PUTTIN' COLOGNE ON THE RICKSHAW

There are a lot of articles out there talking about Organizational Effectiveness–what it is and how it’s measured. The most common concept is that the effectiveness of an organization is measured solely by revenue and profits, but that’s only the tip of the iceberg.

“Organizational Effectiveness,” or in the case of many organizations “Organizational Ineffectiveness,” is really a study in “Organizational Structure.” I’ve talked many times before about organizational structure (from the organization chart perspective) and how I think a flat organization is the best path to prosperity, but few organizations are structured that way. Most organizations cling to the old complex “hierarchical” structure with many layers of management upon management. Intuitively this structure has many impediments to “effectiveness” built in to its very nature.

From an organizational effectiveness perspective, organizational structure is more than just the depth of the organization chart. The Business Dictionary defines organizational structure as the “hierarchical arrangement of lines of authority, communications, rights and duties of an organization.” Many would misinterpret that to mean “organization chart.”

Another source defines it as “the formal system of task and reporting relationships that controls, coordinates, and motivates employees so that they cooperate to achieve the organization’s goals.” The operative phrase in this definition being “motivates employees so that they cooperate to achieve the organization’s goals.” Thus the real purpose of organizational structure is to create an “environment” that motivates employees to be effective and productive at their tasks and create a system that promotes coordination and unity between different departments (however many of them there are). I believe this second definition more accurately defines the key to organizational effectiveness.

Sadly, most management teams fail to realize this as they believe that the structure is purely the mechanics of the organization chart. However, the key to effectiveness goes way beyond the “hierarchical arrangements of lines of authority.

“Organizational effectiveness” is the measure of how effective an organization is in achieving the outcomes the organization intends to produce, i.e., effectiveness in achieving the organization’s vision or strategic goals. You can see how these two concepts: organizational structure and effectiveness are intertwined, i.e., both being defined in terms of an organization’s ability to meet its business goals and thus stay in existence.

In his book, Organization Theory and Design, Richard L Daft synthesizes that all down to what he proposes are the seven key characteristics of organizational effectiveness:

• Strong corporate culture and positive working climate
• High team spirit, loyalty and teamwork
• Confidence, trust and communication between employees and management
• Decision making near the source of the information regardless of where on the organizational chart
• Undistorted horizontal and vertical communication
• Good rewards for managers for performance, growth and development of employees
• Interaction occurs between the organization and its parts – conflicts are resolved in the interest of the organization

Note that all of the above are independent of the organizational chart. The problem in assessing organizational effectiveness in this way is that these characteristics are sometimes very difficult to actually see in action. Sometimes the best way to determine whether an organizational structure is effective is to take a look at the flip side: the effect of any of the above not being in place. My point being that often it’s easier to identify and understand something by focusing on “what it’s not” v. “what it is.” So what would be some obvious evidence that an organizational structure isn’t effective? This question forms the basis for what I believe are the two true measures of organizational effectiveness: quality control and customer satisfaction. Both directly affect the two common measures of organizational effectiveness: revenue and profit.

Quality Control: This is more than just the quality of products produced on the production floor. An effective organization will provide an environment where checks and balances are in place that provides a level of quality control in all that’s done, including the handoff of work from one person to another or from one department to another. An example might be when the engineering department and the manufacturing department actually work together (versus being at odds with each other) to create quality products (design and workmanship) that meet the customer’s expectation. This positive constructive interaction is the true form of quality control. When the lack of this quality control is becoming an issue, it may be because the organizational structure is ineffective and breaking down.

Customer Service/Satisfaction: An ineffective organization doesn’t interact effectively with its customers. In an ineffective organizational structure, there is no cohesive way of handling customer issues. On the surface it might appear the organization really doesn’t care whether its customers are happy. This is especially true of an organization that has an inflated self-image, or believes they are infallible. This would also apply to an organization that provides a product no one else provides, i.e., they have a corner of a market. They begin to feel that customers will continue to buy their products regardless of how they are treated.

In the final analysis it’s these two factors that are the true measures of organizational effectiveness−the test of a healthy organization is how they deal with these on a day-to-day basis. If you practice the first, the second comes easily and subsequently so does revenue and profits. So based on the above ask yourself whether your organization is effective or ineffective?

Most organizations discover what effectiveness really is after it’s too late−after their products start receiving a bad reputation or they start losing customers. Has your organization come to grips with the reality of their situation? That’s really hard to do for some management teams. Sadly, there’s no quick fix for organizational ineffectiveness because most organizations are only short term focused and will inevitably only choose quick fixes or Band-Aids. This is an ineffective behavior in and of itself.

From my experience the most popular way that many organizations react to ineffectiveness is to try to “reorganize” their way out of trouble−the misconception being that the key to effectiveness lies in the organizational chart. In ineffective organizations these “reorganizations” happen like clockwork. When this happens the organization’s management is doing little better than stumbling around in the dark hoping to stumble upon the right fix. This tactic is nothing new−it’s been a staple of management for millennia.

Gaius Petronius Arbiter (c. 27 – 66 AD), a Roman courtier during the reign of Nero is credited (but not verified) with once writing: “We trained hard, but it seemed that every time we were beginning to form up in teams we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing, and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization.”

Sadly for many management teams that’s about all they can “effectively” do is provide an “illusion of progress while producing confusion, inefficiency, and demoralization.”