Organizational Theory Design and Development

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SUBJECT CODE
II III
BA 5018
ORGANIZATIONAL THEORY, DESIGN AND DEVELOPMENT
UNIT NO 1
ORGANIZATIONS AND ITS
ENVIRONMENT
● 1.3 ORGANIZATIONAL EFFECTIVENESS &
APPROACHES

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ORGANIZATIONAL EFFECTIVENESS
•Ability of an organization to achieve its objective.
•“Ability to perform function with optimum level of input and output”
•How organization is achieving outcomes that it intends to produce.
•How well they compete, how quickly they bring product, their status in community and its
attractiveness.
•It can be expressed in Profit, Growth, Knowledge, Management, Process, Technology and
Customer satisfaction.

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METRICS FOR EFFECTIVENESS
Achieving organizational mission, quality product, quality value, customer satisfaction,
capacity for innovation, adaptation to technological change, effective information sharing
and communication, employee attraction, quality work life, developing alliances, operational
efficiency and branding.

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EFFECTIVENESS vs EFFICIENCY
EFFECTIVENESS EFFICIENCY
Measure Anything Financial Measurement
Abstract Measurement Concrete Measurement
More Theoretical More Practical
Difficult to Calculate Easy
Doing right task Doing task in right way

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CRITERIA FOR EFFECTIVENESS- Fortune Magazine
a) Innovativeness
b) Investment
c) Management
d) Community
e) Corporate Assets
f) Ability to attract, develop and maintain talented workforce
g) Financial Soundness and
h) Quality Product.

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STEPS IN OE
a) Identify Mission
b) Identify gaps - gap in people, management, knowledge, organization, process and technology
c) Building Effectiveness and
d) Assessing OE:
i) Setting standard based on experience and goals - Clarity in standard and identify cause and effect
relationship and
ii) Selecting Indicators – 3 basic indicators
 Outcome (immune to measurement ambiguity – yard stick)
 Processes (Conformity to given objective) and
 Structure (Capacity of organization and licensing system).

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COMPONENTS OF OE
A) OFFICIAL GOALS: Guiding principles that the organization formally states in its
annual report and other public documents. It is a layout of why organization exists. It
covers mission of an organization.
B) OPERATIVE GOALS: It is a specific long term and short term goals that guides
manager and employees as they perform the work of an organization. Operative goals
is summation of goals of a) External Resource Approach, b) Internal System Approach
and c) Technical Approach.

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APPROACHES TO OE
A) External Resource Approach
B) Internal System Approach and
C) Technical Approach

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APPROACHES TO OE
A) External Resource Approach - Control External Environment and also control resources
and skills.
•To evaluate the organization’s ability to secure, manage and control scarce and valued
skills and resources.
•A method managers use to evaluate how effectively an organization manages and
control its external environment.
In this approach, to measure effectiveness they use indicators such as stock price,
profitability and Return on investment.
They compare organization performance with the performances of other organization.
The stake holders are supplier, competitors, customers and government.

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APPROACHES TO OE
Goals of External Resource Approach:
• Lower cost of input
• Obtain high quality inputs of raw material and employees
• Increase market share, increase stock price and gain support of stakeholders.

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APPROACHES TO OE
B) INTERNAL SYSTEM APPROACH - It is used to evaluate organization ability to be
innovative and to function in responsible manner.
A method that allows manager to evaluate how effectively an organization function and
operate resources.
To be effective an organization needs a structure and culture that foster adaptability and
quick responses.
Speed up Decision making
Structure of an organization, Culture, Flexibility, Co-ordination and Motivation are
components of internal system approach.

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APPROACHES TO OE
GOALS OF INTERNAL SYSTEM APPROACH
• Decrease decision making time
• Increase rate of production and innovation
• Increase co-ordination and motivation of employees
• Decrease conflict
• Decrease time to market.

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APPROACHES TO OE
C) Technical Approach - It deals with how resources are converted into finished
goods and services.
Converting skills and resources into effective services.
It is measured in terms of a) Productivity – expressed in terms of input output relationship
and b) Efficiency.
Goals of Technical approach
Increase product quality, Decrease number of defects, Decrease production costs, Increase
customer service & satisfaction and Decrease delivery time.

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BEST APPROACH
BEST APPROACH: The best method of assessing OE depends on contingent and
constituent factors, even communication and equipment plays vital role.
The balance between all the above approaches are indispensable. The organization will be
effective when it satisfies multiple performance criteria by different approaches or
measures.
Small organization little formalization is required and for large organization formalised
structure is applied.
Overall it should focus on Increase return on investment, increase market share, innovation
and job security.
Assumptions: OE is subjective, No best criteria and no single goal.

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MEASURING OE/ WAYS TO ASSESS OE
A) Goal Accomplishment
B) Resource Acquisition
C) Internal Processes and
D) Strategic Constituencies
.

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A) Goal Accomplishment or Rational goal approach or Goal Attainment approach:
Concern with profit and efficiency
Results compared with objectives. Any deviations in achievement, organization has to go
for Corrective action.
Mechanistic, planned, logical, goal seeking, concerned with one or more predetermined
goals, concerned with levels of output, focus on internal objectives like profit
enhancement and efficiency maximization.
.

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•Goals are set as standards of assessing OE is challenging as there are numerous goals.
•Goals should be SMART.
•Accomplishment is an end rather than means.
•The real challenge is identification of goals than achievement.
Barriers to Goal Approach: Not SMART, unwillingness to raise or lower goals, Setting too
many goals and focusing too much on goals.
•The goal approach presumes consensus on goals. Considering the fact that there are
numerous goals and varied interests inside an organization, consensus, is probably not
possible.

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B) Resource Acquisition approach/System approach
Considers input factors like raw material, labour, capital, managerial leadership and
technological modernity. Emphasis on Input
Acquires needed resources, connection between inputs and output
Resource as one element in more complex set of criteria
Interact successfully with external environment.

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Assumptions: Inter related sub parts, Performance of one sub part affects another,
effectiveness also affected by awareness and interaction, management maintains good
relation, vacancies immediately replaced and changes are anticipated and reaction
appropriately.
Limitations: Means as goals and difficult to quantify.

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•The System Resource Approach sees an organisation as an open system.
•The organization participates in transformation processes.
•This approach emphasizes inputs over output.
•In order to survive, at the same time rivalling for scarce and valued resources. It assumes
that the organisation consists of interrelated subsystems. If any sub-system functions
inefficiently, it is going to influence the performance of the whole system.

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Resource Acquisition approach/System approach
The disadvantages of this approach relate to its measurement of means. An issue with this
approach is that a higher amount of obtained resources is not going to promise
effective usage. In addition, it is tough to define an ideal degree of resource
acquisition across distinct organizations.

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C) Internal Processes approach: efficiency measured by employee loyalty,
commitment, job satisfaction and mutual trust.
It is place where people are emotionally present with one another with authentic
communication and commitment to transparency.
Internal activities
Fixed output
Assess internal organizational health.
Efficiency is the capabilities to get better at internal efficiency, co-ordination, commitment
and employee satisfaction.
Criticism: Few claims that it is not legitimate indicators.

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C) Internal Processes approach:
Effectiveness is the capability to get better at internal efficiency, co-ordination, commitment
and staff satisfaction.
This approach could possibly be applied only where comparable organizational
outcomes can be assessed accurately.

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It states that it is an organization made up of people and for people. It is a group of people
who have some stake in the organization and whose co-operation is essential for
organizational survival.
•Support from environmental factors both internal and external.
•Demand of those constituencies in its environment whom it needs support for its survival.
•Efficiency to satisfy multiple constituencies both internal and external.
•Rely highly on response to demands
•Organization fulfils multiple goals

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Job of isolating strategic constituencies is challenging and tricky
Diverse factors or weigh the same criteria in different way.
Only those environment which can threaten the organizational survival are considered.
Assumptions: Organization should give importance to constituencies.
Each constituencies has unique set of values.

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It is ideal for organizations which rely highly on response to demands
Fulfil multiple goals: each kind of organizational constituency (like proprietors, workers,
consumers, the local community, etc.) is supposed to have distinct interest’s vis-à-vis the
corporation, and will thus use different evaluation criteria.
Constituents may create significantly diverse ratings of organizations effectiveness. These
constituents may use diverse factors or weight the same criteria in a different way.

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INTEGRATED MODEL FOR EFFECTIVENESS
X axis – Internal to External Y axis – Flexible to Stable

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INCREASING EFFICIENCY IN SERVICE INDUSTRY
1. Service sector introduction and contribution.
2. Productivity Improvement.
3. Developing HR competency, involvement and commitment of people.
4. Success depends on HR competencies, adequately trained.
5. Ensure their knowledge remain relevant and useful.
6. Outperforming companies spend 4-5% of cost and 40-50 hours/year on training.
7. Innovative and Creative circles.
8. Quality control circles.
9. Customer focus, customer requirement and customer expectation
10. Close relationship through contacts and customer survey

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INCREASING EFFICIENCY IN SERVICE INDUSTRY
11. React to feedback.
12. Seeking opportunities to delight customers
13. Personalised services
14. Apply information communication technology
15. Balance Scorecard (Finance, Customer, Internal process and Learning)
16. Productivity Measurement: a) Partial Factor productivity measurement: Input to output
ratio and b) Multi factor productivity measurement: output to multiple input factor, output to
labour, capital etc.

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TIPS TO INCREASE OE
• Provide employee with secure consistent access to information.
• Deliver anytime and anywhere
• Create effective business process with strategic partners.
• Make it easy to collaborate.
• Enables employees to take their system wherever they go.
• Reduce unproductive time and movement.
• Outsource IT tasks.
• Streamline communication with customers.
• Increase employee retention and satisfaction.
• Develop a long term technology plan.

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TIPS TO INCREASE OE
•Decrease turnover
•Increase market share
•Understand mission
•Supportive workforce policies
•Flexible policies
•Work environment

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TIPS TO INCREASE OE
•Positive supervisory policies
•Adhering to deadlines
•Decrease cycle time
•Increase response
•No backlogs
•Decrease absenteeism

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RECENT TRENDS IN ORGANIZATION
•Globalization
•Diversity
•Flexibility
•Flat
•Networking and Collaborating
•Rapid Innovation
•Autonomous Internal Units
•Outsourcing
•Change in work organization
•Change in work control

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•Change in employment practices
•New work time arrangement
•Change in pay systems
•Change in technology
•Focus on customers closing gaps between good and bad jobs
•Global vs local
•Heterogeneity vs Homogeneity
•Flexible vs Stable
•Internal vs External
•Centralization vs Decentralization

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•Interdependence vs Independence
•Industrial Era to Information Era
•National Economy to Global Economy
•Technological development to Technological sophistication
•Stability to Turbulent change
•Hierarchy to Networking
•Emphasis on continuity to Emphasis on change.

Organizational Theory Design and Development

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