How Business Leaders Can Measure Organizational Effectiveness

Business leaders continuously strive to improve organizational effectiveness, but as Peter Drucker famously stated, “If you can’t measure it, you can’t improve it.” Organizational effectiveness describes not only if, but just how well a company achieves its goals. Many factors impact organizational effectiveness, from the goals and objectives a business aims to meet, to the efficiency of its systems and processes, and whether it has (and efficiently utilizes) the resources needed to achieve those goals.

Measuring organizational effectiveness, then, can be a complex undertaking with many variables to consider. Let’s take a closer look at organizational effectiveness and how business leaders can measure it.

What is Organizational Effectiveness?

Organizational effectiveness refers to the efficiency with which a company or group can meet its goals. It includes the efficiency of its business processes, the amount of waste it creates in producing its products or providing its services, and how it goes about producing its products or services. There are several organizational effectiveness models, each providing a framework for developing and implementing improvement plans:

  • Organizational Systems Model
  • Experiential Learning Model
  • Learn by Doing Model
  • DAPIM Model

One key component of all organizational effectiveness models is monitoring and measurement. Regardless of the framework an organization models, establishing goals, developing and executing change management strategies, and monitoring progress are crucial.

Below, we’ll explore how business leaders can measure organizational effectiveness by defining leading and lagging indicators aligned with business goals and objectives, establishing benchmarks, and monitoring performance across these key performance indicators (KPIs) over time.

Identify Leading and Lagging Indicators Aligned with Business Objectives

The first step in measuring organizational effectiveness is to establish business goals and objectives. Lagging indicators are broader metrics tied closely to your business’s goals, such as:

  • Employee work-life balance
  • Productivity
  • Workplace culture
  • Revenue
  • Project milestones

Leading indicators, on the other hand, are more granular metrics tied to each lagging indicator that provide insight into the progress the business is making towards the associated lagging indicators. For example, leading indicators related to employee work-life balance and workplace culture may include the number of sick days used, the length of the workday, employee turnover, and team collaboration, while leading indicators related to revenue may include projects completed, deals closed, proposals sent, and monthly or quarterly sales figures.

Leading indicators may look different from industry to industry and business to business. The important thing is to define the indicators most aligned with the company’s goals. After establishing lagging and leading indicators, the next step is to establish internal benchmarks to provide a starting point from which you can measure progress. In addition to internal benchmarks, it’s helpful for business leaders to consider both industry and non-industry benchmarks to evaluate organizational effectiveness compared to other businesses in the same industry as well as businesses sharing similar characteristics (such as company size, location, and other broad characteristics).

Measuring Lagging and Leading Indicators to Assess Organizational Effectiveness

Because many factors play a role in organizational effectiveness, measuring it means monitoring multiple metrics and then assessing the organization’s performance as a whole based on those findings. Workforce analytics solutions like the Humanyze Organizational Health Platform™ offer science-based analytics based on decades of MIT Media Lab research to help business leaders understand where their organization stands overall based on leading indicators and metrics in three categories, including Engagement, Productivity, and Adaptability.

By integrating data from other sources such as collaboration tools, surveys, and location systems, workforce analytics solutions like Humanyze provide a complete view of the workday. Humanyze enables business leaders to benchmark both internally and against industry averages and dig deeper into the indicators and metrics within each category to identify high-performance metrics and areas for improvement so they can take data-driven action and make targeted improvements to improve organizational effectiveness.

Measuring Organizational Effectiveness: Real-World Case Studies

For example, one multinational technology firm wanted to improve employee experience and company culture while optimizing team collaboration and innovation. The company leveraged the Humanyze Organizational Health Platform™ to analyze data on team collaboration, generational gaps, meeting culture, and physical space utilization. Anonymous, corporate-owned data, including calendars (to analyze meetings), email, physical team locations, and Skype (to analyze chat data), was measured initially over a four-week period to assess how, where, and with whom work was being completed across 27 teams. The company’s analysis revealed that its Product Planning team was not sufficiently bridging the gaps between other business groups (such as Sales and Solution Engineering) as intended, that physical proximity was key in promoting team collaboration, and that in-person team collaboration was closely tied to performance. Additionally, the analysis revealed that meeting culture—with meetings exceeding an hour in length—was hindering employee engagement and that significant collaboration gaps existed across different generations of employees.

The analysis provided the company with a wealth of actionable insights that enabled them to implement strategic change initiatives. What’s more, the company is armed with the tools to measure the impact of those changes on its goals, thereby supporting a continuous improvement process to improve organizational effectiveness.

In another case, one of the world’s largest sportswear clothing and apparel companies wanted to optimize collaboration, team placement, and building utilization at its headquarters. The company partnered with Humanyze to analyze team-to-team email communication against team-level building entry data from sensor ID cards to compare how teams assigned to different buildings collaborated digitally versus in-person. The analysis revealed that physical location had a significant impact on who individual team members collaborated with in-person and via email, with employees located farther from one another less likely to collaborate either in-person or digitally compared to those who were in closer physical proximity. These findings enabled the company to take actionable, data-driven steps to relocate team members and business functions to support better collaboration both in-person and digitally.

The cases described above are just two of many examples of how measuring organizational effectiveness works in real-world scenarios. As these examples illustrate, there are many potential metrics that can be measured to assess performance and organizational effectiveness across several categories and how actionable insights can be derived from those analyses to enact targeted performance improvement initiatives.

Measuring organizational effectiveness is a process that’s unique to each organization based on the business’s goals and areas of focus, but the process of establishing objectives, identifying lagging and leading indicators, benchmarking, and monitoring progress is a proven process that enables any business leader to effectively implement change and drive continuous performance improvement.

Last Updated 23 August 2021