There are several reasons why organizations exist, including to increase specialization and division of labor, utilize large-scale technologies, and benefit from economies of scale and scope. Organizations also exist to manage external pressures, reduce transaction costs, and exert power and control. When measuring organizational effectiveness, managers consider control of the external environment, innovation of internal systems, and efficiency of converting resources into goods and services. Effectiveness is determined by official goals, mission statements, and operative goals that guide employee work.

1. How An Organization Creates Value

5. Table 1-1: Approaches to Measuring Effectiveness