ORGANIZATION SPECIAL ....Your organization’s health: the ultimate competitive edge

ORGANIZATION SPECIAL Your organization’s health: the ultimate competitive edge

Routine blood tests provide results that give an indication of how healthy you are, but to be able to really advise you on what needs to change, the doctor needs to understand what activities – practices – you are doing (or not doing) that produce these results.

If one outcome of the check-up is that cholesterol levels are higher than they should be, chances are that dietary practices are the cause and reducing saturated fats could help.

The same goes for organizations. Health essentially describes how an organization operates; the way we break it down is how an organization aligns itself to its strategy and vision, how it executes on it and how it renews itself in response to external factors.

With organizations facing unprecedented change, an organization’s health remains among the most powerful levers leaders have to transform successfully and drive performance in the short and long term.

In a time where disruptions externally are springing from several fronts – be it digitalization, automation or agile – it is tempting to overlook health, but it is actually as important as ever. With organizations facing unprecedented change, an organization’s health remains among the most powerful levers leaders have to transform successfully and drive performance in the short and long term.

Through 15 years of research, we have learned that working on health yields real results: Companies with top-quartile health deliver, on average, three times greater total return to shareholders over time and two times greater return on invested capital. And it doesn’t take long to see the results either: We found that companies that actively worked on health achieved an 18 percent increase in earnings before interest, tax and amortization expenses within a year.

The research we have on the Organizational Health Index (OHI) and the Corporate Horizon Index (CHI) found that the healthiest organizations are the ones that focus more on long-term value creation.

The impact is visible even within the same company, where we have seen, on average, 50 percent performance variation on business units that worked on health vs. those that didn’t.

Like a veteran physician, we’ve learned a lot about effective diagnosis. We developed the OHI to apply analytical rigor to health and help leaders manage it proactively. Over the years, the OHI has been used by over 1,700 companies worldwide and across all industries. Its proprietary database now consists of over 90 benchmarks.

We find that every organization can be measured against nine health outcomes and 37 management practices, which describe the “soft” and “hard” elements of its ecosystem. Consistent with the physical health analogy, outcomes and practices are not dissimilar to going to the doctor for a health check-up. If one of the nine outcomes shows that motivation is low, then the practices behind that (e.g., meaningful values, inspirational leaders, rewards and recognition, etc.) will give an indication of what the organization is already doing (and not doing) to contribute to that outcome.

Our research shows the healthiest organizations align to one of four “recipes,” each defined by a unique mix of management practices. Guided by their strategic aspirations and industry context, organizations choose the recipe most aligned to deliver on their performance objectives. A recipe helps to provide a clear blueprint and roadmap for working on health and achieving peak performance. We will explore recipes further in subsequent blog posts. Here’s to your organization’s health.

 by Raha Caramitru and Brooke Weddle

https://www.mckinsey.com/business-functions/organization/our-insights/the-organization-blog/your-organization-needs-a-check-up?cid=other-eml-alt-mip-mck-oth-1808&hlkid=b26fdcb7444948d7b05b29c2c9cff9cc&hctky=1627601&hdpid=a73eb51f-5c34-4b52-8146-e68301dba77c