Organizational Performance: Definition, Factors, Model

Organizational PerformanceOrganizational performance means the actual output or results of an organization as measured against its intended outputs (or goals and objectives).

Definition of Organizational Performance

According to Richard, the organizational performance includes three specific areas of firm outcomes:

  1. financial performance (profits, return on assets, return on investment, etc.);
  2. product market performance (sales, market share, etc.); and
  3. shareholder return (total shareholder return, economic value added, etc.).

Specialists in many fields are concerned with organizational performance including strategic planners, operations managers, finance directors, legal advisors, entrepreneurs (owner of the organization).

In recent years, many organizations have attempted to manage organizational performance using the balanced scorecard methodology where performance is tracked and measured in multiple dimensions such as:

  • financial performance (e.g. shareholder return).
  • customer service.
  • social responsibility (e.g. corporate citizenship, community outreach).
  • employee stewardship.

The organization itself does not perform any work but its managers are performing their assigned works and in a combination of these performed works is called organization performance.

Some factors are to be performed by organization such as human and cultural factors, technology, natural recourses, economic factors, regulatory measures, markets, management philosophy, organizational culture (Goals, Value, Beliefs & Norms), organizational climate, motivated behavior and teamwork, structure, technological and physical resources, financial resources, leadership style.

In a combination of these resources, the organization gets some outcome such as effectiveness, efficiency, development and participant’s satisfaction.

After using all supports and efforts when the organization produces a product or service that is called the organizational performance.

Factors of Organizational Performance

Organizations vary according to the relative influence of a number of factors related to both the objective of the organization and the instruments and strategies chosen to achieve them.

These factors, which determine the structure, aims, and activities of the organization, can be grouped into:

  1. External factors: Those from the enabling environments which are not under the control of the organization but which affect its structure and development. They include:
  • Economic factors
  • Socio-economic factors
  • Political-administrative factors
  1. Internal factors: Organizational characteristics, including:
  • Purpose of the organization
  • Organizational instruments
  1. Individual choice factors: Members joint or individual decisions regarding expected costs and benefits.

Older studies, especially in the 1970s, focused on the influence of internal factors, while more recent work has emphasized the importance of all three sets of factors.

Organizational Performance Model

A Causal Model of Organizational Performance and Change, or the Burke & Litwin Model, suggests linkages that hypothesize how performance is affected by internal and external factors.

It provides a framework to assess organizational and environmental dimensions that are keys to successful change and it demonstrates how these dimensions should be linked causally to achieve a change in performance.

The causal model links what could be understood from practice to what is known from research and theory. The model not only discusses how different dimensions link with each other but also discusses how the external environment affects the different dimensions in an organization.

The model focuses on providing a guide for both organizational diagnoses and planned, managed organizational change, one that clearly shows cause-and-effect relationships.

Outline of the Model

The model revolves around 12 organizational dimensions:

  1. External environment
  2. Mission and strategy
  3. Leadership
  4. Organizational culture
  5. Structure
  6. Management practices
  7. Systems
  8. Work unit climate
  9. Task and individual skills
  10. Individual needs and values
  11. Motivation
  12. Individual and organizational performance

The model also distinguishes between transformational and transactional organizational dynamics in organizations.

Internal and External Environment of Organizational Performance

Environmental factors play a major role in determining an organization’s success or failure. Managers should strive to maintain the proper alignment between their organizations and their environment.

All organizations have both external and internal environments.

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.

The internal environment consists of the organization’s owners, the board of directors, employees, physical environment, and culture.

Owners are those who have property rights claims on the organization. The board of directors, elected by stockholders, is responsible for overseeing a firm’s top managers.

Individual employees and the labor unions they sometimes join are other important parts of the internal environment. The physical environment, yet another part of the internal environment, varies greatly across organizations.

The external environment is composed of general and task environment layers. The general environment is composed of the nonspecific elements of the organization’s surroundings that might affect its activities.

It consists of five dimensions: economic, technological, sociocultural, political-legal, and international. The effects of these dimensions on the organization are broad and gradual.

The task environment consists of specific dimensions of the organization’s surroundings that are very likely to influence the organization. It also consists of five elements: competitors, customers, suppliers, regulators, and strategic partners.

Because these dimensions are associated with specific organizations in the environment, their effects are likely to be more direct and immediate.

What are the internal factors that affect organizational performance?

The internal factors over which management and employees’ both have a great deal of control.

In particular, management has extensive control over the organization’s human resources policies and practices, the financial, technological and physical resources it uses, its structure, management philosophy, and leadership style.

Factors that are managed less directly include organizational culture, organizational climate, motivated behavior, and teamwork. These concepts tend to overlap, as we will see.

Human Resources Management” appears at the center of the internal factors because the effective use of human resources is of primary importance to the organization’s survival and long term success. People form the organization and people manage the

processes that create the product or service for which the organization is in business. In fact, how well these human resources are managed is probably the most critical factor in an organization’s overall performance.

Internal factors are connected, that they all tend to affect or interact with each other. It is enough to say that for an organization to be highly successful; all these internal factors must be intelligently and harmoniously managed.

Mention the environmental factors that affect HR activities.

The environmental factors are as follows which affect the HR activities of the organization.

  • External factors comprised by;
    • Political and legal.
    • Technological.
  • Internal factors comprised by;
    • Strategy (Task and Leadership)
    • Organizational culture and conflict
    • Professional bodies.

The environment often provides a mass of ambiguous information.

What to make out the information?

What to accept and what to rejects?

To answer these questions three related concepts are relevant.

  • The created environment,
  • The domain and domain consensus, and
  • The task environment.

It is the duty of the HR department to obtain environmental information and feeds it to key decision makers.

In fact, the department may play a major role in making the decision. The department also has the responsibility to obtain internal organizational information for consideration by strategic decision makers.

But the role of the HR department is confined to a boundary spanning role in that it helps link the organization to its environment through environmental scanning.

All these duties are to be performed by the HR department for making an excellent performance by HR leading to achieving the organizational objectives.