The Concept of Organizational Performance vs. Organizational Effectiveness

How does the concept of organizational performance compare to the concept of organizational effectiveness? In this article, we’ll look at performance vs. effectiveness in organizations.

Both concepts are commonly used in business, sometimes interchangeably.

But are they different?

And if they are different, does that difference matter?

Let’s start by defining each term.

The Concept of Organizational Performance Defined

In business research, some concepts have definitions that are clear and universally accepted.

But organizational performance is not one of those concepts.

Its definition varies depending on the source.

For instance, some definitions of organizational performance center around:

• How well an organization can meet the expectations of its constituents
• How an organization performs in terms of shareholder value, finance, and in the marketplace
• How well an organization can meet its goals and objectives

This last explanation occurs most frequently and is the most accepted.

And this makes sense, since businesses and business processes are by definition goal-oriented activities.

Organizational Performance vs. Organizational Effectiveness

Organizational performance and organizational effectiveness are often used interchangeably.

In fact, one of the most common definitions of organizational effectiveness aligns completely with a common definition of organizational performance.

Organizational effectiveness, that is, also refers to how well a company or institution can meet its goals and objectives.

While various models and frameworks describe organizational effectiveness, this is one of the most common meanings.

Other definitions of organizational effectiveness also mirror those covered above, such as how well an organization can meet the expectations of its constituents.

In short, the two terms often share the same meaning and underlying ideas. 

However, it is important to note that there are differences in business research and literature.

Any organization that wants to improve its performance, therefore, should examine both terms in depth.

How to Improve Organizational Performance in 3 Steps

Naturally, organizational performance improvements take time, effort, and resources. And the only way to see real gains is through strategic organizational change.

Organizational changes are complex and certainly involve more than three steps.

However, this brief overview can serve as an introduction to the steps every business must take in order to make improvements to their business.

1. Choose a model of organizational effectiveness.

Organizational effectiveness models are frameworks that do several things:

• Help business professionals understand effectiveness
• Act as a basis for measurements and metrics
• Make it easier to develop strategies, plans, and change projects

As mentioned above, there are several perspectives on organizational effectiveness.

Each model varies in its approach and which business dimensions it prioritizes.

Some, for instance, focus on measuring and improving specific areas, such as:

• Communication
• Delivery systems
• Strategy
• Leadership

It is worth researching organizational effectiveness models in some detail before choosing one.

However, once a model is chosen, that model can serve as a basis for assessments, measurements, and process improvements.

2. Assess, strategize, and plan.

Assessments should cover a few areas, such as:

• The elements of the organizational effectiveness model. If an organization chooses to use a model that focuses on shareholder value, marketplace performance, and financial performance, then those areas should be assessed.
• Change readiness. Because improvements involve organizational change, it is important to evaluate change readiness. That is, a business should assess factors such as workforce skills, their openness to change, tools, technology, and any other element that could affect change projects.
• Risk. Risk is inherent in any business project. There is also risk in not changing, especially in today’s fast-paced business environment. Assessing risk is the first step to managing risk, a key part of change management.
• The workforce. People have a significant impact on organizational performance and on change projects. Workforce assessments can include evaluations of employee performance, productivity, skills, in addition to culture and behavior.

Each assessment will offer insight into the state of the organization, its performance, its needs, and potential pathways for improvement.

That information, in turn, will fuel strategy development and planning.

Once a strategic angle is chosen, then it is time to implement organizational changes.

3. Implement a structured approach to organizational change management.

Organizational change is necessary to make any substantive improvements.

However, change is not easy … simply mandating change will often produce negative reactions from workers. In worst-case scenarios, change projects can even fail completely.

The benefits of change management include:

• Better project outcomes
• Increased efficiency
• Greater support from employees
• Risk mitigation

Among others. 

As with many other business fields, there are several schools of thought in change management.

Most contemporary change managers, however, focus on driving change from the individual level.

Many change managers and organization development (OD) professionals focus on areas such as:

• Training employees and ensuring that they have the skills they need to effect change
• Developing a communication strategy that minimizes resistance and maximizes support
• Creating mechanisms that reinforce change over the long term

Change management’s importance should not be understated.

After all, improving organizational performance – and effectiveness – depends entirely on the success or failure of organizational change projects.