Those involved with organization design, functionality, and performance can look to finance for help. Finance rarely comes to the mind when discussing organization effectiveness and productivity.  Managers know that organizations are cost structures of social systems (Daft, 1995). We have known for some time that organizations generate only cost. It is the marketplace that provides cash, revenue, and dictates the levels of attainable profitability benefits. We incur cost to achieve these benefits. Organizations must deal with the impact on a company’s costs, productivity, and financial results s engendered. Drucker (1986) noted that organizations are tools for making people productive. The right organization structure is the one that yields the optimum productivity that the market is willing to pay for. Company executives should work with finance to better understand the market and cost dynamics of creating the best organizational structure that supports a strategic competitive advantage. Any cost incurred that does not achieve the required financial performance objectives becomes the definition of waste.

 

The classical behavioral theories of organization and social systems of Richard Daft (1995), John Miner (2002), Henry Mintzberg (1983 & 1994), Peter Senge (1990 & 1999) etc. offer frameworks for the development of organizational strategies and structures. However, these strategies and their implementation should involve finance. Finance can help point out the areas of financial leverage for funds used to create and expand an organization. The essence of strategy implementation is budgeting and organization execution. Budgeting is more than the allocation of expenses and resources; rather, it is the strategic use of assets and cost allocation to achieve value creating objectives. The objective needs to be clear to each member of the organization, not just management. Each objective must be a specific, measurable milestone that adds value to the company. If the value is not clear, stop. Financial management should help identify the value in terms of cash flow, profit and market share against the anticipated cost of an organization.

 

An inherent problem with organizations is that they consume resources and dictate job limitations. Organizations are by nature limiting functions. They place people into assigned departments with job descriptions. Organizations pinpoint what the limitations are, not what is possible (Drucker). At times, this aspect of organization can inhibit performance and the potential of improving financial results.  However, it is the job of every manager to maximize the value of the company’s organization assets. It is the responsibility of financial management to provide the information and intelligence to the company to help make the decisions that enhance the value of all assets. Using finance to just generate spreadsheets, financial statements, and provide a working capital structure is mismanagement.  Finance, when working with marketing, has the opportunity to maximize the return on cost of the company’s organization by assigning value (benefits/cost).  

 

While the results of the Hawthorne Studies are still

being debated, what is clear is that an organization

and its structure have a definite impact on the company’s

financials and ongoing productivity.  Finance provides

a framework for addressing these issues. Every

organization generates financial results even

if they are negative. However, too few

organizations have the correct financial metrics

to motivate both management and employees to

achieve the results required by the

market to stay competitive. Further, too few

organizations have the financial metrics to solicit

the productivity results required by shareholders and the marketplace. The chasm between top-level executives and the average employee leaves room for new financially based organization structures with motivating metrics.