Organizational performance is a complex concept that can be evaluated in a variety of ways. Financial metrics such as return on assets (ROA), return on capital, and return on investment are commonly used to assess the effectiveness and benefits of an organization. Other financial measures include earnings and stock price. Employee productivity, customer service, and strategic planning are also important indicators of organizational performance.
ROA is a popular index used to measure performance. It is calculated by dividing annual profit or net income by the average asset over the year. However, ROA should not be used to compare organizations from different industries as the peculiarities of any industry will skew this index. To account for this, some researchers calculate the natural logarithm of revenue divided by the total number of employees.
Studies have demonstrated that human resource systems related to productivity can improve performance. These systems include extensive training, competitive compensation that depends on performance, career planning, performance evaluation, and participation in decision-making. Subjective indices such as customer service are also used to measure organizational performance. Organizations may also want to invest in expensive technology to improve productivity in the future.
This year's benefit may be negligible, even if the workplace meets its goals. Consequently, profit might not be an adequate measure of performance in this context. To address this issue, some researchers use a measure that combines the benefits of objective indices with the merits of subjective indices. This development has created one of the most comprehensive definitions of organizational performance which combines the concepts of efficiency, effectiveness, and relevance. Organizational development professionals must be able to analyze and interpret different performance indicators and understand how they can be used to drive strategic initiatives.
Examples include integrated scorecards, quality measures applied in Six Sigma and Total Quality Management paradigms.
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