Organizational Performance

Organizational performance concerns the execution or accomplishment of an organizational task or series of tasks according to some specified goal, standard, expectation, milestone, or measurement level. This entry examines the various perspectives on organizational performance, types of organizational performance, and assessments of organizational performance. The entry also discusses the various linkages between organizational reputation and corporate reputation, including the influence of performance on reputation, performance as a reputation attribute, and the effects of reputation on organizational performance.

Perspectives on Organizational Performance

Organizational performance has been defined from three different perspectives: (1) the goal approach defines organizational performance in terms of organizational goals, whether stated explicitly or inferred and whether from the organization, its members, or stakeholders; (2) the systems resource approach defines organizational performance in terms of the factors the organization depends on for survival, whether internal or external; and (3) the constituency approach defines organizational performance in terms of assessments that fulfill the needs of key constituencies.

Types of Organizational Performance

When considering different types of performance, each type provides an attribute of reputation by which organizations may be evaluated. The list of attributes is almost endless. There are as many types of organizational performance as there are groups of people with specific expectations about what organizations do. Some of the most common are financial performance, product and service performance, corporate social performance, innovation, and quality.

These are all positive types of organizational performance where organizations are expected to excel, do their best, meet specified standards, or simply perform better than others in their categories. However, there are other types of performance that organizations are expected to avoid, mitigate, moderate, minimize, or eliminate. These types of performance concern organizational performance that creates harm to companies’ stakeholders or to society and include stress and burnout, corruption, ethics, or legal violations. When they do occur, often, some form of rectification or repair is required when they are identified or exposed. For example, stakeholders may prefer to engage with companies that do not have to issue financial restatements or product recalls, but when they do, they expect companies to respond quickly and completely. Still other types of negative performance may relate to the production of the organization’s core capabilities; in these cases, organizations are expected to minimize their negative impacts on society.

Assessments of Organizational Performance

Some types of organizational performance are tangible and directly observable, such as financial performance or performance tied to products and services. Still other types such as innovation, quality, or even corporate social responsibility (CSR) are not always directly observable. In some cases, organizations may disclose their performance levels or design experiences to demonstrate transparency so that stakeholders can see the level of performance for themselves. Often, however, some form of third-party reporting or assessment is necessary. This form of knowledge may come from media attention from the local or national news media, the business press, the trade or industry press, consumer media, social media, or stakeholder media. Likewise, various advocacy groups, monitoring groups, or reporting agencies may have criteria and reporting guidelines that enable the accessibility and comparability of various organizations’ performance levels. Here, these information intermediaries (also called infomediaries) may produce ratings and rankings or simply transparently organize companies’ performance levels in ways for their audiences to see the performance levels for themselves.

Measures of Organizational Performance

The most common measures of organizational performance (as “financial performance”) are Tobin’s Q ratio and return on assets. Tobin’s Q ratio is a measure of firm assets in relation to a firm’s market value. The formula for Tobin’s Q is as follows:

Tobin’sQ=Total market value of firmTotal asset value of firm.

Return on assets is an indicator of an organization’s profitability and is calculated as the organization’s net income divided by its average total assets.

Organizational Performance and Reputation

The linkages between organizational performance and corporate reputation are many. First, organizational performance (whether financial, social, or otherwise) leads to (improved) corporate reputation. Some studies have linked organizational performance to overall corporate reputation as a global, summative measure, and others have linked organizational performance to corporate reputation for a particular (usually the same) dimension of reputation. In terms of the former, considerable research has shown that firms with financial performance often have strong reputations. The “halo effect” that financial performance produces for overall reputation is one reason why some scholars recommend using corporate reputation measures for overall reputation other than Fortune magazine’s annual “Most Admired Companies” listings. In terms of the latter, research has shown firms with exceptional corporate social performance develop more attractive reputations and become more attractive employers for prospective employees.

Second, as discussed earlier, organizational performance is often one basis, if not the only one, for defining what a company’s reputation is. That is, organizational performance is one prominent answer to the question “Reputation for what?” The important point is to be clear as to what is being evaluated as the reputation. Is the particular type of reputation the basis for determining the whole corporate reputation as a global score, or is the performance being evaluated one dimension of performance that is used to compute one component of reputation?

Third, corporate reputation has also been shown to relate to organizational performance. Studies on organizational performance and reputation, however, show that the relative contribution of corporate reputation to financial performance depends on the previous levels of the firms. The body of research examining the influence of reputation largely suggests that the outcome depends on matching reputation to particular dimensions of financial performance.

Last, corporate reputation has also been shown to be a moderator and a mediator for organizational performance. As a moderator, reputation magnifies the influence of some other measure of performance. As a mediator, reputation intervenes and helps establish the relationship between some other predictor variable and organizational performance as the effect.

Excelling at organizational performance is the primary basis for building a reputation. In general, the research suggests the importance of matching the dimension of performance to its equivalent dimension in reputation. That is, building CSR performance should improve CSR reputation. Likewise, maintaining reputation for CSR depends on maintaining that level of social performance. Likewise, when a firm suffers a lapse in reputation for CSR, building commitments and improving social performance is a crucial step. Meaning, a simple apology for the lapse in performance or offering a diversionary response will not suffice for improving the company’s reputation.

There are a number of performance attributes that can influence corporate reputation. People have their own criteria and attributes of performance that are important to them. Moreover, reputation is not always the most important outcome. Organization-public relationships are an equally important outcome of various measures of organizational performance.