How Managers Measure Organizational Effectiveness - Research Paper Example

Measuring Organizational Effectiveness Measuring organizational effectiveness Introduction The growth of a new organization depends on the ability of the management and leaders to evaluate its effectiveness and determine how this affects its profitability. Organizational effectiveness is defined as the measure of how an organization is working towards achieving the outcomes intended by the management at inception. The determination of organizational effectiveness is essential for organizations that are funded by shareholders and stakeholders who will be interested in knowing the progress of their investments. Organizational effectiveness is known to cover the facets of organizational performance combined with the internal performance outcomes, which are directly influenced by the results of the effort (Zhou, Hong & Liu, 2013). The determination of the organizational effectiveness is thus an essential role of every organization in the 21st century that is driven by the desire to succeed and achieve the internal goals of the business. At the time an organization is formed, the managers must secure a continuing supply of resources from the organization’s environment. This will enable the business to operate continuously and achieve long and short-term goals. In this paper, a discussion of the important approaches that managers use to determine the initial mix of resources to adopt during the creation of the business will be discussed. Measuring organizational effectiveness and creating value The measure of organizational effectiveness is an essential process for any startup organization that desire to grow and enter new markets. As a result, either a number of tools have been developed for the measurement of effectiveness theoretically or empirically which make up part of the entire process of effectiveness determination. The judgment of performance in an organization is influenced by the group willing to determine the effectiveness, performance and the ability of the organization to achieve its objectives. Three approaches have been developed for the determination of effectiveness of an organization and can be utilized in the measure of new businesses whose operation parameters are still limited (Guest & Conway, 2011). External resource approach In measuring the organizational effectiveness through the determination of the external resource approach, the ability of a business to secure, manage and control the valuable resources and skills from the external environment is measured. In resource based view, the firm’s ability to effectively utilize the available resources is measured to determine the likelihood of profitable performance in the future. In this approach, two assumptions are developed in the process of the analysis of competitive advantage that includes the fact that a firm may be heterogeneous in relation to the scarce resources available within the environment. To determine the effectiveness of the business to perform and achieve its long term goals using the resource based approach, the beginning of the process and the evaluation of the organization’s performance based on its ability to obtain the resources available within the external environment is determined. This supports the definition of organizational effectiveness, which is the ability of an organization in a competitive environment to obtain the scarce resources and utilize for personal growth (Guest & Conway, 2011). In the resource approach of measuring organization effectiveness, the variables such as the relationship between the business and the environment is determined to demonstrate how well placed is the business to compete favorably for the scarce resources. Such an organization must therefore strive to survive and satisfy the various needs of its different components through the development of various subsystems. These include the bargaining position of the business, which is defined as the organizational ability to exploit the scarce resources within the environment and improve its competitive advantage. The organizational system decision makers and stakeholders must also be able to perceive and interpret the essential components of the external environment and how they influence the performance of the business. At the foundational level of the organization, the expected output is laid down and made available to the management as the blueprint to guide and influence their operations. An organization must therefore be able to produce the specified results based on the available scarce resource within the competitive environment (Xia & Li, 2013). Internal resource approach Due to the fixed output view of an organization, there is need to determine how the internal processes of the organization impacts on its ability to achieve its goals and remain competitive and thus effective. Based on this approach, organizational effectiveness is the capability of the organization to improve its performance based on the internal coordination, commitment and staff satisfaction that is developed (Guest & Conway, 2011). It is therefore effort based as compared to the measuring of the benefits of that an organization achieve due to its effectiveness and ability to perform as initially planned. However, critics have argued that the internal process approach cannot be able to provide a clear picture of an organizational effectiveness as it cannot produce legitimate indicator if used independently. In this approach, innovation is encouraged and pegged on how it will assist in the achievement of the expected goals and how such goals will improve the organizational performance and competitiveness. As a result, deliberate, rational and goal seeking entities must be developed to enable and organization achieve a certain specified goal within a certain period as specified in the organizational progress sheet. It thus view effectiveness based on the abilities of the internal organizational goals, objectives and performances as opposed to the direct influence that the external environment has. Typically, the goal attainment criteria of an organization will include processes that ensure the maximization of profits, improving efficiency of operation and the competitive index. By successfully setting goals and working towards their achievement, an organization improves its internal efficiency and ability to increase its influence in the competitive environment. Technical resource approach It is also known as the strategic contingency approach, which defines efficiency in an organization based on the organization’s ability to fulfill the demand of its constituencies within its environment of operation. As a result, this approach appreciates the fact that an organization requires to fulfill multiple goals that is influenced by the nature of customers that it serves at any given point in time. In technical resource approach, the position of the different players in the organization is appreciated and this results into the diversification of the risks of business operations. Initial organization resource mix Establishing an organization presents the major task of mobilizing resources that can drive the organization towards achieving its short and long-term goals. The ability of an organization to succeed will depend on its ability to develop the critical mix of resource and blend it with the organization’s plans, objectives and goals. Resources needed for starting organizations vary considerably and is influenced by the area of operation and the initial capital invested into the business. The human resource department must play an essential role in the acquisition of the best resource mix essential for achieving the goals and objectives of the organization. Startup organizations require the right people to work in the right places at the right time during the initial phases of the business. The people recruited by the organization at the beginning must also possess the right skills that will enable them to work for the organization and enable it achieve its key goals. Apart from skills and qualifications, the employees must possess must the right attitude and behaviors relevant to the organization’s goals and strategic plans. A resource mix must be developed and maintained by the organization for it to develop an efficient system that increases both competitive advantage and market control of the business. Financial resources is the primary component of the resource mix that a startup business must acquire due to the obligations that it will need to accomplish with the help of the finances. Apart from the financial resources, human resource plays a primary role in the performance of startup business, as the people will be responsible for the implementation of the business goals and the generation of efficiency in the operations. By recruiting the best employees with the right experience, an organization lays the foundation for effectiveness and success in the face of competition (Hope-Hailey, 2012). Physical resources such as machinery, assets and office stationery needed for the successful operation of the business will create efficiency and improve the performance and the morale of the employees. With changing technological applications in organizations, there is need for a pioneer organization to adopt a culture of effectiveness through the acquisition of the best capital resources. The evaluation of effectiveness in an organization creates a number of opportunities and competitive advantage due to its ability to identify the strengths and weakness inherent in the organization. Performance evaluation explores major issues in the organization that affects the ability of the organization to achieve its primary goal and objective. It also provides recommendation and action plan that if implemented by the organization can improve overall performance. The development of greater objectivity in an organization is also enhanced through performance and efficiency measurement (Hope-Hailey, 2012). Organizational competitiveness for resources The scarcity of resources within the business environment makes it essential for businesses to be able to competitively obtain them for the success of the organization. Gaining competitive advantage is the prime role of any business established, as it is essential in the development of an organization with the ability to fulfill the needs of the consumers and remain profitable. The pursuit of competitive advantage is also an idea that resides at the center of every strategic management approach of an organization. Based on the resource-based view of a business, the nature of resources owned and controlled by a business has the ability to increase the competitive advantage of the said business. This increases the organizational performance and effectiveness of the business, a recipe for market control and maximization of profitability. The resources needed for a business to gain competitive advantage over other businesses vary but human resource remains one essential resource that will enable a business to successfully achieve its goal and operate effectively. Categorizing resources into tangible and intangible results into three critical sets that a business should be acquired to increase market presence and performance. These include the physical resources, which is the infrastructure of the business and the machinery responsible for the day-to-day operations of the business (Pereira & Gomes, 2012). Financial resources are also critical for the budgeting and planning process, which is essential for the acquisition of other resources in the organization including human resources and physical resources. The experiential and human resource is the third category of resources that holds the key to an organization success as it is responsible for the daily fulfillment of the goals of the business. The resource based approach discussed earlier predicts that the possession of certain resources have the potential to increase the competitive advantage of a business which leads ultimately to better organizational performance (Hope-Hailey, 2012). The consequences of obtaining resources are influenced by the nature of the resource and the role it plays in the business in the pursuit of effectiveness and performance. By increasing the quality of the products and services, the organization increases customer satisfaction and increases the competitive advantage of the business (Wan-Jing April & Tung Chun, 2010). With efficient machinery, an organization’s ability to meet the needs of the clients promptly is increased due to the efficiency of the machines, which raises the overall organizational performance. Financial resources such as cash in hand and in the bank or other business savings and financial assets are also critical in improving the competitive advantage of the business. The possession of the necessary financial resources places an organization at a better position to meet its financial obligations in time without inconveniencing the clients (Nankervis, Stanton & Oley, 2012). This increases customer satisfaction, trust and thus the competitive advantage of the business due to the positive reviews and comments from the happy customers. Experiential resources such as strong product quality and reputation, quality manufacturing processes and experience, great branding and packaging attributes among others increases the trust that the customers have towards and organization and thus the overall sales in a given year. With market reputation due to positive product review and manufacturing abilities, an organization exerts its control in the market and creates a niche that enables it to improve its financial performance in the face of strong competitive forces from the market (Wan-Jing, April & Tung Chun, 2010). The availability of resources within a business environment has the ability to increase the organizational competitive advantage only if the resource is immobile and not based on obsolete environmental changes. Resources that are influenced by changes in the environment can become obsolete with environmental and technological changes thus affecting the ability of the business to continue enjoying the competitive advantage brought about by the resources. As a result, a business must strive to accumulate strategic resources, which have long lasting rent-producing implications to the business, thus affording a long lasting competitive advantage to the business (Guest & Conway, 2011). Competitive advantage can be defined by different parameters including superior differentiation and lower costs of operations as compared to the competitors, which are a factor in the resource, based approach of efficiency measuring. Resources can only increase competitive advantage if bundled and applied together rather than individually. As a result, for a business to remain competitive despite the changing dynamics of the market, it must be able to create a rewarding mix from its capital, financial and experiential resources. This will create a long lasting resource mix that can improve the overall position of the business relative to that of the competitors. Management today has changed its focus form processes and the desire to achieve efficiency into the development of approaches that work towards enhancing the wellbeing of the employees (Malodia, 2012). This concept was also developed at a time when most industry players were family owned and made it possible for them to be more focused in production efficiency as compared to the worker welfare (Harazin & Pádár, 2013). The need by managers today to reorganize tasks and to enable employees and managers handle different roles through planning, controlling and directing has been borrowed from Taylors. Just like previous family owned businesses during Taylor’s time that carefully selected workers and provided them with specialized training, the current management approach has also led to the use of appropriate selection approaches that weighs on their potential and ability to deliver on different responsibilities. Workers are today treated as individuals whose productivity is influenced by their motivation and the provision of the right training and compensation packages (Nankervis, Stanton & Oley, 2012). Managers have also moved from the controllers and supervisors to role models and regulators who work to win the trust and confidence of the employees in line with the scientific management approach. With focuses on the systematic identification and the development of specialized and standardized work approaches, the scientific management of Taylor has been adopted in different fronts of management today (Wan-Jing, April & Tung Chun, 2010). The application of Taylors in today’s management approaches have been attributed to the massive success in different sector though few modifications have been done in line with the technological changes in different sectors. A number of techniques used in management today like the just in time (JIT) and the business process re-engineering (BPR) as some of the approaches that have borrowed heavily from the Taylors management approaches Apart from building competitive advantage, resources in an organization are essential for improving organizational performance and increasing the capacity of the firm to either lower or raise their prices. Resourced companies and multinationals in the United States have used their financial muscles to raise the entry barriers and eliminate any significant competition from the market. Through its financial strength, a firm may use the lobbying capacity generated by the resources to convince the government to raise the entry barrier and eliminate the entry of competitors into the sector (Harazin & Pádár, 2013). The proponents of resource based approach in organizational effectiveness measurement argues that in the face of stiff competition from other companies, the strategic resources and the firms performance can remain an asset to assert market authority and presence. This explains the benefits of mobilization and attainment of resources by an organization that seeks to establish itself in the market despite the strong competitive forces from other market players (Nankervis, Stanton & Oley, 2012). Cost of obtaining resource Organizational resources can be achieved in a number of ways, which is influenced by the organization’s capacity to acquire the essential resources that are imperative to success. Resources are categorized in different ways based on the acquisition method as described under the resource-based model of measuring effectiveness in organizations. Traded resources that can be achieved in the open trading market do not have the capacity to confer a business with distinctive competitive advantage. This is because of the fact that open traded resources can be acquired by any business as long as they have the financial capability to have them (Wan-Jing, April & Tung Chun, 2010). Following the resource based approach that this paper has adopted; resources that can confer a business with competitive advantages must be internally based and not influenced by the changing dynamics of the market. The process of resource acquisition can adopt three strategic approaches, which include searching, acquisition and absorption into the organizational structure. During this acquisition process, the absorption phase is the most involving and requires the strategic management approaches for it to work in favor of the organization. This is because it requires the firm to be able to integrate the acquired resources with the existing resource based. The possession of prior knowledge about the resource acquired and how it is essential in the improvement of organizational performance affects the success of the absorption phase of acquisition (Harazin & Pádár, 2013). For a resource that is traded in the open market to increase the competitive advantage of an organization, it must be able to generate rent that the firm can aptly appropriate. This occurs in the event that the organization acquires the resource below its marginal productivity and blends it to the available resources. The marginal productivity of market-traded resource differ depending on organizations, competition for the same resource may increase its price above an organization’s reservation for resource acquisition. In the event that it possesses superior information, an organization may acquire the resource at a much lower price and improve its effectiveness based on its use. Its level of development and accumulation of competitive advantage that enhances its ability to eliminate the power of other firms to infiltrate their market share influence the resource attainment by an organization. Conclusion The performance of organization is influenced by several internal and external factors, which can be improved by the management increase competitive advantage and profitability. One of the tools available for increasing an organization performance and profitability is the consistent measurement of effectiveness of the organization. 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