Chapter 5

Organizational Effectiveness and Performance

Organizations are constructs designed to achieve singular objectives, such as the

effective provision of services, completion of a project, manufacture of batches
of products or longer term objectives such as profitability, market share growth,
technological competitiveness, economic growth/development or other performance
measure for ongoing activities. Organizational effectiveness and performance there-
fore have to be measured differently, depending on the environment and purpose
of the organization. Organizations are instruments designed to achieve an entity’s
objectives while responding to all threats and opportunities using assigned, available
or obtainable resources.
Globalization, technological change, and the information/communication tech-
nology revolution have introduced radical changes in the way organizations are
structured and management functions are performed. These changes will continue
under the increasing pressures of the competence of and opportunities provided
by new communications technology that is rapidly introducing efficient paper-
less and real time management, and the challenges of an increasingly borderless
globalized world.

5.1 Measures of Organizational Effectiveness

In general, we do not yet recognize the full impact of the increasing elimination
of paper or hard copy in management and transactions. Paper records, information
transmission, documentation, and idea developments have been the backbone and
principal tool of management for hundreds of years. They not only constituted
the principal tools of bureaucracy in management but also assumed power by
themselves. Paper records were assumed to represent proof and inviolability. They
were considered permanent and could be filed, collected, sorted, stored, and used
to control and manage. But many of these assumptions were found to be false.
Paper has often a limited lifetime, is easily destroyed, can readily be falsified, and
requires unwieldly storage and retrieval systems. On the other hand, electronic
communication and information systems do not suffer any of these disadvantages.
Wireless local area and other networks now provide real time access to voice, data,

E. G. Frankel, Quality Decision Management – The Heart of Effective Futures-Oriented 43

Management, Topics in Safety, Risk, Reliability and Quality 14,
© Springer Science + Business Media B.V. 2008
44 5 Organizational Effectiveness and Performance

and video information. This in turn permits greater organizational effectiveness.

At the same time, it permits storage, transfer, retrieval, and access of data, visual,
video, and other information.
Organizational effectiveness is measured in terms of the ability of an organiza-
tion or management to respond to threats and opportunities in a timely, effective,
purposeful, and accurate manner, with full knowledge of conditions, objectives,
opportunities, and threats. An effective organization is able to use its access to
historic and real time trends and status information as well as knowledge of alterna-
tive strategies available to make decisions at the most appropriate level to achieve
the greatest benefit for the organization. Measures of organizational effectiveness
are therefore:
1. Timeliness of decision
2. Completeness of information on status, threats, opportunities, and available
strategies and therefore choices and their consequences at each division level
3. Effectiveness of assignment of decision making responsibilities and required
resources
4. Methods of assuring the carrying out of the decisions
5. Follow up and intra-organizational updating or update management
6. Feedback of all information generated by the decision
In other words, organizational effectiveness is largely measurable in terms of the
efficiency or use of information in decision making and carry through. How effec-
tively information is used for decision making and how effectively information
generated by decisions is transmitted for use to all who may be affected by it or
benefit from it.

5.2 Economic Performance of Organization

The performance of an organization is usually complex, not only because of differ-

ences in activities required and objectives to be achieved, but also because changes
in endogenous and exogenous conditions that often influence performance meas-
ures. While traditionally basic financial or monetary criteria could be used, such as
profitability, return on investment or assets, net present value and benefit cost ratio,
increasing concerns with social, environmental, and other issues require organiza-
tional performance to often consider economic as well as various subjective criteria
such as ethics, morality, comfort, fairness, and so forth.
The public takes an increasing interest in both the quantitative as well as qualita-
tive performance of organizations particularly now when globalization drives increas-
ing cross border business mergers and alliances. As corporate power increases and
that of national governments declines, there is a rising consensus that organizations in
general must assume greater social and environmental responsibilities. Until recently,
it was assumed that the state could and would intervene whenever social and environ-
mental interests were at stake. Organizations must now develop voluntary decision
strategies that assure satisfaction of the basic public interests. Delegation of decision
5.4 Leadership in Decision-Based Organizations 45

making powers to the lowest competent level, a level at which the decision maker is
fully aware not only of the operational and performance but also social, environmen-
tal, and economic implications should facilitate responsiveness of organizations to
these new public concerns and demands.

5.3 Impact of Decision Specialization

Rapid technological changes in product and process developments in manufac-

turing and services require increased specialization to maintain in depth compe-
tence of an organization. As a result, decisions must now be divided into more
and more specialized decisions while assuring effective decision coordination
and technical as well as operational consistency. This is often difficult when the
boundaries between specialities are ill defined and time varying. In fact, todays’
frequently changing technological environment requires continuous updating of
decision boundaries as well as integration and coordination needs. This can only
be achieved by real time cooperation in which decision voids are filled and over-
laps resolved.
In addition, it requires boundaryless cooperative arrangements between experts
in different fields to assure ready real time access to required knowledge in the
resolution of new issues, problems, and opportunities. Such cooperation must be
as far as possible seamless and mutually beneficial. It must be encouraged by truly
open door facilities which eliminate any organizational or structural constraints.

5.4 Leadership in Decision-Based Organizations

Leadership is an elusive concept and is manifested in many different ways. It may

be based on tradition, on organizational structures, on personal ambition, and on
ability. Leaders can be born or developed. Often leaders evolve by change or by the
need to fill a vacuum or to take charge. In the latter case leaders often emerge from
nowhere with little if any qualification except perhaps their willingness to assume
the responsibility of leadership.
To be effective, leadership requires good communication skills, a sense of
direction, a commitment to a goal or cause, and above all a sense of community.
Today we face an acute crisis of leadership at the family, community, company, and
government levels, where leaders emerge or take control without most if any of the
qualifications for leadership.
Leaders are required to make decisions or at least direct decision-making pro-
cesses by providing guidance, access to information, and rules. They need not be
experts in all the complex issues involved in or affecting a decision, but they should
be able to balance and weigh competing factors and interests so as to lead the
decision making process to an effective resolution. Leaders are found at all levels
of an organization independent of position or rank.
46 5 Organizational Effectiveness and Performance

The rapid advances in technology, globalization, economic and political

mergers, and more no longer permit effective leadership or decision making by use
of hierarchical or traditional leadership selection. The knowledge and qualifications
for leadership now often reside in new, younger, better-educated, more dynamic
persons who are able to lead. Increasingly leadership and decisions are required in
new completely uncharted areas of technology, trade, and more, where experience
simply is not an issue nor could anyone ever have dealt with similar problems and
decisions.
Leadership therefore is becoming a more elusive concept and is assumed by
filling decision vacuums. Here the most competent and qualified person becomes
the leader or decision-maker, not by virtue of position but by ability to resolve the
issues and lead towards resolution of the problems. In decision-based organiza-
tions, leadership is therefore not hierarchical or traditional but vested solely in
ability, knowledge, and access to the information necessary for particular decisions.
In such an organization, leadership may also be temporary or associated with a
particular issue, problem or opportunity which when resolved triggers a return or
change in leadership.

5.5 Autonomy and Effectiveness

The delegation of decision making power to the most competent or qualified deci-
sion maker, independent of position, the person with best access to the required
information, and with the knowledge to make a most effective decision presents
effective opportunities for optimization in decision making. Such autonomy in the
decision space also offers a better scope in the optimization space.
Optimization is a decision making process in which we identify option control
variables, constraints, and values to determine the best choice and methods of
achieving an objective from among a range of alternative decisions. Autonomy in
decision making associated with assignment to a most competent decision maker
permits timely optimization towards the desired objectives and therefore consti-
tutes a most effective management approach. Decision authority should usually be
autonomous and independent to assure decision effectiveness and timeliness.

5.5.1 Organizational Politics

Human organizations, and in fact any grouping of people, invariably establishes a

political environment in which people grab for power and influence. In fact, a major
reason for management ineffectiveness is often that decision making is influenced
by internal political or positioning/power grabbing interests. Even when decision-
makers are capable, they are often affected by a power play in the organization,
including their own role in it. Decision-based management essentially eliminates
5.5 Autonomy and Effectiveness 47

hierarchy, a major factor in organizational politics. It also does not assign specific
powers to different decisions. Decisions are simply assigned by information access,
knowledge, and competence as they occur or are required. They may be one time
or repetitive. Full cooperation among decision-makers is not only encouraged but
becomes a necessity for all in the organization, as most decisions are interdepend-
ent. Such an organization usually becomes closely knit, self-rejuvenating, and
mutually supportive. As a result, destructive organizational politics and interper-
sonal competition, the scourge of many organizations, is usually dissipated or at
least downplayed.

5.5.2 Pride and Belonging

Organizations are most successful when everyone is proud to belong to it and

shares equally in its achievements. Successful organizations do not put emphasis
on titles but on responsibilities performance and contributions. A very successful
manager of large projects reports that the secret of his success is that in his project
organization everyone is called director, every one has the same title, and every one
shares equally in the success of the organization. Pride of belonging, contribution,
and of accomplishment are strong driving forces towards organizational effective-
ness and must be nurtured. There is no more important function for management.
Individuals must all feel and be told that they and what they do not only matters but
is essential to the success of the organization.

5.5.3 Training, Retraining, and Cross-Functional

Understanding

Decision-based management relies on up-to-date, high-level job, professional or

technological competence of individuals throughout the organization. Continuous
training and retraining is therefore essential, as is adoption of the latest technological
developments to the various aspects of the operations and services managed. In
other words, the organization must always be up to date or better even ahead of
technological developments of products and processes used or provided by the
organization. In particular, it must be able to use the most advanced information
and communication systems possible to monitor, control, and plan operations, and
assure organization-wide information transfer. Cross-functional understanding
must be assured by making information universally comprehensible and usable.
This requires complete openness, knowledge, cooperation, and transfer, as well
as continuous updating of conditions. In other words, choices identified at each
decision level and the reasons for the selection from among the choices must be
completely transparent and communicated in real time to all affected.