Almost all organisational behaviour theories have the implicit or explicit objective of making organisations more effective.15 Indeed, organisational effectiveness is considered the ‘ultimate dependent variable’ in organisational behaviour.16 The first challenge, however, is to define organisational effectiveness - A broad concept represented by several perspectives, including the organisation's fit with the external environment, internalsubsystems configuration for high performance, emphasis on organisational learning and ability to satisfy the needs of key stakeholders.. Experts agree that this topic is burdened with too many labels—organisational performance, success, goodness, health, competitiveness, excellence and so on—with no consensus on the meaning of each label. Show
Long ago, organisational effectiveness was defined as the extent to which an organisation achieved its stated goals.17 According to this view, Wesfarmers is effective because it achieves its stated objectives, such as achieving specific weekly sales targets at Coles or coal production output at Curragh Queensland Mining. The goal-attainment view is no longer accepted, however, because a company can be considered effective simply by establishing easily achievable goals. Also, some goals—such as social responsibility to the community—are so abstract that it is difficult to know how well the organisation has achieved them. A third flaw with the goal-attainment definition is that a company's stated objectives might threaten its long-term survival. For example, some corporate leaders receive incentives (such as stock options) to maximise short-term profits. Some accomplish this objective by slashing expenditures, including funds for marketing and product development. The result is often a lack of new products and deterioration in the company's brand value in the long run. In extreme cases, the company achieves its short-term profitability targets but eventually goes out of business. How is organisational effectiveness defined today? The answer is that there are several perspectives of effectiveness, so this concept is defined by all of these perspectives together.18 Organisations are considered effective when they have a good fit with their external environment, when their internal subsystems are efficient and effective (i.e. high-performance work practices), when they are learning organisations and when they satisfy the needs of key stakeholders. Over the next few pages, we will discuss each of these four perspectives of organisational effectiveness in some detail. Open-Systems Perspective
As open systems, organisations depend on the external environment for resources, including raw materials, employees, financial resources, information and equipment. Wesfarmers and other companies could not survive without employees, raw materials, knowledge and so forth. The open-systems perspective also describes numerous subsystems within the organisation, such as processes (communication and reward systems), work units (production, marketing) and social dynamics (informal networks, power relationships). With the aid of technology (such as equipment, work methods and information), these subsystems transform inputs into various outputs. Some outputs (e.g. products and services) may be valued by the external environment, whereas other outputs (e.g. employee layoffs, pollution) have adverse effects. The organisation receives feedback from the external environment regarding the value of its outputs and the availability of future inputs. According to the open-systems perspective, successful organisations monitor their environments and are able to maintain a close fit with changing conditions.20 One way they do this is by finding new opportunities to secure essential inputs. For instance, many fast-food restaurants struggle to find enough employees, but McDonald's Restaurants has identified several ways to ensure that it has enough qualified staff. It was among the first to recruit retirees. McDonald's UK introduced the ‘family contract’, which allows members of the employee's family (spouses, grandparents and children over the age of 16) to swap shifts without notifying management.21 Successful organisations also redesign outputs so that they remain compatible with demands from the external environment. For example, sensing a need for environmental responsibility, Bunnings was one of the first companies in this region to discourage use of plastic bags. Similarly, in response to consumer demand and government requirements, car manufacturers have been scrambling to design models that are more fuel-efficient or rely on different energy sources. This open-systems view is reflected in the words of Huh Chang-soo, chairman of Korean conglomerate GS Group: ‘Customer needs are changing fast. If we do not detect the changes, and act on them in a timely way, such as by making investments, we will fail.’22 Internal-Subsystems Effectiveness The open-systems perspective considers more than an organisation's fit with the external environment. It also examines how well the organisation operates internally, that is, how well it transforms inputs into outputs. The most common indicator of this internal transformation process is organisational efficiencyThe amount of outputs relative to inputs in the organisation's transformation process. (also called productivity), which is the amount of outputs relative to inputs.23 Companies that produce more goods or services with less labour, materials and energy are more efficient. A popular strategy for improving efficiency in the transformation process is lean managementA cluster of practices to improve organisational efficiency by continuously reducing waste, unevenness and overburden in the production process..24 Based on practices developed by the Toyota Motor Company, lean management involves continuously reducing waste, unevenness and overburden in the production process. Waste (called muda) takes many forms, such as excess travel of the product or service through the production process, too much time during which the work is sitting idle (waiting for the next step in production), too much inventory, too much physical movement of employees and too much finished product without a buyer. Lean management also involves minimising situations in which people and equipment are overloaded (too much demand per unit time) and smoothing out the production process (e.g. reducing bottlenecks). The ‘lean’ movement originated in manufacturing, but it is now being adopted by hospitals, governments, accounting firms and other service providers.25 Reality Check 1.1 describes how British and Australian hospitals have improved efficiency and effectiveness through various lean practices. Keep in mind that efficiency does not necessarily translate into effectiveness. Efficiency is about doings things right, whereas effectiveness is about doing the right things. A company might be highly efficient at making a product or providing a service, but it will be ineffective if no one wants that product or service, for example. Also, efficiency often requires standardisation, whereas companies operating in rapidly changing environments need to remain nimble and responsive. Organisations often need more adaptive and innovative transformation processes, not just more efficient ones. For example, German engineering conglomerate Siemens AG has an effective transformation process because its subsystems are innovative and responsive, not necessarily the most efficient. ‘Whether I have additional costs or not doesn't matter as much as the speed to market and the quality of the design,’ says a Siemens executive. ‘We're not talking about a pure cost game.’27 Another important issue in the transformation process is how well the organisation's subsystems coordinate with each other. The more each subsystem depends on other subsystems, the higher the risk of problems that undermine the transformation process.28 Information gets lost, ideas are not shared, materials are hoarded, communication messages are misinterpreted, resources and rewards are distributed unfairly, and so forth. These coordination challenges are amplified as organisations grow, such as when employees are clustered into several departments and when departments are clustered into several organisational divisions. That is why even the best-laid plans produce unintended consequences. A slight change in work practices in one subsystem may ripple through the organisation and affect other subsystems in adverse ways. For example, an adjustment in accounting procedures might have the unintended effect of motivating sales staff to sell more products with a lower profit margin, or discouraging administrative staff from accurately completing documents that are vital for executive decisions.
Organisational Learning Perspective The open-systems perspective has traditionally focused on physical resources that enter the organisation and are processed into physical goods (outputs). This was representative of the industrial economy but not the ‘new economy’, in which the most valued input is knowledge. Accordingly, knowledge is the driver of competitive advantage in the organisational learning A perspective which holds that organisational effectiveness depends on the organisation's capacity to acquire, share, use and store valuable knowledge. perspective (also called knowledge management). Through this lens, organisational effectiveness depends on the organisation's capacity to acquire, share, use and store valuable knowledge.29 To understand knowledge acquisition, sharing and use, consider how Google engages in organisational learning. Knowledge acquisition occurs when information is brought into the organisation from the external environment. Google acquires knowledge by hiring the best talent and buying entire companies (such as Keyhole, Inc., whose knowledge created Google Earth). Knowledge acquisition also includes the process of creative insight—experimenting and discovering new ideas.30 Google encourages this by allowing engineering staff to allocate 20 per cent of their time to discovering new knowledge of their choosing. Knowledge sharing refers to the distribution of knowledge throughout the organisation. Google encourages knowledge sharing by organising employees into teams so they share information as part of their job. Its campus-like environments (called Googleplexes) increase the chance that employees from different parts of the organisation will mingle and casually share information, whether dining at the company's subsidised gourmet restaurant or playing a game of volleyball in the sports area. Google also relies on sophisticated information technologies—wikis, blogs and intranet repositories—to support knowledge sharing. Knowledge use is the application of knowledge in ways that improve the organisation's effectiveness. Google encourages knowledge use by giving employees the freedom to apply their new-found knowledge and encouraging them to experiment with that knowledge. ‘Google is truly a learning organisation,’ says Google's chief financial officer, George Reyes.31 p. 12 An interesting dilemma in organisational learning is that the ability to acquire, share and use new knowledge is limited by the company's existing body of knowledge. To recognise the value of new information, assimilate it and use it for value-added activities, organisations require sufficient absorptive capacityThe ability to recognise the value of new information, assimilate it and use it for value-added activities..32 For example, many companies were slow to develop online marketing practices because no one in the organisation had enough knowledge about the internet to fathom its potential or apply that knowledge to the company's business. In some cases, companies had to acquire entire teams of people with the requisite knowledge to realise the potential of this marketing channel. Entire countries also suffer from a lack of absorptive capacity. Without sufficient knowledge, a society is slow or completely unable to adopt new information that may improve social and economic conditions.33
Even if every employee left the organisation, intellectual capital would still remain as structural capital. This includes the knowledge captured and retained in an organisation's systems and structures, such as the documentation of work procedures and the physical layout of the production line. Structural capital also includes the organisation's finished products because knowledge can be extracted by taking them apart to discover how they work and are constructed (i.e. reverse engineering). Finally, intellectual capital includes relationship capital, which is the value derived from an organisation's relationships with customers, suppliers and others who provide added mutual value for the organisation. Organisational Memory and Unlearning Corporate leaders need to recognise that they are the keepers of an organisational memory The storage and preservation of intellectual capital..35 This unusual metaphor refers to the storage and preservation of intellectual capital. It includes knowledge that employees possess as well as knowledge embedded in the organisation's systems and structures. It includes documents, objects and anything else that provides meaningful information about how the organisation should operate. How do organisations retain intellectual capital? One way is by keeping good employees. Progressive companies achieve this by adapting their employment practices to become more compatible with emerging workforce expectations, including work–life balance, an egalitarian hierarchy and a workspace that generates more fun. A second organisational memory strategy is to systematically transfer knowledge to other employees. This occurs when newcomers apprentice with skilled employees, thereby acquiring knowledge that is not documented. A third strategy is to transfer knowledge into structural capital. This includes bringing out hidden knowledge, organising it and putting it in a form that can be available to others. Reliance Industries, India's largest business enterprise, applies this strategy by encouraging employees to document their successes and failures through a special intranet knowledge portal. One of these reports alone provided information that allowed others to prevent a costly plant shutdown.36 The organisational learning perspective states not only that effective organisations learn, but also that they unlearn routines and patterns of behaviour that are no longer appropriate.37 Unlearning removes knowledge that no longer adds value and, in fact, may undermine the organisation's effectiveness. Some forms of unlearning involve replacing dysfunctional policies, procedures and routines. Other forms of unlearning erase attitudes, beliefs and assumptions. For instance, employees may rethink the ‘best way’ to perform a task and how to serve clients.
The HPWP perspective begins with the idea that human capital—the knowledge, skills and abilities that employees possess—is an important source of competitive advantage for organisations.39 Human capital helps the organisation realise opportunities or minimise threats in the external environment. Furthermore, human capital is neither widely available nor easily duplicated. For instance, a new company cannot quickly acquire a workforce with the same capabilities as those of the workforce at an established company. Nor can technology replace the capabilities that employees bring to the workplace. In short, human capital is valuable, rare, difficult to imitate and nonsubstitutable.40 Therefore, organisations excel by introducing a bundle of systems and structures that leverage the potential of their workforce. Many high-performance work practices have been studied over the years.41 Four practices with strong research support are employee involvement, job autonomy, employee competence, and performance and/or skill-based rewards. As you will learn later in this book, employee involvement and job autonomy tend to strengthen employee motivation as well as improve decision making, organisational responsiveness and commitment to change. Another key variable in the HPWP model is employee competence. Specifically, organisations are more effective when they recruit and select people with relevant skills, knowledge, values and other personal characteristics. Furthermore, successful companies invest in their employees by supporting further competency development (see Chapter 2). A fourth characteristic of high-performance organisations is that they link performance and skill development to various forms of financial and nonfinancial rewards valued by employees. We discuss reward systems in Chapter 6 as one of several practices to improve employee performance. The HPWP perspective is currently popular among OB experts and practitioners, but it also has its share of critics. One concern is that many studies try to find out which practices predict organisational performance without understanding why those practices should have this effect.42 In other words, some of the practices identified as HPWPs lack theoretical foundation; the causal connection between work practices and organisational effectiveness is missing. Without this explanation, it is difficult to be confident that the practice will be valuable in the future and in other situations. A second concern with the HPWP perspective is that it may satisfy shareholder and customer needs at the expense of employee wellbeing.43 Some experts point out that HPWPs increase work stress and that management is reluctant to delegate power or share the financial benefits of productivity improvements. If high-performance work practices improve organisational performance at a cost to employee wellbeing, then this perspective (along with the open-systems and organisational learning perspectives) offers an incomplete picture of organisational effectiveness. The remaining gaps are mostly filled by the stakeholder perspective of organisational effectiveness. Stakeholder Perspective
Consider the troubles that Wal-Mart has faced in recent years.46 For decades, the world's largest retailer concentrated on customers by providing the lowest possible prices, and on shareholders by generating healthy financial returns. Yet emphasising these two stakeholders exposed the company to increasing hostility from other groups in society. Some interest groups accused Wal-Mart of destroying America's manufacturing base and tacitly allowing unethical business practices (such as child labour) in countries where it purchased goods. Other groups pointed out that Wal-Mart had a poor record of environmental and social responsibility. Still other groups lobbied to keep Wal-Mart out of their communities because the giant retailer typically builds in outlying suburbs where land is cheap, thereby fading the vibrancy of the community's downtown area. These stakeholder pressure points existed for some time, but Wal-Mart mostly ignored them until they became serious threats. In fact, Wal-Mart recently created the position ‘senior director of stakeholder engagement’ to ensure that it pays more attention to most stakeholders and to proactively manage stakeholder relationships. Understanding, managing and satisfying the interests of stakeholders is more challenging than it sounds because stakeholders have conflicting interests and organisations don't have the resources to satisfy every stakeholder to the fullest. Therefore, organisational leaders need to decide how much priority to give to each group. One commonly cited factor is to favour the stakeholders with the most power.47 This makes sense when one considers that the most powerful stakeholders present the greatest threat and opportunity to the company's survival. Yet stakeholder power should not be the only criterion for determining organisational strategy and resource allocation. Ignoring less powerful stakeholders might motivate them to become more powerful by forming coalitions or seeking government support. It might also irritate more powerful stakeholders if ignoring weaker interests violates the norms and standards of society. Values, Ethics and Corporate Social Responsibility This brings us to one of the key strengths of the stakeholder perspective, namely, that it incorporates values, ethics and corporate social responsibility into the organisational effectiveness equation.48 The stakeholder perspective states that to manage the interests of diverse stakeholders, leaders ultimately need to rely on their personal and organisational values for guidance. ValuesRelatively stable, evaluative beliefs that guide a person's preferences for outcomes or courses of action in a variety of situations. are relatively stable, evaluative beliefs that guide our preferences for outcomes or courses of action in a variety of situations.49 Values help us to know what is right or wrong, or good or bad, in the world. Chapter 2 explains how values are an important part of our self-concept and, as such, motivate our actions. Although values exist within individuals, groups of people often hold similar values, so we tend to ascribe these shared values to the team, department, organisation, profession or entire society. For example, Chapter 14 discusses the importance and dynamics of organisational culture, which includes shared values across the company or within subsystems. Values have become a popular topic in corporate boardrooms because leaders are discovering that the values-driven organisational approach to guiding employee behaviour is potentially more effective, as well as more popular, than the old command-and-control approach (i.e. top-down decisions with close supervision of employees). For example, governments in Australia, New Zealand, the United Kingdom, Canada and several other countries have made values the foundation of employee decisions and behaviour. As one New Zealand government report proclaimed: ‘Values are essentially the link between the daily work of public servants and the broad aims of democratic governance.’50 In a recent global survey of MBA students (one-fifth of whom were from Asia), almost 80 per cent felt that a well-run company operates according to its values and code of ethics.51 By incorporating values into organisational effectiveness, the stakeholder perspective also provides the strongest case for ethics and corporate social responsibility. In fact, the stakeholder perspective emerged out of earlier writing on ethics and corporate social responsibility. EthicsThe study of moral principles or values that determine whether actions are right or wrong and outcomes are good or bad. refers to the study of moral principles or values that determine whether actions are right or wrong and outcomes are good or bad. We rely on our ethical values to determine ‘the right thing to do’. Ethical behaviour is driven by the moral principles we use to make decisions. These moral principles represent fundamental values. Chapter 2 provides more detail about ethical principles and related influences on moral reasoning.
Corporate social responsibility (CSR)Organisational activities intended to benefit society and the environment beyond the firm's immediate financial interests or legal obligations. consists of organisational activities intended to benefit society and the environment beyond the firm's immediate financial interests or legal obligations.53 It is the view that companies have a contract with society, in which they must serve stakeholders beyond shareholders and customers. In some situations, the interests of the firm's shareholders should be secondary to those of other stakeholders.54 As part of CSR, many companies have adopted the triple-bottom-line philosophy: they try to support or ‘earn positive returns’ in the economic, social and environmental spheres of sustainability. Firms that adopt the triple bottom line aim to survive and be profitable in the marketplace (economic), but they also intend to maintain or improve conditions for society (social) as well as the physical environment.55 Not everyone agrees with the idea that organisations are more effective when they cater to a wide variety of stakeholders. More than thirty years ago, economist Milton Friedman pronounced that ‘there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.’ Although few writers take this extreme view today, some point out that companies can benefit other stakeholders only if those with financial interests in the company receive first priority. Yet four out of five people in an American survey said that a company's commitment to a social issue is an important factor in deciding whether to work for the company and whether to buy its products or services. In another survey, more than two-thirds of North American students said they would not apply for a job if the company was considered irresponsible. Most American and European MBA students also claim they would accept lower financial rewards to work for an organisation with a better ethical/CSR reputation. However, a recent global survey indicated that while most MBA students believe socially responsible companies have a better reputation, less than half of these respondents believe CSR improves revenue, employee loyalty, customer satisfaction, community wellbeing or the company's long-term viability.56 Capgemini, a Netherlands-based information technology (IT) consulting firm, discovered the importance of corporate social responsibility when it tried to fill 800 IT and management consulting positions in that country. Rather than offering a T-shirt for completing the thirty-minute online survey on recruitment issues, Capgemini advised respondents (IT and management consultants) that for each completed survey it would provide funding for a homeless child in Kolkata, India, to have one week of schooling and accommodation. The survey included an option for respondents to find out more about employment with the consulting firm. Far beyond its expectations, Capgemini received more than 10 000 completed surveys and 2000 job inquiries from qualified respondents. The company filled its 800 jobs and developed a waiting list of future prospects. Furthermore, media attention about this initiative raised Capgemini's brand reputation for corporate social responsibility. The consulting firm supported 10 400 weeks of housing and education for children in Kolkata.57
What are stable evaluative beliefs that guide our preferences for outcomes or courses of action in a variety of situations?Values – Stable, evaluative belief that guide our preferences for outcomes or course of action in a variety of situations. Shared values – Values that people within an organization or work unit have in common and place near the top of their hierarchy of values.
What provides relatively stable evaluative beliefs that guide us so we consider courses of actions they could help us determine what is good or bad?values: Relatively stable evaluative beliefs that guide a person's preferences for outcomes or courses of action in a variety of situations.
What is the study of Organizational behavior specifically concerned with?The study of organizational behavior includes areas of research dedicated to improving job performance, increasing job satisfaction, promoting innovation, and encouraging leadership and is a foundation of corporate human resources.
Which expert wrote about rational organizations the work ethic and charismatic leadership?German sociologist Max Weber wrote about rational organizations and systematic ways to organize work processes and motivate employees through goal setting and rewards.
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