Strategic Organizational Development and the Bottom Line: Further Empirical Evidence

• Main Authors: FLAMHOLTZ, Eric, HUA, Wei
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Organizational development; Bottom line; Strategic building blocks; Financial success; Business
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2532; https://doi.org/10.1016/s0263-2373(01)00115-3
• Institution: Singapore Management University

This paper provides an empirical test of a holistic model of organizational success. It builds upon previous work by Flamholtz [Eur. Mngmt J. 13 (1995) 39] and Flamholtz and Aksehirli [Eur. Mngmt J. 14 (2000) 488] to develop a model of organizational success and failure. The initial model of Flamholtz (1995) proposed that there are six key factors or ‘strategic building blocks’ of successful organizations, and the six key variables must be designed as a holistic system, which has been termed ‘The Pyramid of Organizational Development.’ Subsequently, Flamholtz and Aksehirli (2000) proposed a link between the organizational development model and the financial success of organizations. They analyzed financial and non-financial information relevant to the hypothesized model for eight pairs of companies in different industries, and found a statistically significant relationship. This current paper builds upon the previous research and provides additional empirical evidence of the hypothesized link between the organizational development model and financial performance. However, this paper reports the results of a test within a single firm, using a set of fifteen relatively comparable divisions. A related research question concerned the thresholds of strategic organizational development for profitability of individual companies or operating units. Each division was evaluated in terms of the six key strategic building blocks. Scores were assigned to indicate the degree of each division's ‘strategic organizational development.’ This score and measures of financial performance (‘EBIT’) were used in a regression analysis to test the predictive validity of the framework. The results of the regression analysis suggest that there is a statistically significant relationship between the development of the six critical success factors and overall financial success of organizations. An analysis of the data on the relation between ‘average pyramid score and EBIT’ for each of the individual divisions was also conducted to determine threshold levels of ‘strategic organizational development’ and profitability. Accordingly, this research provides further empirical support for the hypothesized relationship between the Pyramid of Organizational Development model and the financial success of organizations.