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Effectiveness, Performance and Productivity Published: Wednesday, August 19, 1998 By: Dr. Manuel Angel Morales

Most people would probably agree that effectiveness, performance and productivity are important to organizations. For this assertion to have meaning, however, we most establish why they are important. The quality philosophy indicates that effectiveness means doing the right thing every time, all the time. But let us expand on this definition. It refers to the extent to which an organization achieves its goals set over an extended period of time. Organizations have, at least, four kinds of goals: financial, participant, environmental and survival goals. One aspect should be clear. Organizations can seldom (if ever) maximize all of them simultaneously, because goals are often contradictory, paradoxical and inconsistent. An effective organization is one that can satisfy its goal set over time. To illustrate the concept of effectiveness let us recall the case of Tandem Computer. It was a very profitable and efficient organization in terms of financial goals. The company developed an innovative system of cultural transformation, taking an interest in the personal lives of it human resources (participant goals). It developed good relations with both customers and suppliers and achieved a great record of sales growth (environmental goals). Finally, the company laid out a firm foundation for its growth and prosperity by emphasizing research and development and growth (survival goals). However, it is important to stress that survival by definition has an indefinite time horizon, which companies sometime forget. For an enviable period of time Tandem was doing, a reasonable good job in orchestrating its goals. Like many other good companies Tandem had ups and downs due to the dynamic factor of such a complex undertaking.

Whereas organizational effectiveness is a comprehensive, general concept, performance has a more of a mid-range flavor. It refers to the way in which an organization tries to be effective. Suppose a manager is trying to achieve a 20% return on investment (a financial goal) and to build up a highly satisfied and committed work force (a participant goal). The first year the manager pays very good wages, provides employee benefits, and does not exercise focus supervision. Employee satisfaction goes up, but return on investment goes down because of higher expenses. The next year, the manager "reacts" to the low return on investment by cutting labor cost to the bone. The result is a higher return on investment, but employee satisfaction and commitment drop off. This manager is trying to be effective by optimizing different kinds of goals but is going about in the wrong way. Organizational performance, then, involves the methods an organization or manager chooses to pursue effectiveness. Finally, productivity is the level of output of goods and services achieved by the resources of an organization. It is not the aim, but the consequence of a robust design! For example, it has been estimated that Japanese automobile manufacturers produce a car for around $3,000 less than American companies. Hence the Japanese are more productive; they are producing a comparable product (output) for less money (resources). In general, most people think of the work of individual employees when they discuss productivity. However, goods and services are produced through intelligent design of work processes and smart use of other resources such, as dollars invested, capital equipment, materials, human and information resources, among others.

When an organization does not have a high level of productivity, it tends to be less efficient and less attractive to investors. Reasonable levels of performance are needed for an organization to maintain its resources and to continue operating smoothly. Needless to say, effectiveness has an impact not only on profits but also on the very survival of the organization. One cannot help but to remember the great teacher James D. Thompson, Organizations in Action, when saying that organizations must perform are else...

The point is that effectiveness, performance and productivity are components of a sophisticated management system. Thus, we can refer to approaches to organizational effectiveness:

  • Systems resources - acquiring the resources it needs.
  • Goal - achieving its goals.
  • Internal functioning - operating smoothly and efficiently without strain.
  • Strategic constituencies - satisfying the demands and expectations of stakeholders.

Of the three concepts, productivity is the narrowest in scope, with a relatively short time horizon. Its basic thrust is on what is produced, but doesn`t account for how relevant those goods and services might be. An organization may be very productive but be producing the wrong things. Performance is at an intermediate level in both scope and time horizon. It is partially (but not completely) determined by productivity and takes a larger view.

The overall and profound understanding of effectiveness can assist leaders, managers, investor and researchers concerned with improving organizations.

Copyright 1998 QBS, Inc.
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