Factors Affecting Organizational Performance

In this uncertain economic and social climate there are many factors that affect the organizational performance. The most essential factors affecting organizational performance are Leadership, Motivation, Organisational Culture and Knowledge Management.

1. Leadership

Leadership is the prime factor affecting the success or failure of organisations. It is the process in which one individual exerts influence over others. Leadership is a process that enables a person to influence others to achieve a goal and directs an organisation to become rational and consistent. In organisations where there is faith in the leaders, employees will look towards the leaders for almost everything. During drastic change in times, employees will perceive leadership as supportive, concerned and committed to their welfare, while at the same time recognizing that tough decisions need to be made. True leadership states that leadership skills can be mastered by people who wish to become leaders. The two very important components of effective leadership: One is belief and confidence in leadership, which is an indicator of employee satisfaction in the organization. The second is effective communication by the leadership in making the employees understand the business strategy, helping them understand and contribute to the achievement of the organisation’s business objectives and sharing information about organisation with the employees for their benefit and guidance.

For example, the well known Indian entrepreneur Narayana Murthy turned his small software venture started in 1981 with his friends into a great name on the map of the world. Infosys grew rapidly by leaps and bounds in the 1990’s. Narayana Murthy introduced a program through which he distributed the company’s profit amongst his employees practicing corporate governance practices. Through this he earned trust, praise and respect. In 1999, it became the first Indian company to be introduced on the Nasdaq Stock Market. By 2000 Infosys made its presence on the globe. Narayana Murthy with his exceptional leadership nurtured the organisation to become one of the most respected across the globe. His strong value systems, high ethical values and a nurturing atmosphere at the organisation lead to the success. Narayana Murthy’s leadership style not only had many firsts to his credit but he also championed corporate governance. From the beginning, Narayana Murthy focused on the most challenging market of those times, The United States. In order to keep up the pace of growth of Infosys and manage the same he set up a Leadership Institute in Mysore, India. Commenting on the institute, Narayana Murthy said, “It is our vision at Infosys, to create world-class leaders who will be at the forefront of business and technology in today’s competitive marketplace“.

2. Motivation

Motivation is a catalyst to move individuals toward goals. Motivation is the processes that account for an individual’s intensity, direction, and persistence of effort toward attaining a goal. Motivation may be defined more formally as a psychological or internal process initiated by some need, which leads to the activity which will satisfy that need. Motivational factors differ from person to person. According to Abraham Maslow there are five levels of human needs which need to fulfill for individuals at work. According to this theory the needs are structured into a hierarchy which starts at the lowest level of need when it is fully met, would a worker be motivated by the opportunity of having the next need up in the hierarchy satisfied. According to Herzberg (1987) there are two main factors of motivation: Contextual factors and Descriptive factors. Contextual factors are factors like salaries, working conditions, organization strategy etc. Descriptive factors are threats, opportunities, competences, sense of belonging etc. Motivation factors that are affective and effective in one employee or in a group of employees may not be affective or effective in others. This is an area where study and feedback will have to be carried out.

For example, as per the chief executive officer of Starbucks Corporation, Howard Schultz the secret for the success of Starbucks is its employees. The best way to be sustainable is to accumulate the experience of the employees and give them chances of promotion. Mr Schultz feels privileged about the values and spirit of Starbucks employees. In order to have consistent organizational performance it is important to have perfect education and training policy in place. Due to the organizational structure being interactive in nature at Starbucks the employees get ingrained into their jobs to motivate themselves and achieve a new level of performance.

3. Organizational Culture

Since the past 25 years the concept of organizational culture has been widely accepted to understand human systems. It is a valuable analytical tool in its own right. Organizational Culture is the totality of beliefs, customs, traditions and values shared by the members of the organisation. Each aspect of organizational culture can be seen as an important environmental condition affecting the systems and its subsystems.

The culture of a group can be defines as a pattern of shared basic assumptions that the group learned as it solved its problems of external adaption and internal integration, that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.

The nature of the organizational culture decides the degree to which the desired results from the employees are obtained. The individual perceptions of the members of the organisation determine the various types of organizational culture, individuals with realm of universal truths and are broad enough to accommodate any variety of circumstance. The primary components of organizational culture are:

  1. Primary value of the organisation
  2. Existing management styles and systems.

These components contribute to the degree to which the desired result from the employees is obtained. The direction in which the organisations move in the future is highly determined by the value system to which the employees support directly or indirectly or by their behavior. A strong organisational culture contributes to the better performance of the employees. The behavior of the employees is an analytical tool to determine an effective organizational culture which includes a system of informal rules. Culture helps the organisation to achieve the desired goals. The organizational culture acts as a motivating factor to enhance their own and organisational performance.

For example, several years ago Hewlett Packard faced huge problems which encouraged it to change its organisational culture. In Hewlett Packard they introduced program in which the staff had to formulate three personal and professional goals each year. The members of staff those meet these set goals were acknowledged and were sent early to be their respected families. After the introduction of this program it was observed that despite the fact that the staff was working less hours there was no loss in productivity and the staff retention rate had also increased. The program was graded by the extent was its implementation in managerial personal lives and how they modeled it. Hence, HP succeeded in making changes in its organizational structure to be a competitive advantage.

4. Knowledge Management

Knowledge management is a concept in which an organisation deliberately gathers, organizes, shares and analyses its knowledge in terms of resources, documents and people skills. As a result of technology advancement the way we access and embodies information has changed; in the current scenario many organisations have knowledge management frameworks in place. Knowledge Management has become a treasurable business tool; its complexity is often vexing and as a field, will still be under development for a long time to come. Knowledge management will be integrated into the basket of effective management tools. The objective of Knowledge Management is to build and exploit intellectual capital in an effective and profitable manner.

For instance, in 1938, Chester Carlson invented the photocopy machine. After his deliberate attempts to sell it to big giants like IBM in the industry who thought that it is a failed concept he handed the marketing of the product to small company called Haloid. After the proven success of the product Haloid changed its name to Xerox in 1961 to define its core business. Xerox further diversified into different products, some added value to the business and some were liquidated. In order to further define its core business the company named itself the “Document Company”. To keep up with the pace of growth and sustainability of the business in 1990’s started implementing knowledge management and knowledge sharing activities. In order to decentralize their knowledge sharing initiatives they introduced a program called “Eureka”. In this programme they informally captured the tips shared by their service representatives and created a database of tips. These tips then were accessible to all the representatives around the world. Xerox continued to introduce these knowledge management initiatives both internally and commercially as well. Because of such initiatives Xerox was acknowledged and recognized as the “Most Admired Knowledge Enterprises in the world”.

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