How organizational effectiveness enhances how you work and grow

February 24, 2022 - 11 min read

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What is organizational effectiveness?

Why is organizational effectiveness important?

What is an example of organizational effectiveness?

7 organizational effectiveness models

How to cultivate organizational effectiveness that lasts

What makes a good business? Or a successful one? Many of the terms that we use to describe companies don’t have any objective criteria. But we can measure how effective a business is. And, as a matter of fact, tracking organizational effectiveness can be invaluable for people inside and outside the company.

Learn more about what organizational effectiveness is, how to measure it, and what it means for your workplace.

What is organizational effectiveness?

Merriam-Webster defines “effectiveness” as something that produces a desired effect. Something that successfully achieves the outcomes it sets out to achieve could be described as “effective.” So how does this apply to businesses?

Measuring organizational effectiveness starts with an assessment of values. A company can’t determine how effective they are without knowing what’s important to them.

Why is organizational effectiveness important?

Every business is started to achieve a goal. The specifics are different from organization to organization. Nevertheless, they’re all created with something in mind. That might be to make money, provide a service, help people, or fulfill a need.

So how do you know when you’ve done it?

Tracking these long-term goals is critical to organizational effectiveness. Without this, your company won’t be able to set a clear direction for growth. Knowing what you want to be good at prevents distractions. It streamlines decision-making and helps leaders determine where to allocate resources.

As the saying goes — if you don’t know where you’re going, any road will take you there.

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What is an example of organizational effectiveness?

In order to measure whether or not an organization is effective, we have to know two things: what the organization values and what its goals are. Let’s take a look at an example of how to assess organizational effectiveness:

Company A makes computer parts. They have a goal to be the most widely-used parts company in the world. They become known for their quality and value, signing contracts with several large manufacturers. Over time, their company has gained lots of positive press about their products.

Which of these statements indicates how effective they are?

a) Company A makes parts used by nearly every major computer brand nationwide.
b) Company A makes the highest quality computer parts.
c) Company A has set a new standard for sustainability in manufacturing.
d) Company A has high employee retention and satisfaction.
e) Company A makes the most expensive computer parts.

Let’s say all of these things are true. Only one measures how effective Company A is, and that’s the first statement. That’s because it directly correlates to the company's goal of being used in products throughout the world.

But the CEO in our example is a little upset about the last statement. They think their products are well-priced, and that it’s unfair to focus on the cost. Afraid that this will scare off potential customers, they start taking measures to cut the costs of their products.

Is this a worthwhile endeavor? Maybe. The question is really: Is it in line with their organization’s goals?

If cutting costs makes their product more accessible to more people, then it’s a solid initiative. But if they just don’t want anyone to think they’re “too expensive,” it’s just a distraction from the real goal.

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7 organizational effectiveness models

There are several different proposed models of organizational effectiveness. The most comprehensive is from the Academy to Innovate HR (AIHR). They outline seven perspectives on how to define and measure a company’s effectiveness. These include goals, internal processes, resources, strategic constituency, stakeholders, competing values, and abundance.

Goals

This is the most straightforward and common approach to effectiveness. How well does an organization achieve the goals it sets? Although this does a great job of measuring specific metrics, it doesn’t provide much information. Leaders will have a hard time determining whether their processes work or if their success is duplicatable.

Internal processes

Companies that focus on internal processes are concerned with maximizing efficiency. These organizations have well-documented processes that are easy to teach and carry out. While this is excellent for scale and study, it can make companies less agile. If not careful, companies can become bogged down with bureaucracy and reluctant to act.

Resources

You’re probably familiar with the term “barriers to entry.” It describes how hard it is for other businesses to compete with yours. If you have a product that’s difficult to duplicate — or better yet, exclusive access to the resources used to make it — that’s a high barrier to entry. 

Strategic constituency and stakeholders

A strategic constituency is a group that has a specific interest in the business. Similar to stakeholders, these are people who get some sort of benefit from the organization’s success. This might include owners, clients, employees, customers, governments, or suppliers. 

Competing values

Based on the Cameron and Quinn Organizational Culture Assessment Instrument (OCAI), this model measures company culture as a method of effectiveness. The better a company is able to simultaneously promote and fulfill competing values, the more effective they are.

Abundance

Although it sounds like it’s related to profit, the abundance model is about promoting positive values. Organizations that successfully flourish amidst challenges are effective according to this model.

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How to cultivate organizational effectiveness that lasts

Organizations grow when they can achieve their goals. There is no successful organization without measuring effectiveness. However, you can't counterfeit organizational effectiveness. Companies that promote short-term initiatives to achieve goals are not necessarily effective. That’s true even if the numbers look good.

A study from Bain & Company notes that “Companies that have managed to break the cycle of recurring initiatives take a long-term approach.” Building an effective organization isn’t something you can just do to make the numbers look good. It has to be part of the company’s mission, business strategy, and culture.

Here are some ways to boost organization effectiveness:

1. Find a North Star

What matters to your organization? What mission are you trying to fulfill? No matter whether you’re a for-profit or nonprofit, your organization exists for a reason. Knowing what you want to accomplish will make your decision-making processes easier.

2. Measure where you are

You won’t have any idea how much you’ve grown until you know where you started. Look at your organizational performance across several key areas. Which key performance indicators (KPIs) are most important to your mission? Where do you need to focus in order to hit your goals.

3. Create a game plan

Imagine you’re climbing a wall. It’s tough to get there if you only keep your eye on the summit. In order to go higher, you need to look for the next foothold or handhold closest to you.

Look at your current performance and compare it to what you want to achieve. If you’re going to get there, what do you need to do? Does anything need to change in your current business process? Communicate this vision to your team members. It’s important that your entire organization is aligned with this goal. That means knowing what you want to achieve and the difference it will make when you get there.

4. Look for gaps

Don’t wait until you hit your goal to assess how you’re doing, or you may never get there. 

Track different metrics across your organizational structure that relate to the larger goal. Work with teams on a regular basis to review inefficiencies and performance management. Learning to stay agile and course-correct as you work towards your goals will give you a competitive advantage.

5. Ask “What went well?”

When you do achieve your goal, by all means — take time to celebrate! But don’t stop there. Ask yourself and your managers: “What went well? What made the difference this time? And can we do it again?”

Involving employees and leaders in conversations around high performance has several important benefits. For one, it creates a much more collaborative work experience. This helps develop a sense of ownership and boosts employee engagement.

For another, few people are as qualified to give you insights into your organizational efficiency as the ones who carry out your processes. They can provide valuable input as to what works, what doesn’t, and how it translates into the customer experience.

Final thoughts

Organizational effectiveness is a way of measuring how well your company achieves its goals. It's inextricable from organizational design. If you're going to run any company successfully, you have to develop self-awareness (as a person and as a business). This helps you uncover what you do well and where you can improve. 

Your organizational efficiency is a direct measure of the difference that you make for your employees, customers, and other stakeholders. It's the one measure at the heart of your organization's success.

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Published February 24, 2022

Allaya Cooks-Campbell

BetterUp Staff Writer

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