This study contributes to our understanding of the mediating mechanism of work engagement through which psychological climate of an organization is linked with the organizational effectiveness. We developed and tested a mediation model associating between the latent constructs of organizational effectiveness. Our model evaluates the premise that employees’ favorable perceptions of the organizational settings are directed towards increased organizational effectiveness through an individual-level construct, work engagement. Overall, data from 300 employees in different service organizations in India support this model. Data analysis, performed using Structural Equation Modeling (SEM) approach, revealed that work engagement fully mediates the relationship between psychological climate and organizational effectiveness, suggesting that employees’ engagement with their work plays a significant role in shaping the effectiveness of their organization.

A positive and supportive context is needed for human resources to achieve sustainable growth and performance (Luthans and Avolio, 2003; and Luthans et al., 2008). In fact, culminating effectiveness in the light of global economic fluctuations, and fierce competition necessitates the espousal of positive perspective at workplace. A growing body of literature on positive psychological climate suggests that the development of work context designed to enhance employees’ motivational and affective reactions at work, is profoundly associated with sustained organizational effectiveness.

Contemporary business organizations are facing many challenges to effectively manage their human capital more than ever before. It is not easy to attract and retain skilled and motivated employees as they have several other job options. Another major difficulty in conquering this challenge is the expectations of the organizations from their employees. Organizations require employees to be proactive, show initiative while engaging with their role and remain committed to performing at high standards (Bakker and Leiter, 2010; and Chughtai and Buckley, 2011). Cho and McLean (2009) also suggested that it is not sufficient that they just show up; they need to be functioning at the peak level of their potential.

Organizational Behavior Journal, Psychological Climate, Organizational Effectiveness, Work Engagement, Structural Equation Modeling (SEM), Data analysis, Contemporary business, Work Engagement.