From the previous discussion it can be seen that a variety of interest groups, individuals, and organizations have contact with a given focal organization; each of these evaluates the organization and reacts to its output and actions. Each has a particular set of criteria of preferences that it uses in this evaluation process, and consequently, organizational effectiveness is a multifaceted concept, where the effectiyene^ss of_the organization, depends ion which group, with which criteria jmdjnrefer- ences, is doing the assessment.
Effectiveness and efficiency are terms that are used, and often misused, to analyze and describe organizational behavior. Price ( 1968 ) has reviewed a series of studies attempting to determine the correlates of organizational effectiveness. We would argue that few, if any, of the studies reviewed employ measures that assess effectiveness in a meaningful way. In Chapter Four, we will explicate a procedure for assessing the organization’s position vis-à-vis its environment—in other words, the organization’s effectiveness and the probable consequences of various policies and actions. For the moment, we will concentrate On defining effectiveness and distinguishing it from organizational efficiency.
How well an organization accomplishes its stated, or implied, objectives given the resources used is whatefficiency measures. What this means is most easily described by reference to the process for evaluating the efficiency of a machine. Katz and Kahn (1966) used the steam engine as an illustration. A steam engine operates to convert coal or some other fuel into useable power. In the process of the transformation, some of the energic content of the input is lost; therefore, the output energy is less than 100 percent of the energy in the input. The ratio of input to output energy is a measure of the efficiency of the engine. This basic idea, output per unit of input, is used when speak-ing of the efficiency of an organization. A worker producing seven tin cans per minute is more efficient than one producing five. More output is achieved in the former case per unit labor input.
Efficiency is an internal standard of organizational performance. To develop measures of efficiency, the records of the organization’s own activities are all that are needed. The company which manufactures those ubiquitous widgets uses a certain amount of worker hours and material to obtain the output. Its efficiency is determined by counting the number of widgets produced per worker hour and unit of material consumed through use or waste. Different organizations have different outputs and inputs, but the comparing of output to input is common. Schools measure students educated per dollar, while the United States Customs agency measures the efficiency of its agents in terms of the dollar value of confiscated contraband per year.
Although efficiency measures are easy to obtain, they are difficult to interpret. They are easy to obtain because most organizations keep some records on outlays for expenses and on products produced or persons served. Interpretation is difficult because efficiency measures involve assumptions of causality and a level of theoretical understanding seldom possessed by analysts of social systems. In assessing the efficiency of a steam engine, the engineers who design it know various physical laws of energy, heat transfer, and chemistry. From these they can derive both estimates of the energy content of the input and the theoretical maximum efficiency of the device. They can also measure the various sources of energy loss. Social-systems analysts must make similar judgments about the relationships between inputs and outputs and must also make judgments about the transformation process. Unfortunately, they have less knowledge on which to base such judgments. Therefore, most measures of efficiency are open to contest. When management claims a raise is not justified because there is a declining productivity of labor—measured by the output per unit of labor input—labor may counter with the argument that productivity has declined because of lack of maintenance of the machinery or because of errors in management’s calculations or competence. Finally, efficiency is problematic to interpret in social systems because the direction of benefit is open to question. In the case of the engine, we can take as given that the less energy lost in the transformation process, or the more output per unit input, the better. But can we so easily assume that the more students taught per dollar, the better; or the lower the cost of treating a hospital patient, the better?
Efficiency is relatively value free. It asks how much is produced, at what cost. What is produced is not considered. The output may be antibiotics or atomic bombs, processed food, clothing, or automobiles. The output may be valued by some and not valued by others. Efficiency is taken to be good, so a positive valuation is placed on a larger ratio of output to input. This quest for “bigger is better” reached its ultimate stage when, in virtually a caricature of modern management ideas, the Department of Defense during the Vietnam war reported body counts and worried about the number of enemy killed per thousand dollars of ammunition or bombs expended.
When individuals and organizations consider what is being measured or produced, they are concerned with effectiveness rather than efficiency. Effectiveness is an external standard applied to the output or activities of an organization. It is applied by all individuals, groups, or organizations that are affected by, or come in contact with, the focal organization. Effectiveness as assessed by each organizational evaluator involves how well the organization is meeting the heeds or satisfy- ing the criteria of the evaluator.
Of course, efficiency itself may be the standard by which organizational effectiveness is judged. When an engineer orders a machine or when a homeowner buys an air conditioner, one of the criteria may be the efficiency of the appliance, or the amount of work produced per unit of input consumed. The fact that efficiency may itself be a criterion for assessing effectiveness should not be taken to mean that this is always, or even usually, the case. In many instances efficiency of the product is not a criterion, and what is being produced, rather than the ratio of output to input, is of more concern.
Some confusion between effectiveness and efficiency comes about because efficiency itself is valued. Years of Taylorism, scientific management, and now operations research and management science have led to the maximization of efficiency as a value. After literally decades of management ideology venerating efficiency, efficiency has come to be a valued social ideal. In such a climate, efficiency may be used as an argument to achieve objectives sought for other reasons. For instance, as.part of an effort to reduce expenditures for programs started under the Johnson administration, President Nixon attempted to merge Volunteers in Service to America (VISTA) with other voluntary programs such as the Peace Corps. The administration maintained in testimony before Congress that the merger was designed solely for greater efficiency in operation by avoiding duplication (New York Times, May 24, 1971:1). Two months prior to the administrations proposal to Congress, however, a study by a Pennsylvania State University professor, David Gottleib, had indicated that fully one-third of the volunteers became radicalized by the experience of helping poor people. As one Republican official put it, “VISTA is just a federally financed $36 million-a-year ‘hate Nixon’ post-graduate school.” The proposal to Congress, of course, stressed the cost saving and efficiency, acceptable arguments to remove unacceptable programs.
What this means is that efficiency and effectiveness may be confused because efficiency, as a socially valued ideal, may be used as argumentation to advance or retard proposals or activities which are really being assessed by other criteria. Stating the case in terms of efficiency does not necessarily mean that the issue is being decided on such a basis.
Efficiency and effectiveness are independent standards for evaluating organizations. Organizations can be both efficient and effective, neither efficient nor effective, effective but not efficient, or efficient but not effective. An efficient, but not effective, organization was FAS International (formerly Famous Artists Schools) which, in 1970, filed) for reorganization under the bankruptcy laws. FAS advertised in popular magazines for readers to learn to write or draw under the guidance of famous authors and artists, using a correspondence course format. The directors of FAS were well-known artists and authors such as Bennett Cerf, Rod Serling, and Norman Rockwell. The troubles at FAS began in large part when the Atlantic Monthly published an article questioning the value of the organization, pointing out that FAS’s alluring talent tests were almost always positively evaluated, and more important, explaining that the guidance provided by mail was not from the famous writers or artists, but from staff persons hired at relatively low salaries. Under public criticism, many of the more famous persons disassociated themselves from the company, and the company began to have trouble with regulatory agencies because of its advertising claims. While FAS was quite efficient and profitable, its activities were eventually considered not to be legitimate or effective, and the organization failed.
An example of an effective but possibly inefficient organization was the National Aeronautics and Space Administration during the 1960s. A commitment was made by President Kennedy to land Americans on the moon in a decade, and a tremendous amount of resources was devoted to the space program. The organization was clearly effective—men were landed on the moon in 1969, and the United States had developed an elaborate and sophisticated set of space technology. However, in the drive to meet deadlines and timetables, duplication was encouraged and waste also occurred. In fact, too much efficiency may detract from the effectiveness of an organization. General Motors, with its considerable financial and production resources, could operate so efficiently that it would drive its weaker competitors, such as American Motors and Chrysler, out of business. Such an attempt, however, would probably serve to revive the effort to break up General Motors. Thus, by being too efficient in the car business and controlling too much of the market, General Motors might set in motion actions that would ultimately lead to negative consequences.
Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition