2013 Cambridge Business & Economics Conference ISBN : 9780974211428
Influences of Organizational Vision on Organizational Effectiveness
Doris W. Carver, Ph.D.
Vice President, Continuing Education
Piedmont Community College
United States of America
(336) 322-2111
I’d like to acknowledge my support team; my family, Bob, Barbie, Ross, Justin, and Nicole; and friends and colleagues, who offered words of encouragement, prayers, and advice. Special thanks to Dr. Shawn Carraher, Dr. John Parnell, Dr. Stephen Fitzgerald, Angel Solomon, Ernest Avery, and Stacey Wood.
Influences of Organizational Vision on Organizational Effectiveness
ABSTRACT:
This quantitative study explored the relationship between organizational vision and organizational effectiveness from an organizational theory perspective. The purpose of this study was to increase the base of knowledge on organizational theory pertaining to strategic management by conducting an empirical study showing the relationship between organizational vision and organizational effectiveness while moderating for organizational size and age. Organizational vision was operationalized using the seven vision attributes (e.g. brevity, clarity, abstractness, challenge, future orientation, stability, and desirability) developed by Baum, Locke, and Kirkpatrick (1998). Organizational effectiveness was operationalized using financial and non-financial measures (e.g. three financial measures of return on investments (ROI), return on assets (ROA), and change in sales (chgsales); and the three non-financial measures of organizational goals, profitability satisfaction, and industry growth). This study expected to find that organizations that had organizational visions would have higher degrees of organizational effectiveness than organizations that did not have organizational visions. It further expected to find that institutions with processes that utilized institution wide input from participants of all levels in the organization would be more effective organizations than those that had only one person’s (usually the Chief Executive Officer (CEO)) or the board of director’s/trustee’s (BOD) input into the process of developing organizational vision. The findings indicated mixed results.
INTRODUCTION:
This quantitative study explored the relationship between organizational vision and organizational effectiveness from a strategic management view of organizational theory. Creating a vision had been cited by many organizational theorists as being important to the success of an organization (Baum, Locke, & Kirkpatrick, 1998; Baum, Locke, & Smith, 2001; Baum & Locke, 2004; Collins & Porras, 1994; Daniels, 2004; Larwood, Falbe, Kriger, & Miesing, 1995; Lipton, 2004; Quinn & Rohrbaugh, 1983).
The purpose of researching organizational vision and organizational effectiveness was to determine the processes organizations had for developing positive relationships between these two constructs and what influenced excellence in these areas. Since organizational vision was seen as a starting point of a transformational process, it was important to understand this relationship (Collins & Porras, 1994: Kotter, 1990; Sashkin, 1988). It was also important to note that while leadership traits of organizational leaders impact organizations, both successfully (Kouzes & Posner, 1987) and negatively (Hayward, Shepherd, & Griffin, 2006; Lipton, 2004), the focus of this study did not analyze the impact of leadership on organizational vision or on organizational performance.
Organizational effectiveness was the ultimate purpose of organizations, and therein lays its significance to organizational theory (Cameron, 1986(a); Cameron, 1986(b)). Organizations that are not effective, eventually ceased to exist. The purposes for this study were to determine the relationship between organizational vision and organizational effectiveness, with moderating effects for organizational size and age, and to determine the correlation between the seven dimensions of organizational vision (i.e. the vision attributes of brevity, clarity, abstractness, challenge, future orientation, stability, and desirability) and organizational effectiveness (Baum, et al., 1998; House & Shamir, 1993). This study also examined organizations that reported no organizational vision and the comparison of the organizational effectiveness of these two groups: organizations with organizational vision and organizations without organizational vision. For the purpose of this research, only explicit visions were considered as being organizational visions. Explicit visions were those visions that were clearly stated and defined. Unspoken or tacit visions were not considered, because 1) it was very difficult to capture this data and 2) tacit vision appeared to be more appropriate to examine within an organization instead of across organizations. Finally, this study examined any correlations between organizational vision, organizational effectiveness, and the mediating variable named “whoinput”. The “whoinput” variable consisted of three levels. These three levels were: 1) high (institution wide input into developing organizational vision), 2) medium (the development of organizational vision by TMTs), and 3) low (organizational vision that was developed by CEOs and/or BODs). Organizational effectiveness was cited as the ultimate dependent variable in empirical research on organizations (Cameron, 1986(a); Cameron, 1986(b)). If evidence supported the theory that organizational vision leads to organizational effectiveness, then businesses would have a key tool for improving the process for designing successful organizations.
SIGNIFICANCE OF THE STUDY:
The significance of this quantitative study was to enhance and expand the knowledge base on organizational theory by identifying which dimensions of organizational vision most influenced organizational effectiveness, and by determining what impact organizational size, age, and participant input had on organizational vision and ultimately organizational effectiveness. Empirical research showed that organizational vision was important to organizational effectiveness in both small and large, simple and complex organizations (Baum, et al., 1998; Filion, 1991; Kotter, 1990; Westley & Mintzberg, 1989). Many of the studies reviewed used primarily qualitative methods for studying organizational vision and organizational effectiveness (Collins & Porras, 1991; Westley & Mintzberg, 1989). Kantabutra (2006) related vision-based leadership to sustainable business performance using vision attributes designed by Baum, et al. (1998), and he recommended that for future research it would be important to “know which of the seven vision attributes” was the most critical to the vision components (p. 48).
By identifying the organizational vision variables that influence organizational effectiveness, this study sought to define the variables that have the most significant influence on organizational effectiveness. By studying the relationship that organizational vision had to organizational effectiveness and the impact of who has input into the process of developing organizational vision, a new perspective could be studied that would add new knowledge to organizational theory.
REVIEW OF THE LITERATURE:
A literature review on the topic of organizational vision yielded many studies on organizational vision. The same was true for organizational effectiveness. There were many studies on the relationship between organizational vision and organizational effectiveness as they related to leaders/leadership (Baum & Locke, 2004; March & Sutton, 1997; Quigley, 1994; Snyder & Graves, 1994; Wang, 2002), organizational vision and job performance (Chorpenning, 2000; Wiedower, 2001), and leaders/leadership disconnected from organizational success (Aldrich and Martinez, 2001). The focus of this research was not on leadership, but on organizational vision and its impact on organizational effectiveness. There were very few studies that compared organizational vision to any part of organizational effectiveness (Kantabutra, 2006; Lipton, 2004). Two studies found closely related organizational vision to any element of organizational effectiveness, without leadership as a key focus, were the studies by Baum, et al. (1998; 2001) and Kantabutra (2006).
Organizational effectiveness
There were many financial indicators for determining organizational effectiveness. Two dominate organizational effectiveness measures were rate of return on equity and rate of return on total assets (Cox, 1977). Other studies found that financial measures of profitability should have been used to measure organizational effectiveness (Ansoff, 1965; Baum, et al., 1998; Child, 1977; Cox, 1977; Dess, et al., 1995; Hitt, Clifford, Nixon, & Coyne, 1999; Durand, 1999; Schendel & Hofer, 1979). Ansoff (1965) found that “rate of return on investments is a common and widely accepted yardstick for measuring business success” and is applicable in different industries (Ansoff, 1965, p. 53).
The study by Baum, et al. (1998) examined the relationship of organizational vision to venture capital. In the study of entrepreneurial organizations, they found a significant relationship between vision attributes and organizational effectiveness as measured by venture growth. Venture growth, the organizational effectiveness construct, was operationalized using the measures of sales growth, annual employment growth, and average annual profit growth (Baum, et al., 1998). Baum, et al. (1998) used organizational level performance and organizational effectiveness terms interchangeably.
A study by Parnell (2005) focused on the financial measures of sales growth, return on equity (ROE), return on assets (ROA), and on the non-financial measures of performance satisfaction and industry vigor. Research indicated that these financial measures were valid methods for conducting research on organizational effectiveness. This research also indicated that non-financial measures were valid methods for conducting research on organizational effectiveness (Parnell, 2005).
Research showed that the weakness of using a single-variable (effectiveness) model could have been overcome by introducing at least two or three effectiveness variables in empirical models (Hitt, Clifford, Nixon, & Coyne, 1999; Murphy, Trailer, & Hill, 1996). Research by Judge (1994) indicated that organizational effectiveness was closely linked with financial performance measures. There were “two general approaches used in the measurement of effectiveness – those used by business executives and policy researchers and those used by organizational researchers” (Hitt, 1988, p. 29). The two major financial measurement approaches were accounting measures and the capital asset pricing model (Hitt, 1988). The accounting measures included return of investments, return on assets, return on equity, and earnings per share.
Financial measures
Return on assets was a “valuable indicator of how efficiently management has utilized the firm’s resources” (Hitt, Clifford, Nixon, & Coyne, 1999, p. 69). Parnell and Carraher (2001) supported the use of ROA as a measure. In one of Parnell and Carraher’s (2001) studies, they calculated ROA based on a mean for a two-year period. This study examined ROA for a two-year period. Return on assets was calculated by dividing average total assets into net income.
Return on investments (ROI) was calculated by dividing the average stockholder’s equity, or owner’s equity, into net income available to stockholders or net income for owner(s) (Shim & Siegel, 2000). This ratio indicated the rate of return earned on investments.
Sales growth was measured as the increase in sales from one period of time to the next, usually expressed in annual sales, divided by annual sales of the base period (i.e. (((gross sales for 2006 + gross sales for 2007) / 2) / gross sales for 2006) (Baum, Locke, & Kirkpatrick, 1998). Sales growth was essential to financial planning and budget planning (Droms, 2003).
Non-financial measures
Non-financial measures of performance satisfaction and industry vigor were examined. Scales to measure organizational goals and profitability satisfaction, and industry growth were developed and validated by Parnell (2000), Parnell and Carraher (2001), and Parnell (2005). The measures from Parnell’s study (2005) resulted from his research in the strategic management field while examining “management as an art or science, strategic emphasis on consistency or flexibility, and strategy as a top-down or bottom-up approach” (Parnell, 2005, p. 2). There were eight survey statements that addressed the non-financial measures. These statements were 1) I am satisfied with the current profitability of my company as compared to the competition, 2) I am satisfied with the current growth of my company as compared to the competition, 3) My organization is doing a good job of meeting its goals and objectives, 4) My organization’s current level of financial performance exceeds the industry norm, 5) Our industry growth is relatively stable, 6) The potential for profit in this industry is relatively strong, 7) The industry is growing at a fast pace, and 8) The boundaries of the industry in which my company operates are clear (Parnell, 2005). The alpha for performance satisfaction is .8072 and the alpha for industry vigor is .6646 (Parnell, 2005). The loading measures for each statement above are statements 1) .855, 2) .872, 3) .856, 4) .591, 5) .695, 6) .823, 7) .595, and 8) .711 (Parnell, 2005).
For the purpose of this study, organizational effectiveness was operationalized using both financial and non-financial measures, which included the financial measures of sales growth, return on investments (ROI), return on assets (ROA), and the non-financial measures of organizational goals (OG), profitability satisfaction (PS), and industry growth (IG).
Organizational vision
Organizational vision was defined as the ideal that represented or reflected the shared vision to which the organization should have aspired (House & Shamir, 1993). This was the definition that was used in this research because the literature review revealed that this definition or very similar definitions were used most often, and it also reflected the researcher’s belief of organizational vision. Senge (1990) found that shared vision was linked to organizational effectiveness. Wiedower (2001) examined shared organizational vision as it related to job performance, organizational commitment, and organizational members’ intent to leave the organization. Her research supported the importance of having a shared vision that would be communicated throughout a vision driven organization.
In order for organizational vision to have been effective, action must have been taken (Nanus, 1992). Strategy was the process by which action was taken. Strategy was the “pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole” (Seth & Thomas, 1994, pp. 166-167). Mission “describes who the organization is and what it does…it is a statement of purpose, not direction” (Levin, 2000, p. 93). Organizational vision and strategy were the catalysts that moved the organization into a future state (Bennis & Nanus, 1985).
Organizational vision and organizational effectiveness were key components of organizational theory, and organizational vision serves a critical role in the success of today’s organizations (Lipton, 1996; 2004). There has been extensive research on the topic of organizational vision, and this topic included structure and organizational vision (Larwood et. al., 1995), strategic management and visionary leadership (Baum & Locke, 2004; Westley & Mintzberg, 1989), vision and venture growth (Baum, et al., 1998; Baum & Locke, 2004), organizational vision and visionary organizations (Collins & Porras, 1991), vision and leadership (Bennis & Nanus, 1985; House & Shamir, 1993; Kouzes & Posner, 1987: Peters, 1987; Snyder & Graves, 1994), and vision and motivation (Daniels, 2004). The literature revealed that there was no one best definition for organizational vision. There were many definitions of organizational vision. One definition of this term described organizational vision as a “future state of the organization” (Bennis & Nanus, 1985, p. 89). For the purpose of this study, organizational vision was defined as the ideal that represented or reflected the shared vision to which the organization should aspire (House & Shamir, 1993).