EM502: Principles of Management
Term Paper on
The Environment and Organizational Effectiveness
For EM502 Sec 1 Principles of Management
From S.K. Siddiq Ahamed ID 3-14-27-033 Sharmila Podder ID 3-14-27-030 A. S. Md. Ferdousul Haque ID- 3-14-27-044 Alia Shams ID 3-14-27-066
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Table of Content: No Topic
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Introduction
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Organizational Environment
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Types of Environment
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3.1 Types of External Environments 3.2 Major Elements of the General Environment 3.3 The Task Environment 3.4 Elements of the Task Environment 4
The Organizational Culture
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4.1 Components of Organizational Culture 4.2 Organizational Climate 5
Organization-Environment Relationship
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5.1 Theories of Organization-Environment Relationships 5.2 Organization and Environment Framework 5.3 How Environment affects Organization 5.4 Assessment of Environment 5.5 How Organization Affect Environment 6
Organizational Effectiveness
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6.1 Four approaches to organizational effectiveness 7
Conclusion
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References
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1.Introduction: Organizations do not exist in a vacuum. They are constantly being affected by external forces which determine an organization’s effectiveness and performance. Therefore, it is imperative for the management of any organization to examine components of their firm’s external and internal environments to understand the dynamic and far-reaching changes that are occurring. This presentation focuses on the environmental factors that companies need to analyze for developing strategic options.
The workplace environment impacts employee morale, productivity and engagement - both positively and negatively. The work place environment in a majority of industry is unsafe and unhealthy. These includes poorly designed workstations, unsuitable furniture, lack of ventilation, inappropriate lighting, excessive noise, insufficient safety measures in fire emergencies and lack of personal protective equipment. People working in such environment are prone to occupational disease and it impacts on employee’s performance. Thus productivity is decreased due to the workplace environment.
It is the quality of the employee’s workplace environment that most impacts on their level of motivation and subsequent performance. How well they engage with the organization, especially with their immediate environment, influences to a great extent their error rate, level of innovation and collaboration with other employees, absenteeism and ultimately, how long they stay in the job.
Creating a work environment in which employees are productive is essential to increased profits for your organization, corporation or small business. The relationship between work, the workplace and the tools of work, workplace becomes an integral part of work itself. The management that dictate how, exactly, to maximize employee productivity center around two major areas of focus: personal motivation and the infrastructure of the work environment.
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2.Organizational Environment: Organizational environment refers to the forces that can make an impact. Forces made up opportunities and threats. An organization does not exist in isolation. It works with the overall environment. Scholars have divided these environmental factors into two main parts, 1) Internal Environment2) External Environment, it is further divided into specific and general environment (Robbins, S.P.2008)
Organizational environment determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. This structure depends entirely on the organization's objectives and the strategy chosen to achieve them. According to Lusthaus, Anderson and Murphy: Environment is made up of the administrative, technological, political, economic, socio-cultural, and stakeholder factors. According to Nabli and Nugent that each organization is set in a particular environment to which it is inextricably linked. This environment provides multiple contexts that affect the organization and its performance, what it produces, and how it operates.
3.Types of Environment: a) External Environment b) Internal Environment
a) External Environment Major forces outside the organization with potential to influence significantly a product orservice's likely success is called its external environment. The conditions, entities, events, and factors surrounding an organization that influence its activities and choices, and determine its opportunities and risks are called external environment. It is also called operating environment.
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3.1Types of External Environments: The insights derived from systems theory have helped to highlight the importance of a managed interaction between an organization and its external environment. Two major divisions have been made in the external environment:
i. ii.
The General Environment The Task Environment
i.
The General Environment
The general environment as it is sometimes called is that segment of the externalenvironment that reflects the broad conditions and trends in the societies within which an organization operates.
3.2 Major Elements of the General Environment
1. TheTechnological Element:It reflects the current state of knowledge regarding the production of products and services. a. Technology is a particular state of knowledge. It is not "things." A computer, for instance, is an artifact or an example of technology and is not technology itself.
b. Research indicates that technology tends to evolve through periods of incremental change punctuated by technological breakthroughs that either enhance or destroy the competence of firms in an industry.
c. Numerous publications (such as Business Week, Forbes, etc.) and on-line services (such as LEXIS/NEXIS) provide information regarding technological and other environmental elements
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2.The Economic Element:The mega-environment encompasses the systems of producing, distributing, and consuming wealth.
a. In a capitalist economy, economic activity is governed by market forces and the means of production are privately owned by individuals, either directly or through corporations. b. In a socialist economy, the means of production are owned by the state and economic activity is coordinated by state plan. c. In practice, countries tend to have hybrid economies, incorporating elements of capitalism and socialism. d. Organizations are influenced in any given economic system by a variety of economic conditions over which they have little control, such as inflation and interest rates
3. The Legal-political Element:The mega-environment includes the legal and governmental systems within which an organization must function.
a. Organizations must operate within the general legal framework of the countries in which they do business. b. Organizations are subject to an increase in lawsuits filed by customers or employees. c. The political issues which affect organizations include those which influence the extent of government regulation
4. The Socio-cultural Element:The mega-environment includes the attitudes, values, norms, beliefs, behaviors, and associated demographic trends that are characteristic of a given geographic area.
a. The sociocultural element is of particular importance to multinational corporations. b. Sociocultural trends can result in important shifts in demand for products
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5. The International Element:The mega-environment includes the developments in countries outside an organization's home country that have the potential impact to the organization. International factors far beyond the direct influence of a particular organization can have profound effects on its ability to operate successfully.
a. Fluctuations of the dollar against foreign currencies influence the ability of an organization to compete in international markets.
b. Free-trade agreement, such as the NAFTA, GATT can affect an organization either positively or negative
3.3 The Task Environment
The task environment is that segment of the external environment made up of specific outside elements (usually organizations) with which an organization interfaces in the course of conducting its business. The task environment depends on the products and services the organization offers and the locations where it conducts business. The organization may be more successful in affecting its task environment than it is its mega-environment.
3.4 Elements of the Task Environment:
1 An organization's customers and clients are those individuals and organizations that purchase its products and/or services. It is becoming increasingly important to stay in touch with customers' needs.
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Figure: 1
Types of Environment
2. An organization's competitors are other organizations that either offers of have a high potential of offering rival products or services. a. Organization needs to keep abreast of who their competitors are and what they are doing.
b. Ways to track what competitors are doing include obtaining information from commercial data bases, specialty trade publications, news clippings from local newspaper, help-wanted ads,
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published market research reports, business reports, trade shows, public filings, advertisements, and personal contacts.
3. An organization's suppliers are those individual organizations that supply the resources (such as raw materials, products, or services) the organization needs to conduct its operations.
4. An organization's labor supply consists of those individuals who are potentially employable by the organization.
5. Various government agencies provide services and monitor compliance with laws and regulations at local (e.g., consumer affairs), state or regional (e.g., health department), and national (e.g., CBR) levels
b) The Internal Environment
An organization's internal environment is composed of the elements within the organization, including current employees, management, and especially corporate culture, which defines employee behavior. Although some elements affect the organization as a whole, others affect only the manager. A manager's philosophical or leadership style directly impacts employees. Traditional managers give explicit instructions to employees, while progressive managers empower employees to make many of their own decisions. Changes in philosophy and/or leadership style are under the control of the manager. The following sections describe some of the elements that make up the internal environment.
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Figure: 2 Multiple stakeholders in the environment of an organization
4. The Organizational Culture: It is an organization's personality. Just as each person has a distinct personality, so does each organization. The culture of an organization distinguishes it from others and shapes the actions of its members.
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4.1Components of Organizational Culture:
a) Values
b) Heroes c) Rites and rituals d) Social network
a)
Values:The
b)
Heroes:The second component is heroes. A hero is an exemplary person who reflects the
basic beliefs that define employees' successes in an organization. For example, many universities place high values on professors being published. If a faculty member is published in a professional journal, for example, his or her chances of receiving tenure may be enhanced. The university wants to ensure that a published professor stays with the university for the duration of his or her academic career — and this professor's ability to write for publications is a value.
image, attitudes, or values of the organization and serves as a role model to other employees. A hero is sometimes the founder of the organization (think Sam Walton of Wal‐Mart). However, the hero of a company doesn't have to be the founder; it can be an everyday worker, such as hard‐working paralegal Erin Brockovich, who had a tremendous impact on the organization.
c)
Rites and Rituals:The third component, are routines or ceremonies that the company uses to recognize high‐performing employees. Awards banquets, company gatherings, and quarterly meetings can acknowledge distinguished employees for outstanding service. The honorees are meant to exemplify and inspire all employees of the company during the rest of the year.
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d)
Social Network:The
final component, the social network, is the informal means of communication within an organization. This network, sometimes referred to as the company grapevine, carries the stories of both heroes and those who have failed. It is through this network that employees really learn about the organization's culture and values.
4.2 Organizational Climate
A byproduct of the company's culture is the organizational climate. The overall tone of the workplace and the morale of its workers are elements of daily climate. Worker attitudes dictate the positive or negative ―atmosphere‖ of the workplace. The daily relationships and interactions of employees are indicative of an organization's climate.
a) Resources are the people, information, facilities, infrastructure, machinery, equipment, supplies, and finances at an organization's disposal. People are the paramount resource of all organizations. Information, facilities, machinery equipment, materials, supplies, and finances are supporting, nonhuman resources that complement workers in their quests to accomplish the organization's mission statement. The availability of resources and the way that managers value the human and nonhuman resources impact the organization's environment.
b) Philosophy of management is the manager's set of personal beliefs and values about people and work and as such, is something that the manager can control. McGregor emphasized that a manager's philosophy creates a self‐fulfilling prophecy. Theory X managers treat employees almost as children who need constant direction, while Theory Y managers treat employees as competent adults capable of participating in work‐related decisions. These managerial philosophies then have a subsequent effect on employee behavior, leading to the self‐fulfilling prophecy. As a result, organizational philosophies and managerial philosophies need to be in harmony.
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c) The number of coworkers involved within a problem‐solving or decision‐making process reflects the manager's leadership style. Empowerment means delegating to subordinates decision‐making authority, freedom, knowledge, autonomy, and skills. Fortunately, most organizations and managers are making the move toward the active participation and teamwork that empowerment entails.
When guided properly, an empowered workforce may lead to heightened productivity and quality, reduced costs, more innovation, improved customer service, and greater commitment from the employees of the organization. In addition, response time may improve, because information and decisions need not be passed up and down the hierarchy. Empowering employees makes good sense because employees closest to the actual problem to be solved or the customer to be served can make the necessary decisions more easily than a supervisor or manager removed from the scene.
5. Organization-Environment Relationship Organizations are open systems and must relate to their environments. They must acquire the resources and information needed to function; they must deliver products or services that are valued by customers.An organization's strategy--how it acquires resources and delivers outputs-is shaped by particular aspects,and features of the environment.
Thus, organizations can devise a number of responses for managing environmental interfaces, frominternal administrative responses, such as creating special units to scan the environment, to externalcollective responses, such as forming strategic alliances with other organizations.
5.1 Theories of Organization-Environment Relationships A) Contingency Theory •
Most effective way to organize is contingent on complexity and change in environment 13
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Stable environments: Mechanistic structures (specialization, formality, hierarchy
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Changing environments: Organic structures (less specialization, informality, lateral relations)
B) Resource Dependence •
Organizations obtain scarce and valued resources from environments
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Desire to control these resources to minimize dependencies
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Processes and transactions used to obtain resources develop dependencies
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Balancing act of maintaining autonomy and recognizing dependencies
C) Strategic Choice •
Managers perceive environments
• •
Make strategy and design structure Re-strategize when changes are perceived
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Managers enact environments through their decision-making choices
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Since managers perceive differently, they bring organizations in different directions
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Example: Sears vs. Montgomery Ward
D) Population Ecology •
Focus is on whole population of organizations (e.g., gasoline stations in Canada; wine industry in California)
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Natural selection processes: VariationSelection Retention
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Unsuccessful organizational forms die out
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Environmental determinism 14
E) Institutional Theory •
Societal institutions are powerful forces for ensuring control and order
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In responding to institutional pressures, organizations develop isomorphic (similar) strategies, structures, and systems
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Normative, coercive, and mimetic forces make ―all organizations look the same‖
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Goal is to obtain social legitimacy
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Example: banks, universities, discount stores
F) Transaction Cost Theory •
Organizations try to reduce monitoring, negotiating, and governing exchanges with environmental elements (transaction costs)
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Environmental uncertainty, opportunism, bounded rationality, small numbers bargaining, asset specificity, and risk levels increase transaction costs
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Transaction and bureaucratic costs balanced
5.2 Organization and Environment Framework This section provides a framework for understanding how environments affect organizations and, in turn,how organizations can affect environments. The framework is based on the concept that organizations andtheir subunits are open systems existing in environmental contexts. Environments can be described in twoways. First, there are different types of environments that consist of specific components or forces. Tosurvive and grow, organizations must understand these different environments, select appropriate parts torespond to, and develop effective relationships with them. A manufacturing firm, for example, mustunderstand raw materials markets, labor markets, customer segments, and production technologyalternatives. It then must
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select from a range of raw material suppliers, applicants for employment,customer demographics, and production technologies to achieve desired outcomes effectively.
Organizations are thus dependent on their environments. They need to manage external constraints andcontingencies and take advantage of external opportunities. They also need to influence the environment infavorable directions through such methods as political lobbying, advertising, and public relations.
Second, several useful dimensions capture the nature of organizational environments. Some environmentsare rapidly changing and complex, and so require different organizational responses than do environmentsthat are stable and simple. For example, chewing gum manufacturers face a stable market and use well-understood production technologies. Their strategy and organization design issues are radically different fromthose of software developers who face product life cycles measured in months instead of years, where laborskills are rare and hard to find, and where demand can change drastically overnight identify environmental dimensions that influence organizational responses to external forces.
5.3 How Environments Affect Organizations
Three basic perspectives can be used to describe how environments affect organization-
Environmental Change and Complexity
Competitive Forces
Environmental Turbulence
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Environmental Change and Complexity
According to the theory of James Thompson, environment can be described along two dimensions –
Degree of Change
Degree of Homogeneity
Degree of Change:The extent to which the environment is relatively stable or relatively dynamic
Degree of Homogeneity: The extent to which the environment is relatively simple having few elements and little segmentation or complex having many elements and many segmentation.
These two dimensions interact to determine the level of uncertainty faced by the organization.
Uncertainty: Uncertainty in turn is a driving force that influences many organizational decisions.
a) Least Uncertainty: It is faced by organizations with stable and simple environments. Although no environment is totally without uncertainty, so these kind of uncertainty is in the lowest level of uncertainty.
b) Moderate Uncertainty: Organizations having dynamic but simple environments generally face a moderate degree of uncertainty. Another combination of factors is is one of the stability and complexity, also for this reason moderate uncertainty occurs. 17
C) Most Uncertainty: Very dynamic and complex environmental conditions yield a high degree of uncertainty. The environment has large number of elements and the nature of those elements is constantly changing. Internet based firms face high levels of uncertainty.
Figure: 3 Environmental Changes, Complexity & Uncertainty
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5.4. Assessment of Environment:
Michhael E.Portar, a Harvard professor and expert in strategic management, has proposed a more defined way to assess environment. Particullarly, he suggests that managers view the environments of their organization in terms of five competitive forces.
Competitive Forces –
The threat of new entrants Competitive Rivalry The threat of substitute products The power of Buyer The power of Suppliers
The Threat of New Entrants: It is the extent through which new competitors can easily enter a market or market segment. The advent of the Internet has reduced the costs and other barriers of entry in many market segments, so the threat of new entrants has increased for many firms in recent years.
Complexity Rivalry: It is the nature of competitive relationship between dominant firms in the industry.
The threat of substitute products: It is the extent to which alternative products or services may supplant or diminish the need for existing products or services.
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The power of buyers: It is the extent to which buyers of the products or services in an industry have the ability to influence the suppliers.
The power of Suppliers: It is the extent to which suppliers have the ability to influence potential buyers.
Environmental Turbulence: Although always subject to unexpected changes and upheavals, the five competitive forces can never be studied and assessed systematically and plans developed for dealing with them. At the same time, organizations face the possibility of environmental change or turbulence, occasionally with no warning at all. The most common form of organizational turbulence is a crisis of some sort.
5.5 How Organization Affect Environment: Each organization must assess its own unique situation and then adapt according to the wisdom of its senior management. The below figure shows six basic mechanisms through which organizations adapt to their environment.
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a) Information Management: One way organizations adapt to their environments is through information management. Information management is especially important when forming an initial understanding of the environments and when monitoring the environment for signs of change. One technique for managing information is relying on boundary spanners. A boundary spanner is an employee such as a sales representative or a purchasing agent, who spends much of his time in contact with others outside the organization. Such people are in a good position to learn what other organizations are doing. All effective managers arrange in environmental scanning , the process of actively monitoring the environments through activities such as observation and reading. Within the organization, most firms have also established computer-based information systems to gather and organize relevant information for managers and to assist in summarizing that information in the form most pertinent to each manager’s needs.
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b) Strategic Response: Another way that an organization adapts to its environments is through a strategic response. Options include maintaining the job status guo, altering strategy a bit and adapting the new strategy. If any market having a company finds that the company currently serves is growing rapidly, the firm might decide to invest to invest even more heavily in products and services for the market. If any market is shrinking or does not provide reasonable possibilities for growth, the company may decide to cut back.
c) Mergers, Actuations and Alliances: A merger occurs when two or more firms combine to form a new firm.
Acquisition occurs when one firm buys another firm sometimes against its will. The firm taken over may cease to exist and becomes part of the other company.
The acquired firm may continue to operate as a subsidiary of the acquiring company. In a partnership or alliances, firm undertakes a new venture with another firm. A company engages in these kinds of strategies for a variety of reasons, such as easing an entry into new markets or expanding its presence in a current market.
d) Organization design and flexibility: An organization may also adapt to environmental conditions by incorporating flexibility in its structural design. A company that operates in in an environment with relatively low levels of uncertainty might choose to use a design with many basic rules, regulations and standard operating systems. A company that faces a great deal of uncertainty might choose a design with relatively few standards operating system, instead of allowing managers considerable discretion and flexibility with decisions.
e) Direct Influence: Organizations are not always helpless in the face of their environments indeed; many organizations are able to directly influence their environments in many different ways. Company can influence their suppliers by signing long-term contacts with fixed prices. Organizations influence their consumers by creating new users for a product, finding new customers, taking 22
customers away from competitors and convincing them that they need something new. Organizations influence their regulators through lobbying and bargaining.
f) Social Responsibility: Ethics relate to individuals and their decisions and behaviors. Organizations do not have ethics, but relate to their environment in ways that often involve ethical dilemmas and decisions. These situations are generally referred to within the context of the organization’s social responsibility. . Social responsibility is the set of obligations of an organization that has to protect and enhance the social context in which it functions. Organizations may execise social responsibility toward their stakeholders, toward the natural environment and toward general social welfare. Some organizations acknowledge their responsibilities in all three areas and strive diligently to meet each of them, whereas others emphasize only one or two areas of social responsibility.
6. Organizational Effectiveness:
The effective organization has integrating devices consistent with the diversity of its environment. The more diverse the environment and the more differentiated the organization, the more elaborate the integrating devices. —Paul Lawrence and Jay Lorsch
It is the concept of how effective an organization is in achieving the outcomes the organization intends to produce. Organizational effectiveness is an abstract concept and is basically impossible to measure.It follows that effectiveness is related to ultimately to how well an organization
understands
reacts to
And influences its environments.
Instead of measuring organizational effectiveness, the organization determines proxy measures which will be used to represent effectiveness. We may include such things as efficiency of 23
management, performance of employees, core competencies, number of people served, types and sizes of population segments served and so on‖. So we focused on the performance of the employees that to what extend this proxy measure contributes in Organizational effectiveness.
6.1 Four Approaches to Organizational Effectiveness
A) Goal Approach The Goal Approach is also called rational-goal or goal-attainment approach; it has its origins in the mechanistic view of the organization. This approach assumes that organizations are planned, logical, goal-seeking entities and they are meant to accomplish one or more predetermined goals. Goal approach is worried with the output side and whether or not the organization attains its goals with respect to preferred levels of output. It sees effectiveness with respect to its internal organizational objectives and performance. Typical goal-attainment factors include profit and efficiency maximization. The key constraint of this approach pertains to the content comparability of organizational goals. The dependable identification of comparable and practically appropriate goals within groups of organizations is thus a serious problem. What a company declares as its formal goals don’t always echo the organizations actual goals. Therefore, an organizations formal goals are typically dependent upon its standards of social desirability. As goals are dynamic, hence they will probably change as time passes, simply because of the political make-up of an organization. Organizations short-term goals are usually not the same as their long term goals. The utilization of goals as a standard for assessing Organizational Effectiveness is challenging. The goal approach presumes consensus on goals. Considering the fact that there are numerous goals and varied interests inside an organization, consensus, is probably not possible.
B) System Resource Approach This approach to Organizational Effectiveness was developed in response to the goal approach. The System Resource Approach sees an organization as an open system. The organization obtains inputs, participates in transformation processes, and generates outputs. This approach emphasizes inputs over output. It sees most organizations as entities which function in order to survive, at the same time rivaling for scarce and valued resources. It assumes that the 24
organization consists of interrelated subsystems. If any sub-system functions inefficiently, it is going to influence the performance of the whole system. The disadvantages of this approach relate to its measurement of means. An issue with this approach is that a higher amount of obtained resources is not going to promise effective usage. In addition, it is tough to define an ideal degree of resource acquisition across distinct organizations.
C) Internal-Process Approach This approach has been developed in response to a fixed output view of the goal approach. It looks at the internal activities. Organizational effectiveness is assessed as internal organizational health and effectiveness. According to Internal-Process Approach effectiveness is the capability to get better at internal efficiency, co-ordination, commitment and staff satisfaction. This approach assesses effort as opposed to the attained effect. Some experts have criticized the internal-process approach, like the system-resource approach, cannot lead to legitimate indicators of organizational effectiveness itself. Rather, it is accepted as an approach for studying its assumed predictors. Similar to the system-resource approach, the internal-process approach could possibly be applied only where comparable organizational outcomes can hardly be assessed accurately.
D) Strategic Constituencies Approach This approach suggests that an efficient organization is one which fulfills the demands of those constituencies in its environment from whom it needs support for its survival. It assesses the effectiveness to satisfy multiple strategic constituencies both internal and external to the organization. Strategic Constituencies Approach is ideal for organizations which rely highly on response to demands. The Strategic-constituencies approach takes explicitly into consideration that organizations fulfill multiple goals: each kind of organizational constituency (like proprietors, workers, consumers, the local community, etc.) is supposed to have distinct interest’s vis-à-vis the corporation, and will thus use different evaluation criteria. However, the job of isolating the strategic constituencies from their environment within which they function is a challenging and tricky task. Because the environment swiftly changes, what 25
was a crucial goal today might not be so tomorrow. Individual constituents may create significantly diverse ratings of organizations effectiveness. These constituents may use diverse factors or weight the same criteria in a different way.
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12) Higgs, Julia L., ―Workplace Environment in a Professional Services Firm‖, Behavioral Research in Accounting , January 2002 . 13) Kaczmarczyk, S., Murtough, J., "Measuring the performance of innovative workplaces", Journal of Facilities Management, Vol. 1, 2002, pp.163-176. 14) Lee S.Y., "Expectations of employees toward the workplace and environmental satisfaction", Journal of Facilities Management, Vol. 24, 2006, pp.343-53. 15) Lockwood, Nancy R., ―Workplace diversity: leveraging the power of difference for competitive advantage‖, HR Magazine, June 2005. 16) Mohammad A. Hassanain, ―Factors affecting the development of flexible workplace facilities‖, Journal of Corporate Real estate, vol.8, 2006, pp.213-220.
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