Organizational effectiveness: the X factor for company success

At the most elemental level, organizational effectiveness is a concept that measures how thoroughly and efficiently a company achieves its business goals. An effective organization runs like a well-designed, well-oiled machine. Its moving parts function smoothly to produce the results the business set out to achieve, with minimal wasted resources or time.

Read on to find out why organizational effectiveness is worth the hype, and what steps leaders can take to position their company for more efficient performance.

What is organizational effectiveness?

Organizational effectiveness refers to how an organization has achieved full self-awareness due in part to:

• Leaders setting well-defined goals for employees and outlining ways to efficiently execute those goals
• Management implementing clear decision-making processes and communication pipelines
• Engaged employees—who are carefully selected and fairly compensated—producing work that prioritizes results

Why does organizational effectiveness matter?

The more effective an organization, the more likely it will survive and flourish over the long term. It’s worth noting that organizational effectiveness cannot be achieved, as one Bain & Company study put it, by “a cycle of recurring initiatives” to make your company more efficient. The behavior must be learned and baked into the day-to-day functioning and ongoing evaluation of the business.

The study goes on to describe the difference between an ongoing commitment to organizational effectiveness and a series of one-time initiatives that might cut costs. The former is comparable to a healthy routine of eating good food and getting regular exercise, while the latter is akin to extreme dieting. Although the latter might work in the short term, it doesn’t “build the muscles to sustain long-term change.”

Prioritizing effectiveness shouldn’t discourage company health or customer satisfaction, either. According to the same Bain & Company study, “Companies that embrace an efficiency mindset are four times more likely to say their cost efforts enabled growth rather than hindered it. They also are four and a half times more likely to report improved customer experience.”

5 ways leaders can produce long-term organizational effectiveness

The Bain & Company study maps out five key areas where successful companies made adjustments to achieve organizational effectiveness:

• Strategy
• Metrics
• Commitment
• Behaviors
• Culture

“Tenacity and a sustained investment in these areas create the best chance of success,” the study asserts.

1. Strategy

Strategy involves shifting an organization’s central identity—how leaders describe its purpose and goals both internally and externally—to include effectiveness and efficiency as core values. The more your company is known to be “effective” and “efficient,” by both the market and your employees, the more these values will be built into every new project and goal.

Organizational effectiveness should simplify and clarify long-term objectives for a company. The clearer these objectives are outlined at a strategic level, the easier it is to translate across departments.

2. Metrics

Measuring organizational effectiveness through metrics can help organizations stay accountable. But choosing the right data to measure—as well as knowing when to prize human judgment and discussion over hard analytics—is just as important. A few questions to help your organization get started should include:

• What concrete goals are your teams working toward?
• Are they clearly outlined by team leaders?
• How and at what intervals will progress be evaluated?

This effectiveness report from the University of North Carolina is a great example of an organization keeping itself honest through regular evaluation. It clearly states the organization’s strategic focus, efforts to promote clarity in roles, as well as recommendations for improving general administration organizational design.

3. Commitment

“Strong executive sponsorship is the single most important factor for success and the most often cited reason for failure when things go off track,” the Bain & Company study says. The authors stress that “visible and credible commitment” to effectiveness policies from senior leaders—in companywide communications and hiring approaches, all the way down to how quarterly budget meetings are conducted—creates a trickle-down effect across the organization.

4. Behavior

Meanwhile, recurring behavior is where efforts to achieve organizational effectiveness are most likely to break down. Identifying specific decision-making moments in the day-to-day operation of the company, communicating the ways employees ought to be changing their behavior in those moments, and then implementing systems for reinforcement, including incentivizing those choices, can build a much healthier organization that polices its own effectiveness.

5. Culture

Finally, the degree to which employees are enthusiastically engaged at work determines how effective their work will be. Therefore, creating an organizational culture that values effectiveness is key.

Countless studies, from business schools to consulting firms, have underlined the correlation (if not causation) between employee engagement and overall organizational performance. Oft-cited Gallup findings suggest that unengaged workers are costing employers at least a third of those workers’ wages, and overall could be costing the U.S. economy over $600 billion in lost productivity.

Even in a purely financial context, focusing on company culture—and prioritizing employee engagement in particular—is the best place to start when embedding organizational effectiveness into your company’s DNA.