How Public Relations Contributes to Organizational Effectiveness
Contemporary public relations exists within the management of the organization, so the public relations professional has to become educated on how organizations are managed. This chapter introduces several different management theories that help define organizational success and the management role of public relations.
Management theory defines organizational effectiveness in a number of ways. Early theories of management stressed meeting goals as a measure of effectiveness. This approach proved to be rather simplistic and did not recognize the interconnectedness of organizations with their environments. A systems model approach was developed as a reaction to the limitations of the goal-attainment perspective. However, the systems approach tends to be too abstract to measure effectiveness. A third approach, recognizing the dependency of the organization on its environment, places the focus on key constituents and is thus more measurable. This approach, stakeholder management, recognizes the value of strategic constituents to the success of any organization, and recognizes that the interests of the stakeholders are often in conflict. As a result, public relations scholars have developed relationship management theory to help explain, measure, and understand the best approaches to organization-public/stakeholder relationships.
Goal-Attainment Approach
Traditionally, an organization’s effectiveness has been defined in terms of attaining goals.1 In early theories of organizational behavior, organizations were viewed as rational institutions whose primary purpose is to accomplish objectives. The more efficiently and effectively an organization can achieve its goals, the more successful it is; the goals of organizations are usually focused on profitability, making success easy to measure.
Financial Goals
One way to look at the success of organizations is to assess its size in relation to its competitors. This type of measurement is usually done by looking first at annual revenues, the sum total of all products or services sold. But this may not be the most meaningful measure; financial analysts usually look at other ratios to determine financial health. They look at profitability in a number of ways to assess the return that the company generated for shareholders for each dollar of investment in the business, a concept known as return on investment (ROI). In doing so, they consider the gross margins that the company achieves, which are the revenues generated from the sale of its products minus the cost of those goods. They also consider the organization’s net earnings, which are the profits remaining after all interest, taxes, and other costs are factored in, such as depreciation.
These net earnings are then divided by all the shares of stock outstanding to determine earnings per share (EPS). This number provides a good ratio for making comparisons to other companies regardless of their size. Financial analysts eagerly await the earnings numbers when publicly traded companies release these results each quarter. Analysts estimate what they expect a company to earn, sometimes a year or more in advance of the actual results. When companies exceed these estimates, their stock prices generally increase—sometimes dramatically—after the release of the figures for net earnings. When they underachieve on projected earnings, share prices can plummet.
Another measure of size is market capitalization. That measure is the aggregate price of a firm’s stock determined by multiplying the current price of a single share of a company’s stock by all the shares owned. If the market cap is higher than annual revenues, most believe that the company has a growth potential in excess of the current sales. Companies with market caps higher than revenues are more highly valued than those whose market caps are similar to or lower than their annual revenues. Companies work to achieve higher valuation by delivering consistent performance, meeting or exceeding earnings estimates, and providing a credible growth supported by facts.
For nonprofit public relations, the most important measures may relate to the donor community, member statistics, or to the volunteer network on which an organization relies. For governmental public relations it may require an increase in the knowledge of policies, legislative initiatives, sources of tax revenues, or judicial rulings that will have an impact on the departments’ operations.
Limitations of Goal-Attainment Approach
One limitation of the goal-attainment approach to organizational effectiveness is that it does not take human nature into consideration. This deficit can make employee engagement problematic for internal relations. Short-term focus can also pose problems for issues management as it seeks to engage in analyses of trends, remain interconnected with the ever-changing environment, and maintain positive relations with publics over time.
A goal-attainment approach does not consider the political or power-control nature of organizations and how they choose goals.2 Most organizations are composed of coalitions whom they try to influence to achieve goal that benefit themselves—aims which benefit themselves or their function. For example, a typical manager tries to increase the size and scope of his domain regardless of the effect on the organization as a whole. The most powerful of these coalitions are successful in defining the organization’s goals; meeting these goals increases the power and influence of that coalition. There is evidence that the goals of each coalition may not directly reflect the needs and purposes of the organization.
Systems Theory Approach
The view of organizations as open systems that interact with their environments to survive is known as the systems theory approach. Organizations depend on their environments for essential resources: researchers who innovate product development; customers who purchase the product or service; suppliers who provide materials; employees who provide labor or management; shareholders who invest; and governments that regulate. Public relations’ highest worth in society is to help publics, organizations, and governments communicate and interact in order to understand and resolve problems. For issues managers, an essential role is to help organizations predict and adapt to changing trends in an organization’s environment (social, political, economic, and financial). Establishing moving equilibrium is the goal, and takes constant work in relating, assessing, planning, and adjusting.
The open-systems approach examines organizational behavior by mapping the repeated cycles of input, throughput, output, and feedback between a firm and its external environment.3 Systems receive input from the environment as information, meaning either formal or informal research. The systems then process the input internally, which is called throughput (for our purposes, strategy), and release outputs into the environment (communication messages and activities) in an attempt to restore equilibrium to the environment. The system then seeks feedback (evaluation research) to determine if the output was effective in restoring equilibrium. The systems approach focuses on the means used to maintain organizational survival and emphasize long-term goals rather than the short-term goals of the goal-attainment approach.
Theoretically, systems can be considered either open or closed. Open organizations exchange information, energy, or resources with their environments, whereas closed systems do not. In reality, because no social systems can be completely closed or open, they are usually identified as relatively closed or relatively open. The distinction between closed and open systems is determined by the level of sensitivity to the external environment. Closed systems are insensitive to environmental deviations, whereas open systems are responsive to changes in the environment. Closed systems are rare but real-world examples would be a commune, the national news media in China, or a prison.
Effective organizations, according to systems theory, adapt to their environments. Pfeffer and Salancik described the environment as the events occurring in the world that have any effect on the activities and outcomes of an organization.4 Environments range from “static” on one extreme to “dynamic” on the other. Static environments are relatively stable or predictable and do not have a great variation. Dynamic environments are in a constant state of flux or turbulence. Because environments cannot be completely static or constantly changing, organizations have varying levels of dynamic or static environments.
Organizations that exist in dynamic environments must be open systems in order to maintain moving equilibrium. Because dynamic environments are constantly changing, they create a lot of uncertainty about what an organization must do in order to survive and grow. The key to dealing with uncertainty is information. The most important information is negative input, according to systems theorists, because this information alerts the organization to problems that need to be corrected. Negative input tells the organization that it is doing something wrong and that it must make adjustments to correct the problem; positive input tells the organization that it is doing something right and that it should continue or increase that activity.
Organizations then organize and process this information to formulate solutions or responses to these changes, or to environmental turbulence. Adjustments are “intended to reduce, maintain, or increase the deviations.”5 For example, an organization can alter its structure by downsizing to remain competitive. Other organizations may change their processes in order to adhere to new environmental laws. Processing positive and negative input to adjust to environmental change is throughput—strategy to fit with the organization’s goals, values, and within the relationship context it holds with stakeholders and publics. If an organization is not able to adapt to environmental variation, then it will eventually cease to exist.
The public relations professional can use the concept of systems theory to implement protocols for regular feedback, thereby aligning with stakeholders and publics in the environment. This theory can also be useful in understanding the role of research and feedback in creating thoroughly analyzed strategy. Throughput helps to justify making decisions that strategically align organization communications with the information needed by publics. The practical implementation of this approach keeps public relations from being used as a simple media relations function and places it squarely within the strategic planning process.
This perspective is broader and more comprehensive than the goal-attainment approach because it is not only limited to meeting goals determined by powerful internal coalitions—who may be self-serving. Systems theory, however, is not without some shortcomings. One criticism of this approach is that its focus is on the process “rather than on organizational effectiveness itself.”6 Measuring the processes of an organization can be very difficult when compared to measuring specific end goals of the goal-attainment approach, such as growth figures.
Stakeholder Management Approach
The stakeholder management approach adds focus on interdependence to the systems approach by building “strategic constituencies” with groups in the environment who can threaten the organization’s survival.7 This approach recognizes that an organization must deal with external and internal publics who can either constrain or enhance its behavior.
Although most organizations would prefer to have complete autonomy, they are often confronted with constraints and controls. Constraints are often considered undesirable because they are slow and inflexible, “cost money—to comply with regulations or to make changes to accommodate pressure groups,”8 and they “restrict creativity and adaptation.”9 However, it is inevitable that an organization meets with constraints, especially in heavily regulated industries. Examples include labor strikes, new regulations, and protests by activist groups.
To be effective, an organization should have relationships with publics and stakeholders in the environment such as customers, suppliers, competitors, governmental regulators, elected officials, and communities. They must also be aware of their internal publics—for example, employees and labor unions—who can affect or be affected by the organization. The relationship between an organization and its stakeholders is called interdependence.10
Although these interdependent relationships limit autonomy, good relationships with stakeholders limit it less than do bad relationships. When organizations collaborate with key stakeholders the end result is often an increase of autonomy. Good relationships are developed when an organization voluntarily interacts with its stakeholders to find solutions or understanding on shared problems. Poor relationships can result in forced compliance with restrictions, lawsuits, and new regulations. When organizations voluntarily establish relationships with stakeholders, they have more autonomy because they are not forced into taking action. In the stakeholder management approach, decisional autonomy, coupled with good working relationships, is the definition of organizational effectiveness.
The Stakeholder Management Process
Stakeholder management centers on a six-step process as summarized in Figure 6.1 and elaborated as follows:
Step 1: Identify the Stakeholders
The stakeholder management process begins by identifying stakeholders.11 Often a stakeholder map is constructed. Establishing relationships is often advantageous for both organization and publics, as the relationships can be genuinely developed before they are urgently needed.
Step 2: Describe the Stakes
The next step is describing the stakes or claims that these groups have in the organization. A stake is an interest or a share in the performance or success of an organization. Employees, shareholders, and other groups may have such a stake. A stakeholder group could also assert a claim on the organization if it believes that the organization owes them something. For example, environmental groups believe that corporations have a responsibility to care for the environment. Stakes or claims can also be in conflict with one another. For example, the pressure to report profits may lead an organization to lay off employees, which would conflict with the benefits of having greater employee morale. The difficult part of stakeholder management is being able to ethically manage the potential conflicts of interests among the stakeholders.
Step 3: Consider the Significance of Stakes/Claims
The third step is to consider the significance of the stakeholders’ stake or claim. Scholars developed a comprehensive model that included the stakeholder attributes of legitimacy, power, and urgency as a way to evaluate the priority of stakeholders.12 Legitimacy is whether the stakeholder has a legal, moral, or presumed claim; power is when they can influence other parties to make decisions; urgency exists when the issue is immediately pressing (time sensitive) or when it is critical to the stakeholder. The combination of the three attributes is used to develop a prioritization strategy. Accordingly, latent stakeholders possess only one of the attributes; expectant stakeholders possess two attributes; and definitive stakeholders possess all three attributes. The more attributes stakeholders possess, the more critical the claim.
Step 4: Evaluate the Opportunities
The fourth step is evaluating opportunities and challenges stakeholders present to the organization. Opportunities and challenges might be viewed as the potential for cooperation versus the potential for threat. Stakeholders can either help or hinder the efforts of an organization; each group should be analyzed according to what it brings into each situation.
Step 5: Consider the Responsibilities to Stakeholders
The fifth step is to consider the responsibilities that an organization has to its stakeholders, meaning the ethical obligations that are held with regard to decision making, disclosure, and maintaining long-term relationships that engender trust. What legal, moral, citizenship, community, and philanthropic responsibilities should be followed for the organization to be considered a valuable member of society?
Responsibilities may include the financial, environmental, and social impact the organization holds. Using a philosophical framework (presented in the Chapter 11) to rigorously analyze responsibilities is helpful in practicing effective public relations.
Step 6: Consider Relationship-Enhancing Strategies and Actions
The final step is to consider the strategies and actions an organization should take to enhance its relationships with key stakeholders. Employing stakeholder management techniques means that the public relations professional holds the responsibility for the relationships that are the very lifeblood of an organization. Using stakeholder management allows the professional to accurately assess the situation, prioritize resources, and make decisions that are the most strategic, helping to build long-term relationships with the most important publics and stakeholders by using relationship management theory.
Relationship Management Theory
Public relations scholars study relationship management, or as mentioned above, the ways to enhance relationships with stakeholders and publics. They ask, “What are the components of relationships?” “Which factors must be present to form and maintain them?” Organization-public relationship (OPR) theory, can tell professional communicators how to optimize their relations with strategic publics or groups.13 It uses interdependence, as well as moral autonomy, to help build an organization’s competitive advantage through strategic relationships entered into with intentionality.14
Relationship management theory orders the components of relationships in a way that is similar to building blocks to indicate how best to build relationships that have positive outcomes (see Figure 6.2).
In general, relationships in the OPR approach are comprised of these factors. Ethics must exist as the first component, a precursor even before a relationship is contemplated, because it is foundational to the existence of any future trust or relationship.15 Trust is the next factor.16 Trust is vital to ongoing relationships and is composed of components that demonstrate dependability and competence. Mutual control by each party of what happens in the relationship, as well as satisfaction with the relationship are components that should be considered. Commitment to the relationship is another important factor because it indicates the long-term viability of the relationship.17 By strategically considering all of these factors, the public relations function can contribute to organizational effectiveness by ensuring that the relationships an organization needs are in place routinely, and before they need to be relied upon in a challenge. Such relationships smooth the operations of the firm in numerous ways, and touch upon every facet of organizational effectiveness.
Chapter Summary
It is important to understand how organizations define their effectiveness because they place most value on the functions that contribute to that success. This chapter identifies three ways in which organizations evaluate their effectiveness: goal-attainment, systems theory, and a stakeholder management approach. A stakeholder management approach helps an organization understand how critical key constituents are to meet the purpose of the organization. Using the six steps of the stakeholder management process, public relations professionals can better understand challenges facing the organization and can help to integrate those interests into strategic management. Doing so using OPR theory is a primary means of how public relations contributes to overall organizational effectiveness. The theory of effectively managing relationships was explained, including ethics, trust, mutual control, satisfaction, and commitment as components of continuing, long-term relationships that contribute to organizational effectiveness.