Organizational performance – definition and meaning
Organizational performance involves analyzing a company’s performance against its objectives and goals. In other words, organizational performance comprises real results or outputs compared with intended outputs. The analysis focuses on three main outcomes, first, shareholder value performance; second, financial performance; and third, market performance.
Many types of professionals, including strategic planners, focus on organizational performance.
The term has a similar meaning to ‘organizational effectiveness.’ However, ‘organizational effectiveness’ covers a broader area.
Organizational performance – two words
Let’s look at the meaning of the two words. ‘Organizational‘ is the adjective of ‘organization.’ An organization is an organized group of individuals with a specific purpose.
‘Performance‘ is the process or action of performing a function or task. We perceive it regarding how successfully the person carries out that function.
When we put the two words together, i.e., organizational performance, what do they mean? According to Louise James, a Senior Manager at Pitcher Partners:
“Organisation performance relates to how successfully an organized group of people with a particular purpose perform a function.”
“Essentially, this is what we are speaking about when we refer to organizational performance and achievement of successful outcomes.”
Organizational performance – three areas
Below is an explanation of the three main areas that comprise organizational performance.
Financial performance refers to measuring a company’s operations and policies in monetary terms. In other words, in terms of value in dollars, pounds, euros, etc.
We can see how good a firm’s financial performance is by looking at its return on assets and return on investment. We can also gauge its financial performance by measuring value added.
Market performance measures how well a company or product performs in the marketplace. In other words, whether a product’s market share has risen, if product upgrades helped boost sales, etc.
When we are talking specifically about a product rather than the whole company, we say ‘product market performance.’
Shareholder value performance looks at how much a company enriches its shareholders. In fact, many say it is the ultimate organizational performance measure.
Shareholder value maximization and shareholder value model mean the same as shareholder value.
Shareholder value may also refer to a company’s market capitalization.
Believers in the free market capitalist system say that shareholder value should be senior management’s top priority.
According to BusinessDictionary.com, organizational performance is:
“An analysis of a company’s performance compared to its goals and objectives.”
What is an organization? If you have an organized group of people who coordinate their activities, you have an organization. In other words, they work together towards a common goal.