Category: Organizational theory

When the organizational changes are significant to make, two major theories are commonly addressed to, namely theory O and theory E. It should be pointed out that the theory E deals with the stakeholder’s value. It can be described as a planned method that is centered on a formal structure and is driven from the top with the help of some external consultants that provide a deeper understanding of the needed direction. In contrast to the described above statement, the theory O suggests development through the experience, the changes are impossible without the participation, and the help of the external consultants seems to be not needed.

Every corporate transformation can usually be described with the six dimensions, namely goals, leadership, focus, process, reward system, and use of consultants. The provided theories have significant differences; however, it should be pointed out that the mixture of various approaches can influence the outcome in a positive way.

According to recent studies, theory E is usually based on the economic factor, whereas Theory O is centered on the organizational one. The positive outcome requires an active user of both methods and is significant for the improvement. Successful managers usually predict changes as they monitor the environment constantly to see how the market and needs of customers change; however, not every circumstance can be predicted in advance, and that is, it may influence the economic condition of the organization. The understanding of the significance of making the transformation is an essential part of the successful business. It should be stressed that this demands critical and creative thinking, finding a way out from the zone of comfort, and identifying new ways that lead to a successful outcome.

Not every company implements certain management changes successfully, although mistakes are impossible to omit while making progress. It should be pointed out that the car company Datsun enjoyed great popularity in the United States from 1958-1980; however, some management mistakes led to the decline in sales and caused a lot of troubles as the company was not flexible concerning finding the common sense with the suppliers. The Datsun Company changed the brand name to Nissan and suffered a very tense competition from Honda that was the reason for Nissan cars to decrease in price. This fact proves the significant role of the environment for the prosperity of the company. The wrong management choices may influence the positive outcome and change the situation dramatically.

It should be stressed that Carlos Ghosn, the president of one of the most famous companies Renault and Nissan, has an impressive experience in running the top-selling car companies. Starting his career at Renault in 1996, he developed his success formula that had only three ingredients, namely trust, respect, fast working, and the ability to find the answers within the company combined altogether.

The major task of Ghosn was to reduce the costs, and he managed to make it, which consequently led to almost five billion dollars reduction in three years. The alliance of Nissan and Renault seemed to be impossible because of the differences in the objectives; however, due to the talented management of Ghosn, two companies succeeded in finding the common solution and the way towards development. He aimed to improve the reputation of Nissan despite the cultural or political differences as it seemed not important while focusing on the business. Ghosn claimed that the most significant task of the leader was to keep the word and to follow the consequences. According to the talented businessman, the changes can only occur when there is no need to fabricate solutions, and everything can be done from the very beginning.

The deep listening tactic is beneficial for progress. Ghosn listened to the ideas of workers, which should be improved or changed. The major changes that Ghosn implemented were the following, namely the changing of the official language to English, the possibility for the Japanese press to attend meetings, and the replacement of the regional president with the management teams. Motivation played a significant role in the company’s improvement. The ability of Ghosn to understand what changes are needed and to take not popular decisions contributed to the successful outcome.

It should be highlighted that the understanding that the Nissan Company is not in the perfect condition and demands certain changes to make progress led to the development of the plan. The critical thinking, the ability to get out of the comfort zone and take the needed decisions influenced the process of making a difference. According to Ghosn, the operating cost reduction, cutting of material suppliers, product development, and reduction of manufacturing organizations in Japan were essential for the success of the company. Ghosn decided to take responsibility for all the actions and changes in case the plan would not work.

The improvement demands significant adjustment and hard decisions. Respect and honesty became the guiding elements for the Nissan team. Although the Revival Plan was successful, the Nissan Company understands the significance of changes and further improvement. It should be stressed that the cost-cutting was one of the most significant parts of the plan as according to Theory E, economic changes can be considered as a guided power towards greater improvement. However, it is significant to highlight that the reduction of the plants in Japan and global headcount contributed to the development of the company also.

The hard changes were seen as the only way to make a difference and give a strong push towards success and prolific work. However, it is important to make an accent that not only economic changes contributed to the prosperity of the company as the organizational education, work with the employees and their motivation influenced the further development of the organization greatly.

It should be stated that the best results of changes may be achieved only with the combination of different methods and approaches. Being an innovator in the field of development of the Nissan Company, Ghosn, succeeded in the implementation of the appropriate methods for the improvement of the company.

The number of positive but hard changes led to the prosperity of the company. The case with Nissan Company proves the importance of making the right decisions and highlights the significance of the environment for the development of every project. The way for success can only be found through experiments. Although the talented leader can change the company dramatically, one should not forget that there is no progress without mistakes, and the case with the Nissan Company proves that everything is possible if the appropriate methods of changes are implemented into the working process.

Definition

Despite being used quite often in evaluating the performance of an organization, as well as redefining the company’s goals and the means to achieve them, the phenomenon of organizational effectiveness is comparatively hard to nail down. Traditionally, the concept is viewed through the lens of management theories, whence the complexity of the phenomenon stems from. Indeed, the effectiveness of an organization is comprised of a range of elements, particularly, the performance of the staff, the efficacy of the financial transactions and the company’s operations in general, the quality of the source materials, the adequacy of the logistics strategy adopted, etc. Therefore, in most cases, the operational definition of organizational effectiveness is stretched to the efficacy, with which an organization meets its key objectives; thus, OE can be defined as “the notion of how effectual an organization is in accomplishing the results the organization aims to generate” (Manzoor, 2012, p. 37). Much to the credit of the recent researchers, the phenomenon has lately been viewed from the point of view of the company’s assets, therefore, relating the concept in question to the internal processes of an organization and not the outside factors: “Organizational effectiveness is a term often used to describe an organization’s capacity to achieve outcomes efficiently and effectively” (Lin & Lin, 2011, p. 364).

Drawing the line between organizational performance and organizational effectiveness, one must also add that the latter is a “broader construct that captures organizational performance, but with grounding in organizational theory that entertains alternate performance goals” (Richard, Devinney, Yip & Johnson, 2009, p. 718). Therefore, it would be wrong to consider the concept of OE solely as the measure of the revenues that a company has gained over a specific time period; quite on the contrary, the phenomenon should be related to a variety of concepts in order to represent its complexity properly. To be more exact, the evaluation of OE must be carried out with regard for both the internal factors, including the company’s assets, the direct and indirect costs, the net revenue, the profit margins, etc., and the external ones, particularly, the competition rates within the specified market, the amount of competitors, the type and structure of the market in question (e.g., in a monopolistic market, the chances for a company to survive the competition are close to nil), etc.

Theories

It should be noted that the phenomenon of OE can be viewed from a variety of theories, including Hanna and Freeman’s Theory of Organizational Effectiveness, also known as the Theory of Organizational Ecology, the Impartiality Theory, the Participant-Interest Theory, the Four-Factor Theory of Leadership, which allows for predicting OE in a specific organization, and, of course, the Theory of the Firm. It should be born in mind that the theories mentioned above are not the only frameworks that address the concept of OE; quite on the contrary there are a number of other theoretical approaches, which render the phenomenon of OE, the means of measuring it and the methods of maintaining OE in a company. Still, the theories listed above are considered the key ones in assessing OE and identifying the strategies for attaining it.

Hannan and Freeman’s Theory of Organizational Effectiveness (the Theory of Organizational Ecology)

According to Hannan and Freeman, OE depends on the environment, in which the members of the company in question operate. Consequently, Hannan and Freeman suggest that the means to sustain the environment, which is favorable for the organization’s operation, or, as they put it, organizational ecology, must be designed. Hannan and Freeman identify adaptation as the key mechanism allowing for creating the proper organizational ecology within a particular company. Adaptation should not be viewed as a passive acceptance of the negative factors affecting the company; instead, Hannan and Freeman define adaptation as flexibility in searching the avenues for addressing a particular problem with a limited amount of resources. More to the point, the theory in question helps identify the methods for fighting the so-called “organizational inertia,” i.e., the obstacle, which blocks the way towards adaptation for an organization (Frenken, 2011).

Participant-Interest Theory

Another theory that addresses the phenomenon of OE, the Participant-Interest Theory (PIT) presupposes that, to achieve high rates of efficacy, an organization must take the interests of its key stakeholders into account (Keeley, 1984). It should be noted, though, that PIT is, in fact, not a single framework, but an entity comprised of several participant-interest theories.

Four-Factor Theory of Leadership

Hannan and Freeman made it obvious that OE should be measured based on a range of factors affecting the company’s operations, the organizational behavior of the staff, etc. The Four-Factor Theory of Leadership (FFT) has narrowed the number of issues affecting OE to four. According to the key tenets of the FFT, support, interaction facilitation, goal emphasis, and work facilitation can be used to evaluate the efficacy of the company in a rather accurate manner (Bowers & Seashore, 1966). Indeed, the areas mentioned above address the major processes that occur within an average organization, i.e., the relationships between its members, the production process, the location of the firm’s goals and their subsequent achievement.

Theory of the Firm

Another way of looking at the OE, the Theory of the Firm (TF) provides a deeper insight onto the nature of entrepreneurship and, thus, helps realize what elements are needed to promote sustainability within the company. Though tending to view the OE through the prism of the company’s structure and processes, TF also analyzes the organizations’ relationship to the market, therefore, making it possible to locate the potential changes in the OE after the integration of the organization into the latter. The significance of the relationships between the company and the market is becoming increasingly high with the rise in the pace of globalization; therefore, with all due respect to the authors of the TF, one must admit that some of its postulates should be taken with a grain of salt; particularly, the consideration of the company’s assets should not be isolated from the analysis of the effects of the market and the related forces on the organization’s key processes (Fitzsimons, James & Denyer, 2011).

Methods

A variety of methods for improving OE have been suggested so far. Traditionally, the reconsideration of the company’s vision, mission and corporate ethics is viewed as the key to improving OE. The introduction of the principles of professional responsibility into the company is also often seen as the first step towards raising the OE rates. Together with professional responsibility, accountability and time management are also listed among the key concepts required for improving OE. Finally, a range of companies considering the satisfaction of their key stakeholders as their top priority often happen to be the firms with the highest OE rates (Amah & Ahiauzu, 2013).

Reference List

Amah, E. & Ahiauzu, A. (2013). Employee involvement and organizational effectiveness. Journal of Management Development, 32(7), 661–674.

Bowers, D. G. & Seashore, S. E. (1966). Predicting organizational effectiveness with a four-factor theory of leadership. Administrative Science Quarterly, 11(2), 238-263.

Fitzsimons, D., James, K. T. & Denyer, D. (2011). Alternative approaches for studying shared and distributed leadership. International Journal of Management Reviews, 13(3), 313–328.

Frenken, K. (2011). Firm entry and institutional lock-in: an organizational ecology analysis of the global fashion design industry. EconStor, 0714, 1–21.

Keeley, M. (1984). Impartiality and participant-interest theories of organizational effectiveness. Administrative Science Quarterly, 29(1), 1–25.

Lin, Y. W. & Lin, Y. Y. (2011). Health-promoting organization and organizational effectiveness of health promotion in hospitals: a national cross-sectional survey in Taiwan. Health Promotion International, 26(3), 362–375.

Manzoor, Q.-A. (2012). Impact of employees motivation on organizational effectiveness. European Journal of Business and Management, 3(3), 36–45.

Richard, P.J., Devinney, T., Yip, G. & Johnson, G. (2009). Measuring organizational performance: towards methodological best practice. Journal of Management, 35(3), 718–804.