View of EFFECTIVENESS AND EFFICIENCY: PREDICTORS OF PERFORMANCE IN ORGANIZATIONAL PARLANCE

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Vol.04,Special Issue 05, (ICIR-2019) September 2019, Available Online: www.ajeee.co.in/index.php/AJEEE

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EFFECTIVENESS AND EFFICIENCY: PREDICTORS OF PERFORMANCE IN ORGANIZATIONAL PARLANCE

Kamna Tiwari

Ph. D. Research Scholar, Institute of Management Studies, Devi Ahilya University, Indore Dr. Navindra Kumar Totala

Reader, Institute of Management Studies, Devi Ahilya University, Indore

Abstract - If one knows what to do for sustainable growth at particular situation, it is very easy to take decisions and conduct activities for the organizational performance. The two major dimensions to evaluate organizational performance are effectiveness and efficiency.

The two concepts look synonymous, yet they have a distinct meaning and interdependence.

In the changing and dynamic corporate world, the organizational needs are also changing leading to change in the patterns of assessments, interpretation and decision making. If people do not know what to change then it is very difficult to take the decision and then work on it. The organization and manager should consider that it should first understand the differences and their interdependence between effectiveness and efficiency and then at what condition it should focus on what for better organizational performance.

The present paper is a conceptual paper based on scientific literature review. It tries to explain the effectiveness and efficiency, their dimensions with respect to proximities and differences in organizational parlance and their relationship with organizational performance.

Key Words: Effectiveness, Efficiency, Organizational Effectiveness, Organizational Efficiency, Organizational Performance.

1 INTRODUCTION

The concepts of effectiveness and efficiency are commonly used, but often are applied in widely different ways(Productivity Commission, 2013). Effectiveness and efficiency are used as tools to measure and assess organizational performance. Effectiveness measures how outputs interact with the economic and social environment whereas efficiency is oriented towards successful input transformation into outputs (Bartuševičienė and Šakalytė, 2013).

Interestingly, high efficiency does not stand for high effectiveness (Lapsley, 2008). In few cases, maximizing effectiveness and efficiency simultaneously creates conflict between the two goals (Jacobs and Chase, 2008; Daft and Marcic, 2009). Efficiency often leads to effectiveness but it is not always the same case. Many a times, efficiency and effectiveness are found to be not related (Daft, 2007). Effectiveness and efficiency are nearly inseparable in business strategy, but both command two distinct point-of-views (https://www.scribd.com/document/248388615/03-Managerial-Effectiveness-vs

Efficiency). So, understanding of effectiveness and efficiency would create clarity and transparency in mental gaming or excises of manger which is essentially required for the sustainable organizational growth in global competitive environment.

However, these terms are not always defined nor interpreted consistently within and across disciplines. In some dictionaries, ‘efficient’, ‘cost efficient’ and ‘cost effective’ are given as synonyms while some economists distinguish between these terms as their uses do not always align with each other. The term ‘cost effective’ is sometimes meant that the outcome of an action is worth more than its cost. The word ‘efficient’ can meaningfully carry a modifier, like ‘most’ or ‘barely’ or ‘super’. In so many organizations these two terms have very clear and distinct meanings (Productivity Commission, 2013).

2 RATIONALES

2.1 Need for Assessment for Organization

There is need of self-assessment: Customers and/or competitors are driving a need to change; The industry or environment is changing; Every organization wants to be among the best, hence, it is important to make sure that it stays that way; Performance is efficient, and it is crucial to keep it that way and; The drive is to enhance organizational learning.

Organizations are constantly striving for the better results, influence and competitive advantage. Organizational performance and success has always been a priority in both private as well as in public sector. The contemporary organizations face unprecedented

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challenges assessing their performance in competitive economy (Bartuševičienė and Šakalytė, 2013).

To overcome, organization needs to select the right way for sustainable growth or right decision for their success. Organizations are struggling to get it right; so organizations first need to evaluate their performance. If organizations donor know what should bathe need to improve or work on then it is the task to do it. Management is not always aware of the right path for their organizational performance, sustainable growth and success.

Achieving high levels of organizational performance is a multidimensional process.

Knowledge, associated with self-assessment is not enough to assure high organizational performance. The continual mental gaming for manger is associated with deciding between effectiveness and efficiency and skill lies in striking a balance between effectiveness and efficiency in an organization.

To sustain a high performance organization, today’s organizational assessment has been taken to a higher level; managers are no longer implementing traditional valuation indicators, even if they successfully used for years (Khademfar and Amiri, 2013).It is crucial for organizations to self-assess their performance as it helps the organization to achieve the excellence in their operations (Baltridge Performance Excellence Program, 2013-2014).

Effectiveness and efficiency are central terms in assessing, measuring, evaluating and decision making regarding organization or inter-organizational performance. Probably the managers truly do not understand the exact meaning of these terms and difference between effectiveness and efficiency. The terms effectiveness and efficiency are used commonly interchangeable and applied in somewhat similar ways. There is a great need for research which clarifies the difference between organizational effectiveness and organizational efficiency and their relationship organizational. On what ground the organizations should take decisions is to focuses on effectiveness and efficiency and their impact on organizational performance. The challenging task set before the manager is to study the phenomenon and this clarity will help in decision making and assessment of organizational performance.

2.2 The Problem

There is a problem of understanding true meaning of effectiveness and efficiency, their interrelationship and relationship with organizational performance.

2.3 The Objectives

To identify the features of effectiveness and efficiency in organizational parlance.

To explore the proximities and differences between effectiveness and efficiency in organizational parlance.

To find academic relationship of effectiveness and efficiency with performance in organizational parlance.

2.4 Methodology

On the basis of on secondary data, a literature review has been carried out to find the meaning of effectiveness and efficiency, organizational effectiveness and organizational efficiency and their interdependencies for organizational performance and relationship with organizational performance.

3 LITERATURE REVIEW 3.1 Effectiveness

The literary meaning of the word 'effective' as per Oxford Dictionary is producing a successful result and to produce the result that is wanted or intended. Effectiveness is one of the measures of end result of an authority. Effectiveness is a very wide term in sense of both the quantitative and the qualitative term. Effectiveness is concerned with the ends, results, consequences or attainment of organizational goals (Bao, 2009; Robbins and Coutler, 2012). Effectiveness is generally defined as doing the right things to create the most value for any organization (David, 2011; Robbins and Coutler, 2012). Effectiveness means doing the activities that help the organization to reach desired goals (Robbins and Coutler, 2012). Effectiveness is the extent to which the policy objectives of an organization are achieved (Achabal, Heineke and Mcintyre, 1984; Asmild, et. al., 2007). Effectiveness is the extent to which the manager achieves the output requirements of the job, by what he

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achieves rather than what he does (Redding, 1970). Effectiveness is a minimum condition for survival after success has been achieved (Srivastava and Sinha, 2007; Banerjee, 2012).

3.2 Organizational Effectiveness

Effectiveness oriented companies are concerned with output, sales, quality, creationof value added, innovation, cost reduction. Organizational effectiveness measures the degree to which a business achieves its goals or the way outputs interact with the economic and social environment. Usually effectiveness determines the policy objectives of the organization or the degree to which an organization realizes its own goals (Zheng, 2010).

Organizational effectiveness helps to assess the progress towards mission fulfillment and goal achievement. To improve organizational effectiveness management should strive for better communication, interaction, leadership, direction, adaptability and positive environment (Heilman and Kennedy, 2011).

3.3 Explanation of Organizational Effectiveness

Organizational effectiveness was analyzed through organizational commitment.

Commitment in the workplace may take various forms, such as relationship between leader and staff, employee’s identification with the organization, involvement in the decision making process, psychological attachment felt by an individual (Meyer and Herscovitch, 2001). Superior performance is possible by transforming staff attitudes towards organization from lower to a higher plane of maturity, therefore human capital management should be closely bound with the concepts of the effectiveness (Shiva and Suar, 2010). Total Productive Maintenance system could be applied as a tool not the strategy for managers to ensure operational effectiveness. The fact was stressed out that effectiveness management tools and techniques such as benchmarking, time based competition, outsourcing, partnering are slowly taking the place of the strategy (Porter, 1996).

3.4 Efficiency

Efficiency is the quality of being able to do a task successfully, without wasting time or energy (https://www.collinsdictionary.com/dictionary/english/efficiency). Efficiency measures relationship between inputs and outputs or how successfully the inputs have been transformed into outputs (Low, 2000). Efficiency is commonly described as doing things right. This means doing something at the lowest possible cost. Efficiency is all about resource allocation across alternative uses (Kumar and Gulati, 2010). It is important to understand that efficiency does not mean that the organization is achieving excellent performance in the market, although it reveals its operational excellence in the source of utilization process (Bartuševičienė and Šakalytė, 2013).

3.5 Organizational Efficiency

There is a difference between business efficiency and organizational efficiency. Business efficiency reveals the performance of input and output ratio, while organizational efficiency reflects the improvement of internal processes of the organization, such as organizational structure, culture and community. Excellent organizational efficiency could improve entities performance in terms of management, productivity, quality and profitability (Pinprayong and Siengthai, 2012). Efficiency refers to the amount of resources used to achieve the organization’s goals (Daft, 2007). Efficiency concerns the relationship between input and output. Efficiency is related with achieving high levels of output from the given input and minimize the cost of the resources needed to achieve goals (Analoui, Ahmed and Kakabadse, 2010; Abdul-Azeem and Fatima, 2012). Efficiency can be calculated as the amount of resources used to produce a product or service. Therefore, the more resources are tried not to be wasted or tried to be unused during the production process (Daft and Marcic, 2009; Certo and Certo, 2012). In the organizations, the inputs refer not only to raw materials used in manufacturing, but also include human, physical, and financial resources available to the manager (Abdul-Azeem and Fatima, 2012, Certo and Certo, 2012).

3.6 Explanation of Organizational Efficiency

There are seven dimensions, for the measurement of organizational efficiency:

Organizational strategy; Corporate structure design; Management and business system

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building; Development of corporate and employee styles; Motivation of staff commitment;

Development of employee’s skills and Subordinate goals (Pinprayong and Siengthai, 2012).

To maximize the output, Porter’s Total Productive Maintenance System suggested the elimination of six losses, which are: reduced yield – from start up to stable production;

process defects; reduced speed; idling and minor stoppages; set-up and adjustment; and equipment failure. The fewer the inputs used to generate outputs, the greater the efficiency (Porter, 1996).

4 EFFECTIVENESS V/S EFFICIENCY IN ORGANIZATIONAL PARLANCE 4.1 Similarities

There are various opinions regarding valuation of the organization. Two indicators to assess the performance of an organization are the efficiency and effectiveness. Efficiency information provides different data compared to effectiveness one (Mouzas, 2006).

4.2 Difference

Effectiveness is a broader term, meaning the degree to which an organization achieves its goals whereas efficiency is a more limited concept that concerns with internal workings of an organization (Daft, 2007). Effectiveness is more important than efficiency (David, 2011).

But a manager should be both effective and efficient in his job. Thus, both effectiveness and efficiency are essential to maximize organizational performance and success (Certo and Certo, 2012; Hatten, 2012; Robbins and Coutler, 2012). In many cases, maximizing effectiveness and efficiency simultaneously creates conflict between the two goals (Jacobs and Chase, 2008; Daft and Marcic, 2009). At the customer service counter at bank, being efficient imposes using the fewest possible number of accountants at the counter, which may hurt customer service and satisfaction. Being effective means reducing the waiting time of customers in the queue as possible. It requires increasing the number of lines or accountants in the bank which increase the cost for the bank (Jacobs and Chase, 2008;

Daft and Marcic, 2009). So, managers must balance between effectiveness and efficiency (Hatten, 2012).

4.3 Dissimilarities

Management is concerned with getting things done and determining how to get things accomplished. In each manager's mind there is a debate over whether he should be more concerned to go into low-cost production or to disregard production costs and go after complete satisfaction of goals and objectives. These two paths are known as the decisions which separate "Effectiveness" and "Efficiency"

(https://www.scribd.com/document/248388615/03-Managerial-Effectiveness-vs- Efficiency).

Fig.1.: Source: Frey and Widmer (2009)

Effectiveness relates to information about output, outcome and/or impact only, whereas efficiency concerns the relation between the input and the effectiveness of a given policy. In terms of effectiveness, the literature further distinguishes between effectiveness in general on the one hand including all kind of effects within or beyond the goals of the program and, on the other hand effectively, dealing with the question if the goals set have been accomplished or not. In contrast to the other concepts mentioned so far, efficiency is including the input side as well. The meaning of efficiency is always dealing in some way with the proportion between the inputs (‘the costs’) on the one hand and the output, outcome and/or impact on the other hand (Figure 1.). The meaning of high efficiency is to reach an optimum of effectiveness (output, outcome and/or impact) with the smallest resources (input) possible (Frey and Widmer, 2009). Distinguished efficiency and

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effectiveness by associating efficiency to “doing things right” and effectiveness to “doing the right things” (Drucker 1977). A measure of effectiveness assesses the ability of an organization to attain its pre-determined goals and objectives (Hookana, 2011).

4.4 Disparity

Common measures of the organizational performance are effectiveness and efficiency (Bounds et. al., 1995; Robbins, 2000). Most of the organizations assess the performance in terms of effectiveness and efficiency. Their main focus is to achieve their mission, goals and vision. At the same time, the question is, whether there is a difference if the organization is effective yet inefficient and visas versa. Also, is it important for the entities to understand the disparity?

4.5 Effective but Inefficient Organization

The large multinational companies, in particular, face a problem of idle resources means their growth is high and their profitability is low

(https://www.scribd.com/document/248388615/03-Managerial-Effectiveness-vs-

Efficiency).Organizations can be managed effectively, yet, due to the poor operational management, the entity will be performing inefficiently (Karlaftis, 2004). Inefficient and ineffective organization sets for an expensive failure. In such case there is no proper resources allocation policy and there is no organizational perspective of their future.

Organization has leadership issues, high employee turnover rate and no clear vision where the organization will be standing tomorrow. If the organization is able to manage its resources effectively, yet it does not realize its long term goals, it will bankrupt slowly (Bartuševičienė and Šakalytė, 2013).

4.6 Efficient but Ineffective Organization

This strategy is cost efficient but it is not innovative and creates no value. Management has no clear customer oriented policy set in place, which leads to constant focus on efficiency.

Such organization uses all its efforts to implement strict resource allocation policy, which translates into strict staff cost control, training cost reduction or even elimination. These actions lead to low morale of the organization high turnover rate of the employees and low customer satisfaction. Efficient but ineffective organization cannot be competitive and it will bankrupt eventually (Bartuševičienė and Šakalytė, 2013).

4.7 Effective and Efficient Organization

In both cases, inefficient – effective and efficient – ineffective, organization is set for failure.

Therefore a conclusion reveals that an organization cannot survive without effectiveness policy (See Figure 2.).

Figure 2. The Characteristics of Effectiveness and Efficiency

Effective Ineffective

Efficient

Succeds at minimum cost.

The company thrives.

Cost under control but fails to succeed.

The Company is bankrupting slowly.

Inefficient Succeeds at a high cost.

The company exists.

An expensive failure.

The company is bankrupting fast.

Source: Zokaei, 2006

If the company is inefficient but effective it might survive, but the cost of operational management, processes and inputs will be too high. Cost inefficient organizations do not have proper resource allocation management. From the accounting perspective they might break even or have very little profit. Although, such organizations have excellent long term perceptions of the degree of the overall success, market share, profitability, growth rate, and innovativeness of the organization in comparison with key competitors (Zokaei, 2006).

Inefficient – effective organizations should consider the assessment of their recourse allocation. Usually, the morale in such entities is high. Delicate changes brought in the operations and introduced in a subtle manner should result the increase in the efficiency, which would lead organization to desired competitive advantage (Bartuševičienė and Šakalytė, 2013).The repeated mental gaming associated with deciding between effectiveness and efficiency is continual and often frustrating. It can be the habit of the new manager to always press hard for efficiency, getting down fast and keeping costs down

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(https://www.scribd.com/document/248388615/03-Managerial-Effectiveness-vs- Efficiency).

4.8 Interdependence of Organizational Effectiveness and Efficiency

Effectiveness and efficiency are exclusive, yet, at the same time, they influence each other;

therefore it is important for management to assure the success in both areas (Pinprayong and Siengthai, 2012). The interdependency of the two for predicting organizational performance may be presented as below:

Organizational Performance = Effectiveness x Efficiency

Total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales; therefore it can be treated as efficiency. Profit margin ratio is an indicator of a company's pricing strategies and how well it controls the costs, also it is a good measure for benchmarking purposes; therefore it could be treated as effectiveness. As a result, overall performance can be measured by quantifying the efficiency and the effectiveness (Pinprayong and Siengthai, 2012).

5 THE ILLUSTRATIONS

5.1 Organizations with Strategies Based on Effectiveness or Efficiency

Look at two multiple growing department store chains. One may choose to open more stores in new locations and one may decide to start manufacturing its own products and putting its own label on these products. The first motion of the company would be to decide which would be the most effective tactic, and then it should perform that maneuver in the least expensive and quickest fashion while still completely achieving the goal. The new location stores must be built soundly not just merely quickly. The new products must be made well not just cheaply (https://www.scribd.com/document/248388615/03-Managerial- Effectiveness-vs-Efficiency).

5.2 Different Departments with Effectiveness or Efficient Strategy

Various departments within a company may have different perspectives upon these two competing concerns. The marketing department is usually not concerned with efficiency but is largely concerned with the effectiveness of the campaign; whereas production is almost always concerned with efficiency and low-costs on its continual effort to produce enough. In today’s business environment individuals are encouraged to be more intentional in the way they solve problems. It may be chosen to see the problem or the solution. The path so chosen may be due to a default on the way one thinks or a learned behavior. One may choose to improve the productivity or performance by becoming more proactive as per the outcome so wanted. Hence, people and organizational can be efficient, effective or both(https://www.scribd.com/document/248388615/03-Managerial-Effectiveness-vs- Efficiency).

6 DISCUSSION

Effectiveness and efficiency are nearly inseparable in business strategy, but they command two distinct points of view. This research has tried to differentiate between efficiency and effectiveness and there interdependence. Effectiveness and efficiency are nearly inseparable in business strategy, but effectiveness and efficiency command different prospective or mind set. Every organization is struggling for success, growth and profitability and for that, balancing between effectiveness and efficiency are highly needed. Sometime effectiveness led to efficiency, sometime efficiency led to effectiveness, and sometime effectiveness and efficiency intersect with each other. With the conscious thinking processand the understanding the conditions and situations of the organization, goal and mission of the organization, strength and weakness of organizational, resource available, considering the limitations of organization and then one should take the decision about effectiveness and efficiency.

7 CONCLUSIONS

Effectiveness and efficiency are used to express the relationship between input, output, outcome, and performance. An organization needs both effectiveness and efficiency. The

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quotient effectiveness divided by efficiency is the productivity table. The meaning of high efficiency is to reach at an optimum level of effectiveness with the smallest possible resources (Frey and Widmer, 2009).If fact, effectiveness is a broader term which uses efficiency as one of its determinants. There is the limitation of resources, time, effort, energy, and dimensions of focus so managers have to mediate, which strategy should be adopted at a particular condition or situation and when to switch and balance between effectiveness and efficiency for an organizational performance. Corporate world is so dynamic with that the organizational strategy should also be changing with the change in the variables. Manger should be associated with deciding and striking the balance between effectiveness and efficiency in an organization.

On the basis of Conceptual Framework, Literature Review, Discussion, Conclusion and insight gained following the model of the Relationship of Organizational Effectiveness and Organizational Efficiency with Organizational Performance is represented as below (See Figure 3 and Figure 4.).

Figure 3. Relationship of Organizational Effectiveness and Organizational Efficiency with Organizational Performance

Organizational

Effectiveness Intermediaries Organizational

Efficiency Organizational Performance

*Vision

*Mission

*Goal

*Objective

*Policy

*Values

*Norms

*Procedures

*Strategy

*Long Term Goals

Organizational Culture, Organizational

Values, Innovation, Human Capital,

Leadership, Employee Commitment, Employee Turn-

Over- Ratio, Environment, Communication,

Interaction, Motivation to

Employee, Organizational

Structure

*Input

*Process

*Output

Sustainable Organization, Live Organization,

Organizational Growth, Organizational

Success, Organizational

Productivity, Organizational

Profitability, Market Share

Do Corporate Structure Design System Building,

Dothe Right Things

Leverage Out Intermediaries Positively, Effectively

and Efficiently

Do Corporate Structure Redesign System Rebuilding, Do Things Right

Attain High Organization Performance

*Details of the Terms

Vision Envisioning

Mission Searching and Finding

Goal Deciding, Steering, Aligning, and Attaining Objective Determining and Accomplish

Policy Forming, Implementing, Institutionalizing and Practicing Values Value Determination, Value Creation and Value-Added Norms Setting, Adhering and Compiling

Procedures Procedures Defining Procedure through Action Research, Flowcharting, Procedure Follow Up, Procedure Auditing, Periodic Review of Procedure for Reproducing

Strategy Formulation Strategy Adherence, Follow-Up Alignment and Realignment

Long Term Goals Market Shares, Sales Output With Time and Energy, Expansion, Diversification, Creation Of Vertical Benchmarking, Market Leadership

Input Minimum Raw Material, Human Physical, Financial Resources, Minimize the Cost of Resources

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Process Strong Operation Management, Operational Innovation, Less Process Defect, Reduce Idle Assets, Less Wastage, Check Equipment Failure, Proper Resource Allocation

Output Timely,Quality Output, Profitability, Stable Production, Staff Cost Control, Training Cost Control, Operational Excellence, Cost Reduction

Figure 4. Organizational Performance Attainment Model

Organizational Effectiveness Organizational Efficiency Organizational Performance

Mission Fulfillment;

Attainment of Goals and Objectives;

Ensuring Organizational Growth;

Capturing Market Share;

Increasing Market Share to Become Benchmark/Market

Leader

Ensuring Organizational Productivity;

Attainment of Organizational Profitability;

Attainment of High Asset Turnover Ratio;

Ensuring Operational Excellence;

Continuous Management of Quality

Sustainable Organization;

Live Organizational;

Organizational Success;

Sustained &

Increasing Growth Rate

7.1 Suggestions

Organization and manager should understand the basic meaning, difference and interdependency between organizational effectiveness and efficiency. Categorization of the activities and conditions or situations should be done in the light of the terms and then should make the organizational decisions accordingly. The right matches of conditions or situations should be done with managerial decisions and the assessment for sustainable organizational performance in the light of effectiveness and efficiency should be done to keep pace with changing corporate world. The organization and manager should consider that it should first understand the differences in the effectiveness and efficiency, the dependence between effectiveness and efficiency and then at what circumstance it should emphasis on what and when to switch the degree of the two variables and balance between them. There should be action researches in which organizational effectiveness and organizational efficiency are more explained with the numerous number of real-time examples from the corporate world which will help the manager in there day to day activities, decision making and organizational assessment.

7.2 Implications

It is implicated that organizational effectiveness and efficiency are two different terms in management parlance. They are used to measure organizational assessment and performance. A deep understanding of the effectiveness and efficiency create clarity and transparency in mental gaming for manager associated with decision making.

Organizational effectiveness and efficiency affect organizational performance differently and so management strategy and decision making process. Prudent organization and managers try to strike balances differently between the two variables to achieve organizational performance and productivity accordingly. The Effectiveness and efficiency are two basic criterion used for organizational performance and related decision making by managers and administrators.

7.3 Scope for Studies

Imperial data base research is advised industry specific studies may be undertaken and may be compared with other industry. Company, Country, Economy wise comparative

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studies may also be undertaken. Service industry and production industry may also be compared.

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