(This article was published in Nonprofit Management & Leadership (Jossey-Bass Publishers), Volume 11, Number 1, Fall 2000 (pp 97-104).

Introduction and Purpose

The issue of organizational effectiveness (OE) has been one of the most sought out yet elusive of research subjects since the early development of organizational theory. Although it may be intuitively apparent that a measure of organizational performance would be readily available in management literature, quite the contrary is true. This study researches the literature and identifies the most reliable model available that can measure organizational effectiveness among for-profit and non-profit organizations.

The need for this and further research in cross-sector organizational effectiveness emerges at a time in which at least three determinant trends are transforming the non-profit landscape. First, a surge of academic interest in non-profit organization performance has been observed (Speigel, 1990). A second noticeable trend is that as a reaction to current pressures, non-profits are adopting practices of the for-profit, Corporate America (Eisenburg, 1997). Finally, non-profits are increasing being challenged, if not threatened, by for-profits institutions invading markets previously considered exclusive for non-profit institutions (Ryan, 1999). As these trends force the non-profit sector to adapt and evolve, researchers, management practitioners and consultants will find vast opportunities to conduct comparative research, devise innovative operational concepts and develop models that attempt to explain the evolution of the non-profit sector.

The Issue of Organizational Effectiveness

Despite its elusive nature, organizational effectiveness has been considered a critical concept in organizational theory (Goodman & Pennings, 1980). Some of the earliest models developed were goal based (Etzioni, 1960; Steers, 1977 ) but immediately identified as an unsatisfactory construct since the selection of inadequate goals cannot lead to an effective organization (Miles, 1980; Mohr, 1983). These early models gave way to system models, which focused on a broader set of variables and on measuring the means necessary to achieve the organizational goals (Miles, 1980). But like goal based models, relevant systems and key processes within the organizational systems could be misdirected and prove inefficient if they caused, even if unintended, undesirable external consequences (Mohr, 1983). From these concerns emerged the multiple-constituency models designed to measure effectiveness not only internally but also as a function of customer satisfaction (Connolly, Conlon & Deustch, 1980).The most recently developed models that have managed to obtain some level of agreement among organizational theorists assume a multidimensional construct (Robbins, 1983 ; Ridley & Mendoza, 1993). A literature review conducted for this paper yielded four multidimensional models worthy of consideration and analysis.

Models of Organizational Effectiveness

The first model comes from a study performed on contemporary Indian organizations and proposes that organizational structure has the potential to improve the overall perceived effectiveness of the organization (Bhargava & Sinha, 1992). In this study, a 7-point scale applied to four specific components was used to predict organizational effectiveness. Specifically, the components were production, commitment, leadership and interpersonal conflict. Production was defined as the flow of output of the organization. Commitment was established as a component to measure the degree of attachment to the organization. Leadership was defined as a degree of influence and personal ability. Interpersonal conflict refers to the degree of perceived misunderstanding between supervisors and subordinates. This study shows that an organization with a heterarchical structure was perceived as having higher degrees of production, commitment and effective leadership with less interpersonal conflict than a hierarchical structure. Although these results are derived from the public sector, the model and outcomes of this study suggest research possibilities for the non-profit sector.

Despite its simplicity, a major difficulty in using this model as a measure of organizational effectiveness in comparing for-profit and non-profit organizations is the relative interpretation of the commitment and productivity components. It is thought that commitment in the for-profit domain is tied to career progression, personal income and business survival, whereas commitment for non-profits is based on generosity and volunteerism which may not have a bearing on organizational effectiveness. The concept of productivity in the non-profit sector is less tangible and more perceptual than in the for-profit sector. With the noted refinements the model might be used for both sectors.

The second organizational effectiveness construct considered for this paper is also based on interrelated organizational processes and was recently developed primarily as a tool for management consultants (Ridley & Mendoza, 1993). This model, which integrates foundational concepts of systems theory, organizational theory and consultation theory, is formulated on the most basic processes of organizational effectiveness, namely, the need for organizational survival and the maximization of return on contributions. The theoretical framework of this model is based on a series of assumptions, such as the availability of "organizational energy reserves", the ability to benefit from returns, the presence of a resource utilization metric, and a long term perspective. These assumptions lead the authors to develop a model of eleven key processes that are posited as contributing to organizational effectiveness. The first two processes, organizational survival and maximization of return, are defined as superordinate processes. The third process is self-regulation, which is responsible for orchestrating balance among the superordinate and subordinate processes. The eight subordinate processes are listed as internal-external boundary permeability, sensitivity to status and change, contribution to constituents, transformation, promoting advantageous transactions, flexibility, adaptability and efficiency.

As an organizational effectiveness construct, this model’s value resides in its use as a mapping device from which consultants and their customers can synchronize expectations and visualize improvement opportunities. Apart from its theoretical contribution, the model lacks empirical research and valid instruments. Although this may present an interesting research opportunity, as currently stated, the model fails to satisfy the desired objective of this study, which is the search for an operationalized construct applicable to cross-sector organizational effectiveness.

The third model of organizational effectiveness considered is based on gathering perceptions of pre-selected efficiency indicators. Jackson (1999) developed this model to examine the differences between community and member-based non-profit organizations. Jackson uses a survey instrument in a descriptive research study designed to measure perception of each of six indicators and the relative priority each indicator would have within community based and member based non-profits. The six selected indicators of organizational effectiveness include management experience, organizational structure, political impact, board of directors involvement, volunteer involvement and internal communications.

Although this construct is appealing due to its simplicity and the availability of a validated survey instrument, its author recognizes that an expanded model, to include categories of organizational configuration, organizational competencies and organizational capabilities, is more desirable. An expanded version of the model with these categories increases both the validity and reliability of the organizational effectiveness measurement. Also, the model uses indicators that are inadequate to measure OE across domains, such as volunteer involvement and board of directors involvement. A correlational study between volunteer involvement and employee involvement needs to be performed to make this indicator more applicable to the for-profit organizations. Regarding the performance of the board of directors as an indicator, Taylor and Chait (1996) have already suggested that boards of non-profits have minimal impact on effectiveness.

The fourth and last model considered for use in comparing for-profit and non profit organizational effectiveness is the competing values framework (CVF), which is based on past attempts to formalize organizational effectiveness criteria (Quinn & Rohrbaugh, 1983). This model has been used in a wide variety of organizational research studies, including organizational culture and strategy (Bluedorn & Lundgren, 1993), effectiveness of management information systems ( McGraw,1993), organizational communications (Rogers & Hilderbrandt, 1993) and also in organizational transformation ( Hooijberg & Petrock, 1993).

Initial work on the CVF came from attempts by managers and academic researchers to offer a robust construct to evaluate organizational effectiveness. Quinn and Rohrbaugh (1983) used multidimensional scaling and created a spatial model of organizational effectiveness with three subordinate value continua: flexibility-control, internal-external, and means-end. Later, Quinn (1988) demonstrated that only two of the subordinate continua, control-flexibility and internal-external, were sufficient to describe the organizational effectiveness construct and when combined, these could be visualized as a set of quadrants. Labels for each one of these quadrants are (1) human relations, (2) open systems, (3) rational goal and (4) internal process. According to Quinn, each of these quadrants constitutes a model in itself. The "Human Relations Model" sees participation, discussion and openness as a means to improve morale and achieve commitment. The "Internal Process Model sees internal processes such as measurements, documentation and information management as methods to achieve stability, control and continuity. The "Open Systems Model" relates insight, innovation and adaptation as a path towards external recognition, support, acquisition and growth. Finally, the "Rational Goal Model" seeks profit and productivity through direction and goals. The validity of these four quadrants or dimensions was also tested by Quinn and Spreitzer (1991) on a sample of 796 executives from 86 public utility firms in the United States, where the analysis was performed by comparing two types of competing value scales. This model was validated a third time by using a Structural Equation Modeling (SEM) approach on a sample of 300 managers and supervisors employed by a multi-hospital system in the United States (Kallaith, Bluedorn & Gillespie, 1999).

The analysis of these four models suggests that the competing values framework (CVF) is the most viable model for measuring organizational effectiveness between for-profit and non-profit organizations. The CVF model has been used in a wide range of organizational research including organizational culture (Cameron & Freeman, 1991; DiPadova & Faerman, 1993), leadership styles and effectiveness (Quinn & Kimberly, 1984), organizational development (Quinn & McGrath, 1985), human resource development (Quinn & Spreitzer, 1991), and quality of life (Zammuto & Krakower, 1991). Other areas of research using CVF include organizational life cycle (Quinn & Cameron, 1983), the effectiveness of information systems (Cooper & Quinn, 1993), employee involvement (McGraw, 1993), communications in the organization (Rogers & Hildebrandt, 1993) and organizational transformations ( Hooijberg & Petrock, 1993). The model’s reliability and validity is supported by multitrait-multimethod analysis, multidimensional scaling (Quinn & Spreitzer, 1991) and most recently by structural equations modeling (Kallaith, Bluedorn & Gillespie, 1999).

Summary and Conclusions

The issue of organizational effectiveness is as old as organizational research itself, yet recent literature on the subject suggests some progress in achieving common ground on this traditionally controversial subject. The literature review here yielded four models, of which the most comprehensive and widely used construct during the past decades for measuring a variety of organizational characteristics, including organizational effectiveness, has been the competing values framework (CVF). This particular model possesses instrument validity, reliability, an abundance of literature support, and breadth of research to offer a high degree of confidence in estimating measurements of organizational effectiveness across sectors.

Also during the same past decades, the non-profit sector has encountered significant organizational pressures, financial challenges, new demands and has confronted significantly more difficult business conditions while the demand for their services continues to increase. The public sector has also decreased its own involvement in basic human services. As a reaction to these conditions the non-profit sector has been hoping for relief by adopting business practices of the for-profit domain. Yet the superimposition of for-profit practices on non-profit organizations has not always produced the best solutions (Dabbs, 1991). Aware of this weakness, more for-profit organizations have become involved in providing services in areas once thought the exclusive domain of non-profits. As this market becomes more competitive, innovations and many times risky solutions in both domains are blurring the traditional lines between the two. Yet given the infringement of for-profit in the non-profit domain and the increasingly competitive nature of the market, the question of who can perform these services more effectively and which for-profit management practices are most effective in the non-profit domain remains unanswered.

The CVF offers to date a psychometrically sound approach for measuring organizational effectiveness among for-profit and non-profit organizations. Further research in this area should examine the similarities and differences among sectors using this method. It would also be interesting to compare effectiveness results obtained by using other measures. Adding knowledge in this area is critical, as nearly most organizational change efforts, whether profit or not, are also related to organizational effectiveness.