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Traditionally, an organization’s effectiveness has been defined in terms of attaining goals.Griffin (2008). In the earliest theories of organizational behavior, organizations were viewed as rational institutions whose primary purpose is to accomplish objectives. The more efficiently and effectively an organization can achieve its goals, the more successful it is according to this approach. Quite often, the bottom-line goals of organizations are focused on profitability.
One way to look at the success of organizations is to assess their size relative to competitors. This type of measurement is usually done by looking first at annual revenues, the sum total of all products or services sold to customers. But this may not be the most meaningful measure since some very large companies are not always successful. Financial analysts usually look at other ratios to determine financial health. They look at profitability in a number of ways to assess the return that the company is generating for its owners—the shareholders—for each dollar of investment in the business, a concept known as ROI or return on investmentA measure of a company's profitability by assessing the return for each dollar of investment in the business that the company generates for its shareholders.. In doing so, they consider the gross marginsThe revenues generated from the sale of a company's products minus the cost of those goods. the company achieves, which are the revenues generated from the sale of its products minus the cost of those goods. They also consider the organization’s net earningsThe profits remaining after all interest, taxes, and other costs, such as depreciation, are factored in., which are the profits remaining after all interest, taxes, and other costs such as depreciation are factored in.
These net earnings are then divided by all the shares of stock outstanding to determine earnings per shareThe earnings for each outstanding share of a company's stock, abbreviated as EPS. This measure provides a good ratio for making comparisons to other companies, regardless of their size., or EPS. This EPS number provides a good ratio for making comparisons to other companies regardless of their size. Financial analysts eagerly await the earnings numbers when publicly traded companies release these results each quarter, as they are required to do by the U.S. Securities and Exchange Commission (SEC). Analysts estimate what they expect a company to earn, sometimes a year or more in advance of the actual results. When companies exceed these estimates, their stock prices generally increase—sometimes dramatically—after the release of earnings. When they disappoint the analysts and underachieve on projected earnings, their share prices can plummet.
Another measure of size is market capitalizationThe measure of a company's value, which is calculated by multiplying the price of a single share by all of the shares outstanding.. That measure is determined by multiplying the current price of a single share of a company’s stock by all the shares outstanding. In some cases, this “market cap” number may be significantly higher than the annual revenues a company achieves. In such cases the financial markets believe that the company has growth potential far in excess of its current sales. Companies with market caps far higher than revenues are more highly valued than companies whose market caps are similar to or much lower than annual revenues. Companies work to achieve higher valuation by delivering consistent performance, meeting or exceeding earnings estimates, and providing a credible growth story that is supported by the facts.
There are countless other financial measures. However, the most important thing to remember is that communicators have a special responsibility to educate themselves on the measures that are deemed most important by their colleagues in other functions. That includes more than the numbers. They must also understand the business challenges that are most pressing to the company.
For nonprofit public relations, the most important measures may relate to the donor community or to the volunteer network on which the organization relies. For governmental public relations it may require an increase in knowledge of policies, legislative initiatives, sources of tax revenues, or judicial rulings that will have an impact on the department’s operations.
One critical limitation to the goal attainment approach to evaluate organizational effectiveness is that it does not take into consideration the very human nature of organizations, nor the outside influences that affect the efforts to reach these goals. People are not cogs in a wheel, and a manager could become easily frustrated with the unrealistic expectation that organizations can run as smoothly as a piece of machinery. This makes engagement of employees a problem for the public relations professional, and his or her focus is often more on goal attainment than maintaining positive relations with publics.
Robbins criticized the goal-attainment approach because it does not consider the political or power-control nature of organizations and how they choose goals.Robbins (1990). Most organizations are composed of coalitions, which lobby for goals that benefit them or their function in the organization. He argued that the interests of decision makers and of their organization are not always congruous and that the typical manager tries to increase the size and scope of his or her domain regardless of the effect on the organization as a whole. He contended that organizational interests are subordinated to the special self-interests of different groups within the organization. The most powerful of these coalitions are successful in defining the organization’s goals, and meeting these goals adds power and influence to these coalitions. In addition, there is evidence that the goals of each coalition may not directly reflect the needs and purposes of the organization.
Another criticism leveled at the goal-attainment approach is that it viewed organizations as rational and mechanical systems that could control whether these goals were reached. As scholars noted, these management theories presumed that the organizations were closed systems that had autonomy from and control of their environments.Grunig and Grunig (1992), pp. 285–326. However, organizations are interconnected with their external environments.