1 chapter three organizational effectiveness 2 top management role in organization direction,...

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Chapter ThreeChapter Three

Organizational EffectivenessOrganizational Effectiveness

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Top Management Role in Organization Top Management Role in Organization Direction, Design, and EffectivenessDirection, Design, and Effectiveness

CEO, TopManagement

Team

External Environment

OpportunitiesThreats

UncertaintyResource Availability

Internal SituationStrengths

WeaknessesDistinctive Competence

Leadership StylePast Performance

Strategic Direction

Organization Design

Effectiveness Outcomes

Definemission,officialgoals

Selectoperationalgoals,competitivestrategies

ResourcesEfficiencyGoal attainmentCompeting values

Structural Form – learning vs. efficiencyInformation and control systemsProduction technologyHuman resource policies, incentivesOrganizational cultureInterorganizational linkages

Source: Adapted from Arie Y. Lewin and Carroll U. Stephens,“Individual Properties of the CEO as Determinants of OrganizationDesign,” unpublished manuscript, Duke University, 1990; and Arie Y. Lewinand Carroll U. Stephens, “CEO Attributes as Determinants of Organization Design:An integrated Model,” Organization Studies 15, no. 2 (1994): 183-212

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Organizational PurposeOrganizational Purpose

MissionMission– The overall goals for an organization is often The overall goals for an organization is often

call the mission.call the mission.– The mission describes the organization’s The mission describes the organization’s

vision.vision.– The mission is sometimes called the official The mission is sometimes called the official

goals which refers to the formally state goals which refers to the formally state definition of business scope and outcomes definition of business scope and outcomes the organization is trying to achieve.the organization is trying to achieve.

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Mission statement of HalmarkMission statement of Halmark– We believe that :We believe that :

Our product and services must enrich Our product and services must enrich people’s lives and enhance their people’s lives and enhance their relationshiprelationship

Creativity and quality-in our concept Creativity and quality-in our concept product and services-are essential to our product and services-are essential to our success.success.

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Operative GoalsOperative Goals– Describe specific measurable outcomes Describe specific measurable outcomes

and are often concern with short run. and are often concern with short run. – Operative goals include : Operative goals include :

Overall Performance : Profitability may be Overall Performance : Profitability may be expressed in terms of net income, earning expressed in terms of net income, earning per share or return on investment.per share or return on investment.Other overall performance goals are growth Other overall performance goals are growth and output volume.and output volume.

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Operative GoalsOperative Goals– ResourcesResources

Obtaining financing for the construction of new Obtaining financing for the construction of new plants, finding less expensive source of materials, plants, finding less expensive source of materials, or hiring top-quality technology graduate.or hiring top-quality technology graduate.

Resource goals for Harvard University include Resource goals for Harvard University include attracting to professor and student.attracting to professor and student.

Honda Motor Company has resource goals of Honda Motor Company has resource goals of obtaining high-quality auto parts at low cost.obtaining high-quality auto parts at low cost.

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Operative GoalsOperative Goals– MarketMarket

Market goals relate to the market share desire by Market goals relate to the market share desire by organization.organization.

Market goals are responsibility of marketing, sales, Market goals are responsibility of marketing, sales, and advertising department.and advertising department.

For example, Honda’s desire to over take Toyota For example, Honda’s desire to over take Toyota Motor Company as the number one seller of cars Motor Company as the number one seller of cars in Japan.in Japan.

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Operative GoalsOperative Goals– Employee DevelopmentEmployee Development

Employee development pertains to the training, Employee development pertains to the training, promotion, safety, and growth of employee.promotion, safety, and growth of employee.

It include managers and workers.It include managers and workers.

According to Barbara Wallace, Fetzer’s director of According to Barbara Wallace, Fetzer’s director of human resources “… our company feels that human resources “… our company feels that developing people’s capabilities strengthens the developing people’s capabilities strengthens the organization, it’s a way of creating loyalty.organization, it’s a way of creating loyalty.

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Operative GoalsOperative Goals– Innovation and ChangeInnovation and Change

Innovation goals pertain to internal flexibility and Innovation goals pertain to internal flexibility and readiness to adapt to unexpected changes in readiness to adapt to unexpected changes in environment.environment.

Innovation goals are often defined with respect to Innovation goals are often defined with respect to the development of specific new services, product the development of specific new services, product or production process.or production process.

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Operative GoalsOperative Goals– ProductivityProductivity

Productivity goals concern the amount of output Productivity goals concern the amount of output achieved from available resources.achieved from available resources.

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The Importance of GoalsThe Importance of Goals– Both official goals (mission) and Both official goals (mission) and

operative goals are important for operative goals are important for organization, but they serve very organization, but they serve very different purpose.different purpose.

– Official goals describe a value system Official goals describe a value system for the organizationfor the organization

– Operative goals represent the primary Operative goals represent the primary tasks of the organization.tasks of the organization.

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Goal Type and PurposeGoal Type and Purpose

Type of Goals Purpose of Goals

Official Goals, mission: Legitimacy

Operative goals: Employee direction and motivationDecision guidelinesStandard of performance

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Porter’s Competitive StrategiesPorter’s Competitive Strategies

Competitive Competitive ScopeScope

CompetitiveCompetitive

AdvantageAdvantage StrategyStrategy ExampleExample

BroadBroad Low CostLow Cost

Low-CostLow-Cost

LeadershipLeadership Dell ComputerDell Computer

BroadBroad UniquenessUniqueness DifferentiationDifferentiation

StarbucksStarbucks

Coffee Co.Coffee Co.

NarrowNarrow Low CostLow Cost

Focused Low-CostFocused Low-Cost

LeadershipLeadership

EnterpriseEnterprise

Rent-a- CarRent-a- Car

NarrowNarrow UniquenessUniqueness

FocusedFocused

DifferentiationDifferentiation

Edward JonesEdward Jones

InvestmentsInvestments

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Miles and Snow’sMiles and Snow’sStrategy TypologyStrategy Typology

ProspectorProspector– To innovate, take riskd, seek out new To innovate, take riskd, seek out new

opportunities and grow.opportunities and grow.– This strategy is suited to a dynamic, This strategy is suited to a dynamic,

growing environment where creative is growing environment where creative is more important than efficiency.more important than efficiency.

– For example, Federal Express Corporation, For example, Federal Express Corporation, which innovates in both services and which innovates in both services and production technology in rapidly changing production technology in rapidly changing overnight mail industry.overnight mail industry.

Source: Based on Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), 100-113; andRaymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,”Academy of Management Review 3 (1978), 546-562

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Miles and Snow’sMiles and Snow’sStrategy TypologyStrategy Typology

DefenderDefender– Concern with stabilityConcern with stability– Efficiency orientation; centralized authority Efficiency orientation; centralized authority

and tight cost controland tight cost control– Emphasis on production efficiency, low Emphasis on production efficiency, low

overheadoverhead– This strategy can be successful when the This strategy can be successful when the

organization exists in the declining industry organization exists in the declining industry or stable environment.or stable environment.

Source: Based on Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), 100-113; andRaymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,”Academy of Management Review 3 (1978), 546-562

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Miles and Snow’sMiles and Snow’sStrategy Typology (cont’d)Strategy Typology (cont’d)

AnalyzerAnalyzer– Try to maintain stable business while innovating Try to maintain stable business while innovating

on periphery. It seems to lie midway between the on periphery. It seems to lie midway between the prospector and the defender.prospector and the defender.

– Efficient production for stable product lines; Efficient production for stable product lines; emphasis on creativity, research, risk-taking for emphasis on creativity, research, risk-taking for innovationinnovation

– P&G strategy is to maintain a stable business for P&G strategy is to maintain a stable business for strong brands like pampers, while also pushing to strong brands like pampers, while also pushing to invent new catagories product, such as those invent new catagories product, such as those developed for home dry cleaning.developed for home dry cleaning.Source: Based on Michael Treacy and Fred Wiersema,

“How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), 100-113; andRaymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,”Academy of Management Review 3 (1978), 546-562

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Miles and Snow’sMiles and Snow’sStrategy Typology (cont’d)Strategy Typology (cont’d)

ReactorReactor– Respond to environmental threaths and Respond to environmental threaths and

opportunities in an ad hoc fashion.opportunities in an ad hoc fashion.

– In reactor strategy, top management has not In reactor strategy, top management has not defined a long-run plan, so the organization defined a long-run plan, so the organization takes whatever action seem to meet takes whatever action seem to meet immediate needs.immediate needs.

– For example franchisees lack of clear For example franchisees lack of clear strategic direction for the future, strategic direction for the future, Source: Based on Michael Treacy and Fred Wiersema,

“How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), 100-113; andRaymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,”Academy of Management Review 3 (1978), 546-562

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Contingency FactorsContingency FactorsAffecting Organization DesignAffecting Organization Design

Strategy

Environment Technolog

y

Size/Life Cycle Culture

Organizational Structure and Design

The Right Mix of Design Characteristics Fits the Contingency Factors

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In stable environment, the organization can have In stable environment, the organization can have a traditional structure that emphasizes on :a traditional structure that emphasizes on :– vertical control, vertical control, – efficiency, efficiency, – speciallization, speciallization, – standard procedure and standard procedure and – centralization decision making.centralization decision making.

Rapidly changing environment may call for Rapidly changing environment may call for – a more flexible structure, a more flexible structure, – with strong hirizontal coordination and collaboration with strong hirizontal coordination and collaboration

through team or mechanism.through team or mechanism.

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Young small organization are generally :Young small organization are generally :– Informal and have little division of labor,Informal and have little division of labor,– Few rules and regulationsFew rules and regulations

Large organization such IBM, Sears, have Large organization such IBM, Sears, have – An extensive division of labour, numerous rule An extensive division of labour, numerous rule

and regulations, and innovation.and regulations, and innovation.

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Design must also fit the workflow Design must also fit the workflow technology of the organizationtechnology of the organization– Mass production technology, such as a Mass production technology, such as a

traditional automobile assembly line, the traditional automobile assembly line, the organization best by emphazing efficiency, organization best by emphazing efficiency, formalization, specialization, centralzed formalization, specialization, centralzed decision making and tight controldecision making and tight control

An e-businessAn e-business– Might need to be informal and flexibility.Might need to be informal and flexibility.

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Contingency Approaches to the Contingency Approaches to the Measurement of Organizational Measurement of Organizational

EffectivenessEffectiveness

Organization

Internalactivities

andprocesses

ResourceInputs

Product andServiceOutputs

Resource-basedapproach

Internalprocess

approach

Goalapproach

External Environment

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Goal approachGoal approach– Consists of identifying an organization’s Consists of identifying an organization’s

output goals and assessing how well the output goals and assessing how well the organization has attained those goalsorganization has attained those goals

– For example, President Val Ackerman set For example, President Val Ackerman set agoal of 4,000 to 5,000 ticket per game of agoal of 4,000 to 5,000 ticket per game of national basket ball, the ticket average sold national basket ball, the ticket average sold 9,700 tickets per game. So it was highly 9,700 tickets per game. So it was highly effective meeting its goal for attendance.effective meeting its goal for attendance.

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Goal approachGoal approach– Goals indicatorGoals indicator

Efforts to measure effectiveness have been more Efforts to measure effectiveness have been more productive using operative goal than using official productive using operative goal than using official goals.goals.

One example of multiple goals is from a survey of One example of multiple goals is from a survey of US Business corporation below.US Business corporation below.

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Reported GoalsReported Goalsof U.S. Corporationsof U.S. Corporations

Goal % CorporationsProfitability 89Growth 82Market Share 66Social Responsibility 65Employee welfare 62Product quality and service 60Research and development 54Diversification 51Efficiency 50Financial stability 49Resource conservation 39Management development 35

Source: Adapted from Y. K. Shetty, “New Look at Corporate Goals,” California Management Review 22, no. 2 (1979), pp. 71-19.

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Goal approachGoal approach– Goals usefullnessGoals usefullness

Two problems that must be resolved are the issues Two problems that must be resolved are the issues of of

– Multiple goals Multiple goals

High achievement on one goal might mean low High achievement on one goal might mean low achievement on another.achievement on another.

Most organization use a balanced approach to Most organization use a balanced approach to measuring goals measuring goals

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Goal approachGoal approach– Goals usefullnessGoals usefullness


– Subjective indicatorSubjective indicator

For business organizations, there are often objective For business organizations, there are often objective indicators for certain goals, such as profit and indicators for certain goals, such as profit and growth.growth.

However, subjective assesment is needed for other However, subjective assesment is needed for other goals, such as employee welfare or social goals, such as employee welfare or social responsibilityresponsibility

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EffectivenessEffectivenessGoal approachGoal approach– Goals usefullnessGoals usefullness


– Multiple goals Multiple goals High achievement on one goal might mean low High achievement on one goal might mean low achievement on another.achievement on another.Most organization use a balanced approach to Most organization use a balanced approach to measuring goals measuring goals

– Subjective indicatorSubjective indicatorFor business organizations, there are often objective For business organizations, there are often objective indicators for certain goals, such as profit and indicators for certain goals, such as profit and growth.growth.

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Resource based approachResource based approach– Looks at the input side of the transformation Looks at the input side of the transformation

process.process.– It is defined as the ability of organization, in It is defined as the ability of organization, in

either absolute or relative terms, to obtain either absolute or relative terms, to obtain scare and valued resources and successfully scare and valued resources and successfully integrate and manage them.integrate and manage them.

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EffectivenessEffectivenessResource based approachResource based approach– Indicators Indicators

Bargaining position : the ability of organization to obtain from Bargaining position : the ability of organization to obtain from its environment scarce and valued resources, raw materials, its environment scarce and valued resources, raw materials, human resources, knowledge and technologyhuman resources, knowledge and technology

The abilities the organization’s decision makers to perceive The abilities the organization’s decision makers to perceive and correctly interpret of the external environment.and correctly interpret of the external environment.

The ability of managers to use tangible (supplies, people) The ability of managers to use tangible (supplies, people) and intangible (knowledge, corporate culture) in day-to-day and intangible (knowledge, corporate culture) in day-to-day organizational activities organizational activities

The ability of organization to respond to chenges in the The ability of organization to respond to chenges in the environment.environment.

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Resource based approachResource based approach– UsefullnessUsefullness

The resource-based approach is valuable when The resource-based approach is valuable when other indicators of performance are difficult.other indicators of performance are difficult.

For example, Mathsoft, Inc which provide For example, Mathsoft, Inc which provide analytical software for business evaluate its analytical software for business evaluate its efectiveness for business partly by looking at how efectiveness for business partly by looking at how many top rate PhD’s it can recruitmany top rate PhD’s it can recruit

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Internal process approachInternal process approach– It is measured as internal organizational It is measured as internal organizational

health and efficiency. Employees are happy health and efficiency. Employees are happy and satisfied.and satisfied.

– This approach does not consider external This approach does not consider external environment.environment.

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EffectivenessEffectivenessIndicatorsIndicators– Organization’s economic efficiency, the best Organization’s economic efficiency, the best

known proponents of a process model are known proponents of a process model are from the human relations approach to from the human relations approach to organization.organization.

– A study of two hundred secondary schools A study of two hundred secondary schools showed that both human resources and showed that both human resources and employee oriented process were important in employee oriented process were important in explaining and promoting effectiveness in explaining and promoting effectiveness in those organization.those organization.

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IndicatorsIndicators– Strong corporate culture and positive work Strong corporate culture and positive work

climateclimate– Team spirit, group loyalty, and team work.Team spirit, group loyalty, and team work.– Confidence, trust, and communication Confidence, trust, and communication

between workers and management.between workers and management.– Rewards to managers for performance, Rewards to managers for performance,

growth, and development of suordinate and growth, and development of suordinate and for creating an effective working group.for creating an effective working group.

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UsufulnessUsufulness– Effeciency use of resources and harmonious Effeciency use of resources and harmonious

internal functioning are ways to measure internal functioning are ways to measure effectivenesseffectiveness

– Keeping employees happy is the key to Keeping employees happy is the key to longrun success for his organization.longrun success for his organization.

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Four Models ofFour Models ofEffectiveness ValuesEffectiveness Values

Human Relations Emphasis

Primary Goal: human resource developmentSubgoals: cohesion, morale, training

Internal Process Emphasis

Primary Goal: stability, equilibrium

Subgoals: information management, communication

Rational Goal Emphasis

Primary Goal: productivity, efficiency, profit Subgoals: planning, goal setting

Open Systems Emphasis

Primary Goal: growth, resource acquisitionSubgoals: flexibility, readiness, external evaluation

Flexibility

Control

Internal External

STRUCTURE

FOCUS

Adapted from Robert E. Quinn and John Rohrbaugh, “A Spatial Model of Effectiveness Criteria: Toward a Competing Values Approach to Organizational Analysis,” Management Science 29 (1983): 363-377; and Robert E. Quinn and Kim Cameron, “Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,” Management Science 29 (1983): 33-51.

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IndicatorsIndicators– Focus, which is whether dominant values Focus, which is whether dominant values

concern issues that are internal or external to concern issues that are internal or external to the firmthe firm

– Internal focus reflects a management concern Internal focus reflects a management concern for the well-being and efficiency of employeesfor the well-being and efficiency of employees

– External focus represents an emphasis on the External focus represents an emphasis on the well-being of the organization it self with well-being of the organization it self with respect to the environment.respect to the environment.

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IndicatorsIndicators– Structure, whether stability versus flexibilityStructure, whether stability versus flexibility– Stability reflects a management value for Stability reflects a management value for

efficiency and top down controlefficiency and top down control– Flexibility represent a value for learning and Flexibility represent a value for learning and

change. change.

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ORGANIZATIONB

ORGANIZATIONA

Effectiveness ValuesEffectiveness Valuesfor Two Organizationsfor Two Organizations

Human RelationsEmphasis

Internal ProcessEmphasis

Rational Goal Emphasis

Open Systems Emphasis

STRUCTURE

FOCUS

FLEXIBILITY

CONTROL

INTERNAL EXTERNAL

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Organization A Organization A – is a young organizationconcern with finding a is a young organizationconcern with finding a

niche and becoming established in the niche and becoming established in the external environment.external environment.

– Primary emphasis is given to flexibility, Primary emphasis is given to flexibility, innovation, acquisition of resources from the innovation, acquisition of resources from the environment.environment.

– Moderate emphasis to human relations and Moderate emphasis to human relations and even less emphasis to current productivity even less emphasis to current productivity and profits.and profits.

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Organization B Organization B – Is an established business in which the Is an established business in which the

dominant value is productivity and profitsdominant value is productivity and profits– Characteristic by planning and goal settingCharacteristic by planning and goal setting– Flexibility and human resources are not major Flexibility and human resources are not major

concerns.concerns.– This organization prefers to stability.This organization prefers to stability.

1 chapter three organizational effectiveness 2 top management role in organization direction,...

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