Lecture - 07
Organizational Effectiveness – III
Welcome to this course Organization Theory/Structure and Design. Now, we will talk
about module 7, we are discussing the part 1 of this course that is Introduction to
organization theory and we were talking about Organizational effectiveness.
We have talked about organizational effectiveness in module 5 and 6 also. And in this
module, module 7, we will still continue to talk about organizational effectiveness. So,
let us see what are the things that we will cover in this module. So, we will start with
defining approaches to organizational effectiveness.
(Refer Slide Time: 01:05)
Then, we will understand the strategic constituencies approach, the competing values
approach and then, list the assumptions of each of these two OE approaches; then, we
will describe how managers can operationalize these two approaches; then, we will talk
about identifying key problems with each of these approaches; explain the value of each
approach to practicing managers and then, compare the four approaches to organizational
effectiveness. Two approaches, we have talked about earlier and two, we will talk about
in this module.
(Refer Slide Time: 01:41)
So, to start with what is organizational effectiveness? Just a quick recall. Organizational
effectiveness can be defined as the degree to which an organization attains its short-term
goals that is the end and long-term goals that are the means, the selection of which
reflects the strategic constituencies, the self-interest of the evaluator and the life stage of
(Refer Slide Time: 02:13)
These are the four approaches to study organizational effectiveness. One is the Goal-
Attainment approach and the second is the Systems approach that we have talked about
in module 5 and 6; the third is the Strategic-Constituencies approach and the fourth one
is Competing-Values approach. So, these two, we will talk about in this module.
(Refer Slide Time: 02:37)
So, now let us look at the third approach that is the strategic constituencies approach.
The strategic constituencies approach proposes that an effective organization is one that
satisfies the demand of those constituencies in its environment from whom it requires
support for its continued existence.
So, according to this, the demands of those constituencies which are there in the
environment are to be satisfied. Which constituencies? From whom it requires support
for its continued existence.
This approach is similar to the systems approach, yet it has a different emphasis. Both
consider interdependence, but the strategic-constituencies view is not concerned with all
of the organization’s environment. Systems approach takes whole of the organization’s
environment into consideration, while strategic constituencies just pick those strategic
constituencies on which, on whom the organization is dependent for its continued
(Refer Slide Time: 03:59)
It seeks to appease only those in the environment which can threaten its survival. In this
context, most public universities must consider effectiveness in terms of acquiring
students; but need not be concerned with potential employer of their graduates, why?
The survival of these universities is not influenced by whether their graduates get jobs or
So, now you see this is also a problem with this strategic constituencies approach
because the students coming to these universities and students getting a job, they are also
interlinked. So, on the other hand, private universities which charge considerably more
than their public counterparts do spend a great deal of time and money in attempting to
place their graduates.
When parents spend a hefty amount to get their son or daughter a bachelors degree, they
expect it to lead to a job acceptance in a good postgraduate school. If this does not occur,
it will be increasingly difficult for the private college to get freshmen application, new
(Refer Slide Time: 05:29)
The converse of this example is the university’s relations with the legislature in the state
within which it operates. Public institutions devote considerable effort to wooing state
(Refer Slide Time: 05:45)
Failure to have their cooperation is sure to have adverse budget effects on the public
university. The private university’s effectiveness, in contrast, is little affected by whether
or not it has a favorable relationship with the key people in the state capital or the state
government. So, you see that the public universities, they are dependent on their funds
Therefore, there is a need for them to have good relations with the government, which is
not so in the private universities because they are not run-on government money and they
run on the fees from the students. Therefore, they are not so much worried about the
relations with the government.
(Refer Slide Time: 06:31)
Now, let us look at the strategic constituencies approach assumptions. The first is the
goal-attainment approach, which views organization as deliberate, rational, and goal-
seeking entities. The strategic-constituency approach view organization very differently.
So, this is how these two approaches, they are different.
They are assumed to be political arenas, where vested interests compete for control over
resources. In such a context, organizational effectiveness becomes an assessment of how
successful the organization has been at satisfying these critical constituencies, upon
whom the future survival of the organization depends.
(Refer Slide Time: 07:23)
The “political arena” metaphor further assumes the organization has a number of
constituencies, with different degrees of power, each trying to satisfy its demand. But
each constituency also has a unique set of values, every constituency will have a
different set of values, unique set of values; so, it is unlikely that their preference will be
in agreement with each other.
For example, a study of a major tobacco companies found that the public evaluated the
companies in terms of not harming smokers’ health, while stockholders evaluated the
firms’ ability to produce cigarettes efficiently and profitably. So, now you see there are
these two strategic constituencies, they have different values, they are looking at various
different outcomes. Using such diverse criteria, the public rated the tobacco firms as
ineffective and stockholders rated the same firm as highly effective.
(Refer Slide Time: 08:17)
Therefore, effectiveness of a tobacco company can be said to be determined by its ability
to identify its critical constituencies, assess their preference patterns, and satisfy their
demands. Stockholders and consumers might be satisfied with tobacco firms, but if the
public, through its legislative representatives, outlaws the sales of cigarettes, then the
tobacco companies lose and they will lose in a big way.
(Refer Slide Time: 08:51)
Finally, the strategic-constituency approach assumes that managers pursue a number of
goals and that the goal selected represents a response to those interest groups that control
the resources necessary for the organization to survive. So, there are different
constituencies and having different goals. Therefore, this assumes that manager will
pursue that number of goals. No goal or a set of goals that manager select is value free.
Each implicitly, if not explicitly, will favor some constituency over other. So, some
constituency may be more favored, some may be less favored. Therefore, the goals ready
to those constituency will also go the same way. When management gives profits high
priority, for instance, they make the interest of owners paramount.
(Refer Slide Time: 09:51)
Similarly, adaptability to the environment, customer satisfaction, and a supportive work
climate, favors the interest of society, clients, and employees, respectively.
(Refer Slide Time: 10:01)
Now, let us look at this case how Daniel Ludwig lost 1 billion dollars. So, American
Daniel Ludwig became a billionaire in the shipping business. His financial downfall,
however, came from this incredibly ambitious Jari project. Ludwig sought to cultivate a
supertree for high-grade paper, to mine bauxite, and to build a state-of-art paper mill and
a smelting plant in an area of the Brazilian jungle called Jari.
(Refer Slide Time: 10:35)
So, therefore, he brought billions of acres of land, hired tens of thousands of people and
spent fifteen years and dollar 1.1 billion developing the Jari project. But it eventually
failed. One of the reasons for the failure was that Ludwig did not understand that the
Brazilian government was a strategic constituency to his enterprise. So, that was the
biggest failure, failure in identifying the strategic constituency. Without the government
support, its project’s effectiveness could be undermined.
(Refer Slide Time: 11:23)
Ludwig had long been known for his independence and as he pumped money into his
Jari project, he refused to discuss what he was doing with the Brazilian government
authorities. But even a billionaire can run low on money, and Ludwig had done that by
the early 1980s. He asked the Brazilian government for financial assistance, but was
(Refer Slide Time: 11:49)
His threat to pull out of Jari unless he received government cooperation was seen as
heavy-handed and an example of U. S. imperialism. The conflict between Ludwig and
the Brazilian government escalated to a point, where the government claimed that
Ludwig’s title to the land at Jari was in doubt. This cut-off any possibility of securing
non-government financial aid, and the project collapsed. So, now, you see that how
important this government as a strategic constituency in this project was.
(Refer Slide Time: 12:29)
So, Ludwig lost more than dollar 1 billion and learned, one would hope, a valuable
lesson articulated in the strategic-constituency approach and the lesson is managers must
appease those constituencies who have the power to threaten their organization’s
survival. So, that is the most important lesson. Always appease those constituencies
which are necessary for your organization’s survival.
(Refer Slide Time: 12:57)
Now, let us look at how to make strategic constituencies approach operative. The
managers wishing to apply this perspective might begin by asking members of the
dominant coalition to identify the constituencies they consider to be critical to the
organization’s survival. So, that is the first step. They should ask the members of the
dominant coalition. Now, then this input can be combined and synthesized to arrive at a
list of strategic constituencies.
So, from first, then we move on to the second one. So, as an example, a large tire
company such as Goodyear Tire and Rubber might have a strategic constituency that
include suppliers of critical petroleum products used in the tire-manufacturing process.
So, that can be one strategic constituency.
(Refer Slide Time: 13:57)
Another strategic constituency for Goodyear company that makes tires can be officers of
the United Rubber Workers union, then, officials at bank where the company has
sizeable short-term loans. Government regulatory agencies that grade tires and inspect
facilities for safety violations, security analyst at major brokerage firms who specialized
in the tire and rubber industry, purchasing agents responsible for the acquisition of tires
at General Motors, Mack Truck, Caterpillar and other vehicle manufacturers.
(Refer Slide Time: 14:37)
Now, this list could then be evaluated to determine the relative power of each one of
them, which is more important, which is which constituency is more powerful as
compared to the other. Basically, this means looking at each constituency in terms of
how dependent on it our organization is.
So, sometimes b may be more important than c or d may be more important than c and so
on so forth. Does it have considerable power over us? Are there alternatives for what this
constituency provides? How do these constituencies compare in the impact they have on
the organization’s operations?
(Refer Slide Time: 15:25)
The third step requires identifying the expectations that these constituencies hold for the
organization. What do they want of it? Given that each constituency has its own set of
special interest, what goals does each seek to impose on the organization? The
stockholder’s goals maybe in terms of profits or appreciation in their stock prices
because they have invested money. So, obviously, they want their return on investment
to go up.
The union’s may be in acquiring job security and high wages for its members; whereas,
the Environmental Protection Agency will want the firm’s manufacturing plants to meet
all minimum air, water, and noise pollution requirements and norms.
(Refer Slide Time: 16:23)
Table 7.1 on the next slide identifies a list of strategic constituencies a business firm
might confront and the typical organizational-effectiveness criteria each is likely to use.
(Refer Slide Time: 16:41)
So, this is the table, table 7.1 and it shows typical organizational effectiveness criteria of
selected strategic constituencies and the source of this table is given here. On the left
hand side you have the constituency and then, we have the typical organizational
effectiveness criteria. So, for the owners, the return on investments and growth in
earnings can be the two typical criteria, for evaluating their organizational effectiveness.
For employees, it can be compensation, fringe benefits, satisfaction with working
For customers, it can be satisfaction with price quality and service. For suppliers, it can
be satisfaction with payments and future sales potential. For creditors, it is the ability to
pay indebtedness. For unions, it can be competitive wages and benefits, satisfactory
working conditions and willingness to bargain fairly.
For local community officials, it is involvement of organization members in local affairs,
lack of damage to the community environment and for government agencies; it can be
compliance with laws, avoidance of penalty and reprimands.
(Refer Slide Time: 18:15)
So, the strategic constituency approach would conclude by one, comparing the various
expectations; second is determining common expectations and those that are
incompatible; the third is assigning relative weightages to the various constituencies and
the fourth is formulating a preference ordering of these various goals for the organization
as a whole. This preference order, in effect represents the relative power of the various
(Refer Slide Time: 18:49)
The organizational effectiveness then would be assessed in terms of its ability to satisfy
(Refer Slide Time: 18:55)
Now, let us look at some of the problems of this approach, that is the strategic
constituencies approach. So, as with the previous approaches, this one too is not without
its problems. The task of separating the strategic constituencies from the larger
environment is easy to say; but it is very difficult to do in practice because the
environment changes rapidly. What was critical to the organization yesterday may not be
so today and tomorrow.
Even if constituencies in the environment can be identified and assumed to be relatively
stable. So, that is another assumption that we are making. What separates the strategic
constituency from the “almost” strategic constituency? So, how much difference is there
in this strategic constituency and that strategic constituency; is it a strategic constituency,
is it not a strategic constituency?
(Refer Slide Time: 20:01)
Where do you cut the set? Won’t the interest of each member in the dominant coalition
strongly affect what he or she perceives as a strategic. So, different members may
perceive different things as strategic; so, where should be the cutoff? An executive in the
accounting function is unlikely to see the world or the organization’s strategic
constituencies in the same way as an executive in the purchasing function.
So, one is in accounting, another one is in purchasing; so, they may have different
viewpoints. Finally, identifying the expectations that the strategic constituencies hold for
the organization, it presents a problem. How do you tap that information accurately?
(Refer Slide Time: 20:49)
Now, let us look at what is the value to managers of this strategic constituencies
approach. If survival is important for an organization, then it is incumbent upon
managers to understand just who it is in terms of constituencies that survival is
So, that is very important in this approach that which constituency, whether it is a
strategic constituency or not, how important that strategic constituency is in terms of the
dependence of our survival on that?
By operationalizing the strategic-constituency approach, managers decrease the chance
that they might ignore or severely upset a group whose power could significantly hinder
the organization’s operation, if management knows whose support it needs.
If the organization is to maintain its health, it can modify its preference ordering of goals
as necessary to reflect the changing power relationships with its strategic constituencies.
Now, let us look at the fourth approach that is the competing values approach.
(Refer Slide Time: 22:05)
So, here we are talking of values, competing-values. The strategic constituency approach
can be thought of as the competing constituency approach and this is the competing
values approach. The main theme underlying the competing value approach is that the
criteria you value and use in assessing an organization’s effectiveness - return on
investment, market share, new-product innovation, job security - depends on who you
are and the interest you represent.
It is not surprising that stockholders, unions, suppliers, management or internal
specialists in marketing, personnel, production or accounting may look at the same
organization; but evaluates its effectiveness entirely differently because although, they
may be looking at the same thing; but depending upon their background, depending upon
which department they come from, their evaluation of effectiveness will be different
because they come with different set of values.
(Refer Slide Time: 23:17)
It can relate to this fact by thinking about how you evaluate your course instructor. In
any class with thirty or more students, we can expect evaluations of the instructor to
differ markedly. Probably some students will see the instructor as one of the best they
have had. Others will appraise the instructor as one of the worst.
The instructor’s behavior is the constant; it is the evaluators, with their varied standards
of what a “good teacher” is, who creates the different ratings. So, now you see that the
instructor is the same, his way of behaving and teaching is the same; but depending upon
the evaluator, his ratings can be from very good to very bad.
(Refer Slide Time: 24:03)
The rating therefore, probably tells us more about the value of the evaluator; what he or
she prefers in terms of an instructor rather than it tells us about the teacher’s
effectiveness. So, now, here we are talking about the values of the evaluators and not the
(Refer Slide Time: 24:27)
Now, let us look at the assumptions of this competing values approach. It begins with the
assumption that there is no “best” criterion for evaluating and organizational
effectiveness. There is neither a single goal that everyone can agree upon nor a
consensus on which goals take precedence over others, which are more important than
the others. Therefore, the concept of OE itself is subjective and the goals that an
evaluator chooses are based on his or her personal values preferences and interests. This
can be seen if we take one organization and look at how OE criteria change to reflect the
interest of the evaluator.
(Refer Slide Time: 25:13)
Now, look at this table and we are talking of Xerox that makes photocopying machines.
So, you may find the financial analyst, they are defining OE in terms of high
How do production executives define it? They focus on the amount of quality of
equipment manufactured. Marketing people and competitors, they are looking at the
percentage of market that Xerox’s various products hold. The personnel specialist view
OE in terms of ability to hire competent workers and essence of strikes, work tool down,
no work etc.
The R and D scientist, they will be keen on the number of new inventions and products
that the company generates. The City Council of Connecticut, where Xerox is
headquartered will define OE as steadily expanding workforce so that more and more
people living there in Connecticut get job. So, competing values goes significantly
beyond merely acknowledging diverse preferences. It assumes that these diverse
preferences can be consolidated and organized.
(Refer Slide Time: 26:37)
The competing-value approach argues that there are common elements underlying any
comprehensive list of OE criteria and that these elements can be combined in such a way
as to create basic set of competing values. Each one of these sets define a unique
(Refer Slide Time: 26:59)
As we change the values, we come up with a unique effectiveness model. Now, how to
go about making competing values approach operative? how to make it usable? To apply
this approach, it is necessary to go into more details of how it has evolved over time. It
began with a search of common themes among the thirty OE criteria that we had talked
about earlier. What was found were three basic set of competing values.
(Refer Slide Time: 27:31)
So, the first set of values is flexibility versus controlling. Now, these are two opposite
ends. If there is more control, there is less flexibility; if there is more flexibility, there is
less control. So, there are essentially two incompatible dimensions of an organization
structure. Flexibility values innovation, adoption and change; while control favors
stability, order and predictability.
The flexibility-control dimension is very similar to the adaptation-maintenance
dichotomy presented in earlier module. The second set deals with whether emphasis
should be placed on the well-being and development of people in the organization or the
well-being and development of organization itself.
(Refer Slide Time: 28:27)
So, now, whether we are looking for development of people or organization? Here, we
were talking about flexibility and control. Here, it is about people versus organization.
The people-organization dichotomy is another set of essentially incompatible
dimensions. The concern for the feelings and needs of the people within the organization
versus the concerns for productivity and task accomplishment. This third set of values
relate to organization’s mean versus end. So, this means versus end that is there in the
(Refer Slide Time: 29:21)
So, the former stressing internal processes and the long term and the later emphasizing
final outcome and the short-term. Goal attainment focusses on ends, and the system
emphasizes means. These three set of values can be depicted as a three-dimensional
(Refer Slide Time: 29:41)
This is the three-dimensional model of organizational effectiveness. So, one is people
versus organization; another is control versus flexibility and the third one is the means
versus the ends. So, this is 1, this is 2 and this one is 3. So, these are the common themes
that are to be looked for. These values can further be combined to form eight cells or sets
of OE criteria.
(Refer Slide Time: 30:19)
For example, combining people, control and ends create one cell. Combining
organization flexibility and means that is OFM creates another cell. The following table
identifies and describes the eight possible cells formed by combining the three set of
(Refer Slide Time: 30:33)
So, this is table 7.2 and it shows eight OE criteria cells. So, these are the eight criteria
cells. The first is OFM. So, here the description is flexibility and the definition is, it is
able to adjust well to shifts in external conditions and demands. The second is OFE that
is acquisition of resources and the definition is to be able to increase the external support
and expand size of workforce.
The third is OCM that is planning and the definition is the goals are clear and well
understood. The fourth is OCE that is productivity and efficiency. So, volume of output
is high; ratio of output to input is high.
The fifth is PCM that is availability of information channels of communication facilitate
informing people about things that affect their work. The sixth is stability; sense of order,
continuity and a smooth functioning of operations. The seventh is PFM that is cohesive
work force; employees trust, respect and work well with each other and the eighth is PFE
that the skilled work force; employees have the training, skills and capacity to do their
(Refer Slide Time: 32:11)
Now, here we plot the eight cells onto the framework established in figure 7.1 and we
end up with this figure 7.2. So, these are the four models of effectiveness values. Here,
we have the Rational-Goal model; Open-System model; Human-Relation model and the
Internal-Process model and then, there are ends, means, means, ends. So, here the means
are is the flexibility; end is the stability. Look at this one that is, the means is the
flexibility and the ends is the stability.
Now, look at the b, ends is acquisition of resources, while means is the availability of
information. Look at this c, the end is productivity and efficiency and the means is
cohesive workforce. Look at here; so, the end is the skilled workforce and the means is
planning. So, this is how we get these eight cells.
(Refer Slide Time: 33:25)
Now, we can begin to combine the eight cells into some distinct models. Cells PFM and
PFE are subsumed under the human-relation model. It emphasizes people and flexibility.
The human-relation model, would define OE in terms of a cohesive means and skilled
workforce as ends. The open system model encompasses the OFM and OFE cells.
Effectiveness in this model is defined in terms of flexibility as means and the ability to
acquire resources as ends.
(Refer Slide Time: 34:07)
The rational-goal model includes the OCM and OCE cells. The existence of specific
plans and goals as means and high productivity and efficiency as ends is used as
evidence of effectiveness. Finally, the PCM, PCE cells form the internal-process model.
It emphasizes people and control and stresses adequate dissemination of information as
means and its stability and order as ends in the assessment of effectiveness. It is to note
how each model represents a particular set of values and has a polar opposite with
(Refer Slide Time: 34:53)
The human relation model with its effectiveness criteria reflecting people and flexibility
stands in stark contrast to the rational goal model’s value-based stress on organizational
stability. The open-system model defined by values of organization and flexibility runs
counter to the internal process model, the effectiveness criteria of which reflects the
focus on people and stable structures.
(Refer Slide Time: 35:19)
How would a manager go about implementing it in his or her organization? How this
competing value approach is to be made operative? So, as with strategic constituencies,
the first step is to identify the constituencies that the dominant coalition considers critical
to the organization’s survival. After the strategic constituencies have been isolated, it is
necessary to calculate the importance that each constituency places on the eight value
(Refer Slide Time: 35:51)
This is no simple task because it requires managers to put itself in the shoes of each
strategic constituency or actually interview constituency members. The following
questionnaire can help with this assessment. It offers questions, the answers to which
give a general assessment of how a given constituency perceives an organization’s
performance on each of the eight effectiveness criteria.
(Refer Slide Time: 36:15)
So, this is the table 7.3. So, the first is OEM that is the organization responds well to the
changing demand and it is a three point scale; do not agree, somewhat agree and strongly
agree. So, then we have these eight points that we had talked about in table 7.1 and 7.2;
OEM, OFE, OCM, OCE, PCM, PCE, PFM and PFE.
(Refer Slide Time: 36:47)
And there are the three point scale continues with all of them. So, figure 7.3 illustrates
the cumulative results when a group of college students were asked to evaluate two fast-
food hamburger chains. We have distinguished the companies by referring them as
Alpha and Beta. The alpha chain is seen as performing quite well except for problems
with the cohesiveness among workers and concern about the workers qualification to do
their job properly.
On the other hand, beta chain seems to be performing well only with regard to flexibility
and resource acquisition. So, this is comparing the effectiveness of alpha and beta.
(Refer Slide Time: 37:27)
So, you see beta stands here then alpha stands here on these eight cells.
(Refer Slide Time: 37:35)
Amoebagrams, such as those illustrated in figure 7.3 offer insights as to how a
constituency or set of constituencies assesses the organizational performance on the eight
effectiveness criteria. It pinpoints areas where strategic constituencies agree and disagree
in their evaluation of the organization; it tells management with which criteria
constituency perceives as needing improvement; and it focuses management’s attention
on certain OE models.
(Refer Slide Time: 38:05)
If a company is undercapitalized and anticipates, it will need to
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