regretful organizational
participants rather than on those, possibly more in number,
who enjoy the outcomes of cooperative activity. But the point is
that generally aversive system consequences ought
not, and, in the long run, probably will not, be tolerated by
some participants so that positive consequences can be
produced for others. Systems that minimize the aversive
consequences of interaction are, therefore, claimed to be
more just as well as more stable in the long run. (p. 290)
Finally, an evolutionary approach, as described by Zammuto

(1982), takes into account the possibility that
the relative power and the importance of different
constituencies will change over time and that constituencies’
preferences may change as well. Thus, this approach downplays
the utility (and even underscores the potential
harm) of attempting to evaluate the effectiveness of
organizations at a single point in time. This is certainly
consistent with the cautionary example offered by In Search of
Excellence, which we discussed in the
preceding paragraphs. It suggests that organizations that can
adapt to best meet the demands of an
organization’s most important constituents as these change over
time should be considered to be most effective.
While a stakeholder approach in general seems to be more
sensible than a simple goal-based approach,
one implication of this review is that a stakeholder approach in
fact requires analysts to prioritize stakeholders
on the basis of some underlying values or goals that they
ascribe to the organization—whether this be
satisfaction of the needs of powerful members, realization of
social justice values, or long-term survival of the
organization. Recognizing that such choices need to be made
explicit is a useful contribution of a stakeholder
approach.
Although the ambiguities and problems in assessing
organizational effectiveness have led some to argue
that effectiveness as an overall concept has little or no utility
(e.g., Hannan and Freeman, 1977a), we think that
it would be a serious mistake simply to ignore issues and
findings that have been developed in regard to
organizational effectiveness. As we noted, the perceived need to
evaluate organizations as part of deciding
whether to transact with them—whether by investors,
government agencies, private charities, or others—

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