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UDC: 65.012.
Original scientific paper
BUSINESS OPERATIONS BETWEEN EFFICIENCY
AND EFFECTIVENESS
Vojko Potocan Faculty of Economics and Business, Maribor, Slovenia [email protected]
Abastract: The existence and development of organizations depends on achievement of requisite holistic efficiency and effectiveness of their operations and bahaviour. But in theory (of organization and management) and business practice do not exist common understanding of efficiency and effectiveness, their relations and sinergies. When we try to investigate their definitions and relations we must take into account problems of many conflicts, which reflect their “different non-optimalty (unsuitability, inapproapriateness)”. This contribution discusses three theses: 1) how to more (requisitely) holistically understand relations between efficiency and effectiveness in the frame of business (its working and functioning), 2) how to understand their relations from the viewpoint of conflicts, and 3) one can create solution to remove a problem of different conflicts between efficiency and effectiveness in business.
Keywords: conflict, efficiency, effectiveness, fictitious conflict, real conflict.
1. INTRODUCTION
The existence and the development of organizations depend on the achievement of adequate results in their operations and behavior [6; 21; 23]. In order for an organization to achieve such results, it needs to fulfill at least two basic conditions, i.e. to adequately use the available (given and potential) resources for the creation of its results and to achieve results meeting the needs and requirements of the customers [30; 26; 42; 34; 36]. Reaching the initial conditions within an organization, which is a complex and complicated phenomenon in objective reality, is, of course, neither simple nor effortless. It tackles to numerous issues, which are related to the selection and application of methods, methodologies and techniques of comprehension and treatment of the organization [12; 29; 35; 45]. In addition, the organization depends on achievement of requisite efficiency and effectiveness of its operations and behavior. During their examination, we face problems of different understanding of the content of the organization’s operations and behavior as well as the variance of possible ways of its treatment [30; 26; 10; 31; 42; 34]. If the differences are (at least partly) justified analysis of both phenomena within different sciences, the variance of their analysis within individual sciences is less understandable (and justified). Significant differences in the understanding of efficiency and effectiveness exist even within the organization and management sciences [8; 40; 19; 17; 13; 9; 41].
V. Potocan. Business operations between efficiency and effectiveness
Efforts for efficiency and effectiveness within the organization cause numerous conflicts [11; 43; 10; 14; 37; 7]. Conflicts reflect "non-optimality (unsuitability, inappropriateness)" of its constituent parts, relations (internal and external) and synergies. The following segments of the issue shall be discussed here, i.e. 1) the basic starting points and characteristics of conflicts within an organization, 2) possibilities for (requisitely) holistic treatment of the organization’s efficiency and effectiveness, and 3) the characteristics of the conflict in the synergetic achieving of efficiency and effectiveness.
2. ORGANIZATION AND CONFLICTS
Human relations face constant conflicts. This is even truer for the organization as a specific form of human functioning and the most influential institution of a modern society. Conflict situations form an integral part of operations and behavior of the organization as a relatively autonomous entity / group of people and means. It attempts to reach common (i.e. organizational and personal) targets by the implementation of certain common activity [11; 22; 44; 43; 10; 16; 14; 7; 24]. The attempt to achieve various interests and goals both at the level of the entity (i.e. entirety of integral goals) as well as at the level of its constituent elements (i.e. individual and/or organizational goals) causes constant and various conflicts. In most general terms, organizational conflict may be defined as (publicly) expressed behavior of participants within the organization that is the consequence of the belief, feelings and/or grasp of reality of an individual, the group and/or a number of groups that the needs (e.g. of an individual, a group, an environment) are not satisfied well enough and/or adequately [47; 5; 1]. The fundamental cause for the conflict inception is thus the difference in grasping, reasoning, emotions/values or goals by participants in the organization [31; 28; 39; 32; 33; 35]. Organizations may see the conflicts in different ways, namely:
- as negative (or destructive) phenomena that must be prevented or avoided; examples of fundamental characteristics of conflicts perceived as such include: conflicts uncover unavoidable problematic phenomena within the organization; they result from personal/personality problems of participants; they induce inappropriate reactions and are the main cause for unwanted and useless polarization in the organization;
- as positive (or creative) phenomena that enable the organization’s development; examples of fundamental characteristics of conflicts perceived as such include: they present a possibility to activate participants; they encourage creation of new ideas and opportunities; they contribute significantly to introduction of changes; they enable additional forms of communication as well as present a significant form of hidden (or covert) tensions’ resolution. The treatment of the entire conflict topic reaches beyond the selected framework of this contribution. Here we shall discuss only the following segments: main conflict stages, a possible classification of conflicts, and the selected characteristics of inter-group conflicts within an organization. Conflicts may be better understood if the entire process of an individual conflict and all its important stages are analyzed. Literature mentions the following stages of the conflict process [11; 10; 14; 13]:
- The stage of a covert conflict; in this phase the basic conditions for the conflict development already exist; yet the conflict is still not seen and/or recognized by the participants;
V. Potocan. Business operations between efficiency and effectiveness
present the primary potential areas of conflict resolution. Various model solutions, such as rational and/or political behavior models may be used for resolution. Individual conflicts impact organization in different ways (e.g. indirectly, directly) or are of different importance to its operations (e.g. highly, somewhat, less important). Based on their significance and influence on the organization, conflicts may be defined as real or fictitious [28; 25; 18; 34; 35; 36]. Their definition (comparable to the definition of fictitious and real problems) is founded on criteria of significance for participants, declination from goals, and not knowing the solution. Among various conflicts within the organization, the dilemma about conflict situations in relation to its efficiency and effectiveness holds a significant position. It is primarily concerned with the understanding of the role and significance of efficiency and effectiveness for the organization’s operations and behavior, for the definition of their relation as well as for resolution of conflicts within achieving efficiency and effectiveness.
3. EFFICIENCY AND / OR EFFECTIVENESS OF OPERATIONS
Various analyses and definitions of operations' efficiency and effectiveness are known within the organization and management sciences. They are defined by different authors as follows:
- in general, efficiency may be defined as the quantity of resources used per result unit; effectiveness presents the level at which the organization achieves its goals [12; 13];
- efficiency presents the level of different goals achievement within the limited available resources; effectiveness presents the level of the organization’s ability to attain future goals – it thus includes efficiency and capability of adjustment to future circumstances [7];
- Efficiency is used to define (and measure) investments (or invested efforts) for the achievement of organization’s aims and goals; effectiveness is used to evaluate consequences caused by the system in the environment (i.e. evaluation of social aims and goals of the organization) [20]. For the needs of our contribution, various perceptions and analyses may be divided into two basic groups [34; 35; 36]. The first group includes approaches and understandings which consistently separate efficiency form effectiveness. Their division is based on different criteria, such as investigation approach (e.g. narrow, broad), study aspect (e.g. individual, interdisciplinary), the study scope (e.g. entity, parts of the entity), etc. Within this framework, efficiency is understood mainly as the concept of partial (or narrow) investigation of the organization focusing on the internal work of the organization. The broadest definition of efficiency is the relation between the quantity of resources (inputs) used (needed) per unit of acquiring (envisaged) result (output). The concept of effectiveness attempts to study operations holistically (i.e. in a broader sense), namely based on the definition and understanding of organization’s goals and strategies as well as adequate organization of its operations. In its broadest terms, effectiveness is seen as the level of goal achievement (entirety of goals and/or partial goals) within the selected area of investigation. In this case, the investigation focuses on the operations (and/or behavior) of the organization (as a whole and/or its parts) in relation to its (their) environment (and their goals, expectations, etc.)
Journal of information and organizational sciences, Volume 30, Number 2 (2006)
The other group covers understandings and approaches which attempt to define efficiency and effectiveness as synergetic whole / entity within an integral investigation of the organization. Efficiency and effectiveness are thus analyzed as two only seemingly different aspects of investigation of the organization. They are united in terms of content, linked in terms of synergy and co-dependent in terms of the organization’s operations and behavior. The fundamental features of such understanding are primarily as follows: systemic investigation of the organization, understanding of synergetic wholeness of efficiency and effectiveness as well as formation of single methodology for their investigation. The most general finding within this framework is that criteria of efficiency and effectiveness analyze appropriateness of organization’s operations and behavior based on the definition of relationship between inputs and outputs. The subject of study may thus be: the factors (e.g. inputs, operations, behavior, and outputs), relations between the factors (internal, external) as well as their synergies. Regardless of the chosen subject of analysis, during their investigation we encounter numerous issues related to content understanding, content definition, the selection of investigation area and the selection of appropriate methodological investigation [2; 27; 15; 4; 3; 35]. The above mentioned problems are at the same time fundamental causes of conflict emergence within the definition, implementation and management of organization’s efficiency and effectiveness.
4. CONFLICT BETWEEN THE OPERATIONS EFFICIENCY AND
EFFECTIVENESS
Literature on organization and management does not provide a common aspect on the relationship between the organization’s efficiency and effectiveness and the level of conflicts in this relationship. Authors define this relationship as [34; 35; 36]:
- Real conflict: the conflict between the simultaneous definition and implementation of efficiency and effectiveness is justified by various conceptual views on (understanding and investigation) of the organization and/or limited availability of resources needed for the achievement of its purpose, aims and goals. Holistic view of the subject is weak or even absent. Specialists close their thought in their particular scientific fields.
- Real and/or fictitious conflict: their relationship is defined as conflict or non- conflict considering their understanding or the selected mode of investigation. The subject of their investigation is (subjectively) perceived, defined and investigated relationship and not the real content of this relationship. The real conflict may thus be significantly reduced (and/or eliminated) if the holism of investigation is increased and the aims, purpose and goals of the efficiency and effectiveness investigation are harmonized. The so called holistic view of the subject is partial. The specialists partly close their thoughts into their particular scientific fields and partly harmonize them.
- Only fictitious conflict: such reasoning stems from the cognition about the necessity of synergetic implementation and realization of operations efficiency and effectiveness. The starting point of such treatment lies in the understanding of the investigation and the implementation of purpose, aims and goals of operations, which also prevents (or eliminates) potential conflicts between the organization’s efficiency and effectiveness. The conflict in the relationship is therefore not a result of content conflicts between the efficiency and effectiveness, but a
Journal of information and organizational sciences, Volume 30, Number 2 (2006)
ORGANIZATION INTERNAL ACTIVITIES AND PROCESSES
RESOURCE INPUTS
PRODUCT AND SERVICE OUTPUTS
EXTERNAL
ENVIRONMENT
Resource- based approach
Internal process approach
Goal approach
Figure 2: Contingency Approach to the Measurement of Organizational Effectiveness The treatment of the organization’s effectiveness based on the (output) goals is focuses on the output side and includes the identification of output goals and estimations to which extent the achieved (formal or real) goals are equal (or are similar) to the desired goals of the organization (regardless of the justifiability of the goal). The treatment of formal goals is more complex as they are, as a rule, more abstractly defined and are, therefore, more difficult to measure. The basic problems of such treatment include: the specific definition of the goal hierarchy for a particular organization (they are formed by the organization in compliance with its purpose and aims), multiple characters of goals, use of subjective evaluation criteria. The resources based approach establishes the effectiveness by monitoring the initiation of the process and evaluates how appropriately the organization assures (suitable) resources needed for the desired implementation. From this viewpoint, the organization effectiveness reflects the ability of the organization (in the absolute and relative aspects) to acquire sufficient and adequate resources and use and manage them successfully. Such examination of effectiveness is effective when it is difficult to assure a holistic evaluation of the organization. This tackles mostly non-profit organizations, in which the measurement of output goals and internal operations effectiveness are difficult to measure. The fundamental drawback is a lesser consideration of the organization’s connectedness to the needs of its customers and environment. The internal process approach focuses on the internal operations of the organization (i.e. its activities and processes) and attempts to define the appropriateness of its resources management. The basic criteria of this approach are the organization’s efficiency and its 'organizational health'. Its basic drawbacks are seen in the fact that the relationship between the organization and its environment is not evaluated, and the evaluation of its internal health and functioning is often very subjective. Deriving from the contingency understanding of efficiency and effectiveness, it is possible to form the above mentioned three partial views of the operations effectiveness. They are more holistic, yet still separated and therefore also partial.
V. Potocan. Business operations between efficiency and effectiveness
Moreover, there are approaches professional literature and business practice which attempt to treat the entirety of different parts of the organization holistically. They consider the stakeholders values approach, defined also as the constituency approach and the competing values approach. The stakeholder’s values approach focuses on the organization’s stakeholders [46; 42; 12; 13; 18; 9; 41]. The suitability of operations is defined on the basis of the achieved level of stakeholders' needs (and demands) satisfaction (See Figure 3).
Stakeholders Effectiveness Criteria
- Owners Financial return
- Employees Worker satisfaction, pay, supervision
- Customers Quality of goods and services
- Creditors Creditworthiness
- Community Contributions to community affairs
- Suppliers Satisfactory transactions
- Government Obedience to laws, regulations
Figure 3: Stakeholders and their criterions of effectiveness The main advantage of the stakeholder’s value approach is the balanced (and equal) treatment of internal and external success factors. It includes also the criterion of social responsibility, which is formally (and content-wise) not included in the contingency treatment. At the same time it emphasizes the belief that it is impossible to measure effectiveness with one criterion only; all or the majority of significant effectiveness criteria must be considered equal. The competing values approach is based on the assumption that the organization goals and criteria for their evaluation are determined by the owners, top and middle management [42; 12; 13; 18; 9; 41]. The approach was developed by Robert Quinn and John Rohrbaugh; they combined different implementation indicators applied by managers and researchers to define competitive values and benefits in the organization’s operations [38]. The above served as the foundation for a new approach to the effectiveness treatment, which includes two dimensions. The first dimension relates to the target area of effectiveness, which may be internal or external. The internal aspect reflects managerial concern for the adequate implementation of operations, while the external aspect represents how the organization’s operation is evaluated by the environment. The second dimension is related to the organizational structure, which may be stable and/or flexible. The stable structure reflects managerial focus on the achievement of efficiency and top-down control, while the flexible structure reflects managerial focus on learning and change. The authors formalized their approach by elaborating a holistic model comprising four different (yet closely inter-related) effectiveness models (See Figure 4).
V. Potocan. Business operations between efficiency and effectiveness
The main criteria of the resources-based approach are: efficiency of the goal achievement, our negotiation positions, the organization members' ability to evaluate the situation on purchase markets, the management's ability to adequately use material and non-material resources to achieve goals as well as its ability to react to the changes in the environment. The internal processes approach is based on the application of criteria for the effective use or resources (economic efficiency) and harmonization of internal functions (i.e. organizational health).
5. CONCLUSION
The achievement of the desired results of the organizations' operations and behavior depends on the appropriateness of their use of available resources and their “production” of results, suitable for the needs and demands of customers. The endeavors for the achievement of the desired results are the basic cause for the emergence of (various and numerous) conflicts. The organization may see conflicts as negative and/or positive phenomena within its operations and behavior. Among numerous conflicts within the organization, the dilemma about the conflict between its efficiency and effectiveness plays a significant part. Organizational and management sciences understanding and define differ (and contradict). Namely, the authors treat them as totally independent concepts and/or as a conceptual synergetic entity within an integral treatment of the organization. Different relationships between efficiency and effectiveness may be defined as real and/or fictitious conflict. When the operations and behavior are understood (and treated) holistically enough, then there are no content differences. Nevertheless, their realization is linked to numerous (actual or fictitious) conflicts arising from the inappropriate (subjective) understanding and treatment of the organization. The organization may (in the long run) assure its existence and development by synergetic implementation of efficiency and effectiveness. The principal approaches enabling a holistic treatment of the appropriateness (i.e. efficiency and effectiveness) of its operations and behavior are, for example, the contingency approach, the stakeholder’s values approach and the competing values approach. These approaches stem from the non-conflict character of the efficiency-effectiveness relationship, which originates from their mutual harmonization and synergetic achievements. Within this framework, effectiveness is focused on the holistic treatment of the majority of significant factors, relations and synergies in an organization. On the other hand, the efficiency presents a (significant) partial aspect of the treatment, which supplements the treatment of other aspects in the organization.
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