A new framework for measuring organizational success

What does it take for an organization to be successful? Goals and the measurement of outcomes have long been a stalwart of both management operations and the literature that informs the definition of success.

Ruth Aguilera

As the definition of success evolves, so do the rules of assessing and evaluating today’s diverse range of organizations. Traditionally, organizational goals were set around the achievement of profitability and maximizing shareholder wealth. More recently, productivity, sales, market share and status have been added to the mix to reflect the desired outcomes of stakeholders that go beyond the balance sheet. 

However, new research in the Journal of Management Studies challenges this view of success in goal achievement.  

In Organizational Goals, Outcomes, and the Assessment of Performance: Reconceptualizing Success in Management Studies, Ruth V. Aguilera (Esade, Northeastern University), Alfredo De Massis (Free University of Bolzano, IMD Business School, Lancaster University Management School, Zhejiang University), Riccardo Fini (University of Bologna) and Silvio Vismara (University of Bergamo) set out a framework of four new areas they say should be incorporated into the evolution of goal setting. 

Anatomy of processes

Aguilera and co-authors conducted a systematic literature review to define the traditional thinking on organizational goals, performance and success

Their analysis included a final sample of 64 journal articles published in seven leading peer-reviewed journals since 2012. The literature was organized into a framework revealing how organizational goals originate, and their impact on outcomes and performance. 

Reconceptualizing success
Note: Italicized text denotes the most investigated aspects in prior studies.

The majority of this prior research, the researchers say, shares “a fundamental shortcoming” in failing to take into account the diverse systems that characterize different types of organizations (such as ownership type, governance, sector, size and market position).  

This “anatomy of processes”, they say, has an impact on the assessment of performance and success – but current research lacks this insight. 

To gain a better understanding of these fundamental concepts, the researchers used the framework they developed as a basis to challenge the traditional view of success and define four new areas for research

Reconceptualize performance

To assess performance in terms of efficiency, it must be linked to the originally defined goal. But key performance indicators (KPIs) can be misleading when examined within the overall context of individual organizational commitments. 

Positive financial KPIs may suggest successful outcomes — but if the organization’s overall commitment is to minimize environmental damage, viewing a positive financial result as a standalone marker cannot confirm success. 

Non-financial markers are becoming increasingly important in measuring performance

To develop a deeper understanding of performance, the researchers suggest a multi-faceted approach that reconceptualizes the notion of success. The goals subject to analysis should include micro-contextual factors (aspirations, attention, values, cognition, logics), meso-contextual (ownership and governance archetype, available resources), macro-contextual (industry, institutional setting) and chrono-contextual (time and lifecycles, disruptions). 

Each of these aspects should be linked to the specific desired outcomes from organizational to individual level to more accurately evaluate whether performance goals have been achieved. 

Diversity of design and the relationship with purpose

The nature of an organization’s ownership has an impact on its goals. At the same time, environmental social and governance (ESG) goals and other non-financial markers are becoming increasingly important in measuring performance. But when two or more goals are in conflict, the achievement of one will diminish another. 

Family firms may prioritize family-oriented goals above financial performance; environmentally focused organizations may be prepared to sacrifice profits in favor of meeting stakeholder expectations of climate-conscious practices.  

The researchers identify several examples and variables of these conflicting goals, including multiple substitutable goals; multiple positive complementary goals; multiple negative complementary goals; and multiple conflicting goals.  

Assessing performance in the face of these complexities requires careful design of the measurement tools. One solution, the researchers suggest, could be to attach a measurable level of importance to each goal and score its achievement. Focus groups, stakeholder interviews and surveys can be deployed to determine the value of each goal. 

When external factors influence non-financial goals, examining the relationship between these factors and their impact on the organization’s direction, purpose and, ultimately, success is critical, they add. 

The multi-level temporal dimension

Unlike a mission statement, goals are fluid. They are set to be achieved within a given timeframe and against a particular set of circumstances. When that period has elapsed, or the circumstances change, the goal shifts. 

Internal factors (changes in leadership or organizational structure) combined with external factors (social, political) create an unavoidable temporal dimension to goals. Inevitably, some will be achieved, others will fail. Within this simplistic view is the more complex nature of milestones across different levels of the organization: one department or team’s KPIs may be achieved effortlessly, only for the overall goal to be thwarted by unavoidable factors experienced elsewhere. 

Unlike the organization's stated mission, its goals are fluid

How goals are designed, enacted and measured, their organizational and individual impact, and the multiple environmental factors at play should all be closely aligned as they evolve. Rigid organizations that fail to recognize and adapt to these influencing factors will find it very difficult to achieve the success they attribute to their goals.  

The governance of goal-setting

The final element of the framework developed concerns the governance of the goal setting itself. This aspect should look beyond the goal and identify who is responsible for performing each activity and securing and maintaining the necessary tools and resources. 

The system of governance responsible for controlling the process of achieving the goals and assessing the subsequent performance and level of success should be clear and accountable. Future research could examine the numerous activities present in the governance of goals to identify conflict or incompatibility and develop more cohesive management structures and techniques, the researchers suggest. 

Developing and achieving goals and measuring their associated outcomes is the core of organizational behavior. With their suggested framework, the researchers admit they “have only started to scratch the surface of the issues.”  

However, they encourage experts to follow the directions they have identified – and in doing so, continue to advance the field of management studies

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