Organizational Performance: Key To Sustainable Growth

Organizational performance is a widely used but imprecisely defined term. The concept is dependent on a variety of unique factors associated with each organization. There are many definitions used by professionals to determine what organizational performance is. 

Effective organizations operate like a well-designed, well-oiled machine, with each component working together to successfully produce the outcomes the organization seeks while wasting as little time and resources as possible. Organizational performance is the modern method of measuring and guiding organizations to achieve their objectives.

Improving organizational performance is the key to sustainable growth

What is organizational performance?

An organization is a structured group of people working together to achieve a common goal. Performance refers to the action of carrying out a specific task or set of tasks, and it is based on how well an individual or organized group carries out such tasks. So, organizational performance analyzes a company’s objectives and goals by the intended and actual results. It can includes 3 types of metric:

• Economic performance: financial and market results, such as profits, sales, ROI for shareholders, and other financial metrics.
• Operational performance: focuses on observable indices such as customer satisfaction and loyalty, the firm’s social capital, and competitive advantage derived from capabilities and resources.
• Human capital performance: covers employee engagement, culture, development and internal promotion opportunities, etc. Popular metrics for human capital performance are eNPS and employer of choice.

Organizational performance is defined as a concept that measures an organization’s efficiency in meeting its objectives with available resources. It is concerned with how the company can meet its quota of products and/or services, how efficient its process is, and how much waste is generated.

We know that when leadership is at its best, performance improves. Leadership is important in setting the direction of teams, creating strategies and effectively implementing them to achieve goals, efficient communication, goal alignment across the organization, employee development, accountability, and best resource utilization.

3 factors of organizational performance

Outcome of organizational performance

To successfully manage organizational performance, you must first understand that the outcomes of organizational improvement are focused on 3 major sections:

• Financial Performance: This section focuses on a company’s monetary operations and policies. To determine a company’s financial performance, look at its return on assets and return on investment, but you can also assess financial performance by measuring value-added.
• Product Market Performance: Market performance assesses how well a product or service performs in the market. It focuses on whether a product’s market share increases or whether an upgrade helps boost sales, among other things. 
• Shareholder Value: This aspect looks at how much a company enriches its shareholders. For many companies, this is the ultimate organizational performance measure. Shareholder value may also refer to a company’s market capitalization.

Factors of Organizational Performance

Every organization is different from each other; there are a variety of factors of organizational performance. These factors depend on the industry and the nature of business. They affect the organization’s activities, goals, and work structure are classified as follows:

• External factors: are those that surround the organization and are beyond its control, but still have an impact on its development, performance, and structure, which include these factors: economic factors, socioeconomic factors, political and administrative considerations.
• Internal factors: are those that exist within the organization and include characteristics such as: purpose, mission, values, instruments, and so on.
• Individual decision factors: Decisions made by teams or individuals about expected costs and/or benefits.

How to Measure Organizational Performance

There are numerous methods for measuring organizational performance, but the following are the most common:

• Survival and Growth: Substantially, this means that a company or organization can determine if its performance is effective based on meeting growth expectations and maintaining a consistent growth flow. The only disadvantage of this metric is that it does not precisely account for the organization’s external and internal factors.
• Good fit with the environment: If a company can find the right fit between their market demand and internal capabilities and resources, they will perform better.
• Relevancy: Although this measure addresses the systems view of organizations, it takes into account the ever-changing modern markets and the pressures they place on companies to constantly evolve.

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Levels of Organizational Performance

The goal of measuring organizational performance is to improve, just as we do when evaluating the performance of anything else. Managers and leaders are constantly looking for ways to improve on previous performance.

At each level of the organization, organizational performance can be divided into:

• Individual performance: It is concerned with aspects of work that are best accomplished by individuals working alone. Individual performance may include these KPIs: task performance, contextual performance, adaptive performance, counterproductive work.
• Team performance: Team performance focuses on aspects of work that are best accomplished by working in groups of individuals. Another indicator of good performance is task proficiency, as team members who are proficient in their tasks are associated with higher levels of performance. These teams may report to the same person or be cross-functional in nature. In some cases, they are permanent, while in others, they are only present for the duration of the project.
• Departmental performance: Concentrates on aspects controlled by organizational units such as departments. At this level, performance is frequently slower than at the Individual or Team level.
• Organizational performance: Examines strategic execution and is typically owned by executives. The effectiveness of meeting such goals is found to be improved when organizations assess their strategic management and planning using internal and external assessments with a cascading system of goals, strategies, and plans. At this level, you may want to consider these factors: regions/territories performance, brands, products, departments, processes, business results, etc.

Company objectives are the main drive for people to strive for together. When deciding how to measure organizational performance, keep in mind that setting smart goals can help businesses define where to go and track the growth progress.