The hidden value of organizational health—and how to capture it

New research suggests that the performance payoff from organizational health is unexpectedly large and that companies have four distinct “recipes” for achieving it.

or the past decade, we’ve been conducting research, writing, and working with companies on the topic of organizational health. Our work indicates that the health of an organization is based on the ability to align around a clear vision, strategy, and culture; to execute with excellence; and to renew the organization’s focus over time by responding to market trends. Health also has a hard edge: indeed, we’ve come to define it as the capacity to deliver—over the long term—superior financial and operating performance.

In previous articles and books, such as Beyond Performance, we (and others) have shown that when companies manage with an equal eye to performance and health, they more than double the probability of outperforming their competitors. Our latest research, at more than 800 organizations around the world, revealed several new twists:

• We found that the linkage between health and performance, at both the corporate and subunit level, is much clearer and much larger than we had previously thought. With the benefit of more data and a finer lens, we discovered that from 2003 (when we began collecting data on health) to 2011, healthy companies generated total returns to shareholders (TRS) three times higher than those of unhealthy ones.
• We further discovered that companies consistently outperforming their peers generally followed one of four distinct organizational “recipes.” We had already recognized these patterns but hadn’t understood their strong correlation with health, operational success, and financial performance.
• We also uncovered a practical alternative to the common (but too often disappointing) approach of seeking to improve corporate health by closing every benchmark and best-practice gap. More tailored initiatives that combine efforts to stamp out “broken” practices while building signature strengths not only are more realistic but also increase the probability of building a healthy organization by a factor of five to ten.

In short, we’re more convinced than ever that sustained organizational health is one of the most powerful assets a company can build. We’re also clearer on how to achieve it, including the pitfalls to avoid on the road. We hope this is welcome news to leaders worried about the long term, who frequently complain to us that the benefits of their one-off reorganization initiatives are ephemeral.

Further reading: https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/the-hidden-value-of-organizational-health-and-how-to-capture-it