The best companies have a secret weapon — and you can have it too.

There’s a simple secret to the success of top companies. Is it the ability to keep the top talent in their industry? Do they have processes in place to make them more efficient than their competitors? Enough guesswork — the answer is simple: the best companies are healthy. In fact, between 2003 and 2011, the healthiest companies generated three times more returns to their shareholders than their unhealthy counterparts. They consistently outperformed their peers with better operational success and financial performance [1]. So all you have to do to improve the outcomes for your business, is improve organizational health. So what is organizational health, and how can it be improved? Let’s get right into it.

What is organizational health?

Some people think of health in terms of absence of disease. Organizationally, this approach can be easy to buy into — if the parts of my business aren’t broken, it must be healthy. However, modern studies on organizational health define organizational health almost identically to how the World Health Organization defines human health: not just the absence of disease but the state of all the processes and components that make up the business entity [2]. A healthy organization clicks on all cylinders, with all of its parts living up to their full potential.

Organizational health can be tracked like vital signs — KPIs that indicate whether your business is truly healthy.

One of the most trusted and data-backed indexes for organizational health(OH) was developed by McKinsey and Company. It breaks OH down into 9 organizational outcomes:

• Direction: An organization’s shared vision and strategic clarity, and how aligned its employees are with that vision.
• Innovation and Learning: How is knowledge shared? Is there top-down and bottom-up innovation?
• Leadership: What style of leadership exists within your company?
• Coordination and Control: the management of your processes and reviews to maintain low risk and high professional standards.
• Capabilities: Your organization’s capability based on the ability to acquire and develop talent, as well as leverage processes and outsource expertise.
• Motivation: The way your organization uses incentives and recognition, as well as leadership’s ability to inspire.
• Work Environment: Is it open and trusting? Disciplined? Competitive? Creative?
• Accountability: Are roles clear? Do your employees take personal ownership?

After analyzing over 1500 companies across 100 countries, McKinsey has seen a strong correlation between health and financial performance [3]. The good news is that companies who improve their scores on an organizational health index, also see improvements to their profitability.

Maybe it’s been a while since your organization has taken a strategic look at even one of the components listed above, or maybe you never have. At a glance, it is overwhelming to think about transforming a company across so many categories. Time for more good news — the best approach to improving organizational health is one category at a time.

It is important to note that pursuing health doesn’t happen as a bystander. When trying to get in shape you don’t do it by looking at articles on running. You have to lace up your shoes and run. The same goes for organizational health. Organizations who aggressively pursue health show quick improvement. It is all about being an architect of your own growth.

What is the recipe for organizational health?

There are countless ways to approach getting healthier. Here at Ledgestone, we believe that the recipe for improving organizational health has 4 main ingredients:

Assess, Prioritize, Lead, Monitor

1) Assess where you are at

Everything starts by being honest about where an organization is at. Think of it like your annual health check-up. If you don’t know what’s really wrong, there’s no way to fix it. Researchers at the University of Thessaloniki developed a four step method for assessing an organization’s health.

1. Identify your processes: what do we do, and how do we do it.
2. Identify the critical components: Actions, Inputs, and activities in our processes
3. Assess the components health: Take a thorough look at components and their alignment with business outcomes
4. Identify problem points: What processes and components are operating below expectations/standards.

The outcome of this method is a thorough picture of all the systems in an organization. This part of the process can be slightly painful, but it is also vital. Revealing weaknesses and failings within your company is crucial to creating a plan to address them.

2) Set your priorities

Growth is incremental. If a company tries to change in every problem point at the same time (illustration tug of war in different directions. All pulling in one) it will be moving in too many directions and growth will be crippled. Instead, organizations should focus on a specific strategy for growth. Throughout the years that McKinsey & Co. have been researching organizational health, they have seen the best results with 4 primary approaches to pursuing change within organizations.

1. Developing and deploying leaders
2. Focus on continuous improvement
3. Attracting and inspiring talent
4. Focus on market innovation

As previously mentioned, trying to take all 4 of these approaches will leave you stretched thin. So which is best? All have been shown to be effective, but at Ledgestone we firmly believe that leadership drives the greatest organizational health improvement and consequently better business outcomes.

3) Develop and deploy leaders

Leadership is more than upper management. We believe it is a characteristic that all of an organization’s companies can possess. That being said — to promote a culture of leadership it is important to focus on developing and deploying leaders throughout all of the parts of your organization. These leaders must be trained on situational leadership — able to adjust for the people they are working with and the environment they are leading in. Some of your people may need constant feedback, while others may need freedom to go and create. Leaders should be driving a culture that draws employees in, builds true relationships, and fosters commitment in place of compliance.

3) Keep an eye on your vitals

Companies are dynamic, quickly changing and evolving. The KPIs you use to track organizational health need to be monitored regularly. This may mean increasing the amount of feedback you get from employees, adding meetings to schedules, or developing surveys to gauge how things are going. These measures of health need to encompass an organization from top to bottom to ensure a holistic picture of health. It is also important to remember that your business outcomes are vital signs too. Improvements to health should result in improved performance.

TeamWorks consulting worked with hundreds of organizational leaders to develop a list of 10 health factors you should be keeping your eye on [4]. We think it’s a good place to start measuring and leading change within an organization:

• Profitability
• Rev Growth
• Customer Satisfaction
• Culture
• Strategic Planning:
• Team architecture
• Innovation
• Acquisitions
• Rewards
• Purpose and passion

For more information on these categories and how to measure them you can check out TeamWorks full breakdown.

Partners in your Organizational Health Journey

So we have to admit, the secret advantage that top performing companies share isn’t quick or easy. Organizational health is a journey. Improvement won’t happen overnight. However, research has shown that by focusing on your organizational well-being, you can see improvements and tangible business performance gains within 6–12 months [McK] The key is to commit, and become a participant in your organizations health journey, not a bystander.

It may seem overwhelming at first, and knowing where to begin can be challenging. But we are passionate about partnering together on your organization’s journey. Our organizational health experts will come alongside you and provide:

• An honest assessment of your organizational health
• A comprehensive plan of attack
• Help with implementation: from leadership training to regular consulting and progress monitoring.

Together we can drive organizational health improvement and, just as importantly, better business results. We would love to learn more about you and your organization. If you would like to chat with one of our organizational health experts, click here.

References

1) Smet, A. D., Schaninger, B., & Smith, M. (2018, February 22). The hidden value of organizational health — and how to capture it. McKinsey & Company. https://www.mckinsey.com/business-functions/organization/our-insights/the-hidden-value-of-organizational-health-and-how-to-capture-it.

2) Raya, R. P., & Panneerselvam, S. (2013, September). The healthy organization construct: A review and research agenda. Indian Journal of Occupational & Environmental Medicine. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4035611/.

3) Gagnon, C., John, E., & Theunissen, R. (2018, February 16). Organizational health: A fast track to performance improvement. McKinsey & Company. https://www.mckinsey.com/business-functions/organization/our-insights/organizational-health-a-fast-track-to-performance-improvement.

4) Organizational Health: The Top 10 Factors To Track. TeamWorks. (2016, September 9). https://www.teamworksweb.com/organization-health-10-factors-to-track/.