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Organizational health: the key to sustained business success

As a business owner or HR professional, understanding and nurturing the health of your company is not just beneficial; it’s essential for sustained success and growth. We’re talking about organizational health here.

Keith MacKenzie
Keith MacKenzie

Passionate about human resources, employment, and business management, and an expert at sharing that expertise.

Organizational health goes beyond mere profitability and productivity – it includes the vitality and functionality of your entire operation.

But wait: what exactly is it? Let’s talk about that first.

What is organizational health?

Organizational health is characterized by a company’s capacity to unite under a shared vision, skillfully execute strategies, and dynamically evolve in response to market shifts and internal demands to maintain innovation and relevance.

Imagine your company as a well-oiled machine – employees are engaged and productive, management is strategic and effective, financials are robust and balanced, and your market presence is active and responsive.

This scenario epitomizes a robust organizational health. It highlights elements of a company that are not easily measured at the bottom line.

The importance of organizational health

Let’s take a look at the impact of employee engagement on organizational outcomes. McKinsey reports that 10% of all employees are pretty much out the door already, with another 43% either actively or mildly disengaged at work. That’s more than half.

This disengagement and attrition can be costly. In that same report, McKinsey finds that a medium-sized S&P 500 company loses between $288 million and $355 million per year in lost productivity as a result.

That’s the cost of poor organizational health.

Business author Patrick Lencioni also highlights the value of a healthy company: “The single greatest advantage any company can achieve is organizational health.”

“The single greatest advantage any company can achieve is organizational health.”

Patrick should know – he authored the book The Five Dysfunctions of a Team. It’s a compelling business fable that delves into team dynamics and strategies aimed at enhancing team performance. He’s also the top boss of The Table Group, a business service that helps companies improve their overall health.

Clearly, it’s important.

How do you measure organizational health?

To effectively measure and enhance your organization’s health, consider assessment tools like the McKinsey Organizational Health Index (OHI). This tool helps gauge various facets of organizational health, providing insights that guide improvement strategies.

Use these tangible measurements tied to OHI to monitor the rise (and fall) of your company’s overall health:

1. Evaluate management practices

Understanding how management behaviors influence organizational health is crucial for long-term success. You can measure this area via:

  • 360-degree feedback: Implement a system where employees can provide feedback on their supervisors. This helps identify leadership qualities and areas for improvement.
  • Behavioral assessments: Use tools that assess leadership behaviors and management practices to pinpoint specific areas that require development.
  • Performance metrics: Track the performance outcomes of different teams. Relate them back to specific management behaviors to identify what works and what doesn’t.

2. Assessing employee experiences

Every organization is made up of people. It makes sense to ask those people directly about how they perceive their working environment and culture. You can do this by conducting:

  • Employee surveys: Regularly conduct surveys that ask direct questions about job satisfaction, workplace environment, and the perceived support from management.
  • Exit interviews: Use exit interviews to gather information on why employees are leaving. This can provide insights into the work environment and employee engagement.
  • Focus groups: Organize focus groups to dive deeper into employee concerns and experiences to gather qualitative data on their daily work environment and culture.

3. Measuring health outcomes

Tracking key health outcomes helps quantify the effectiveness of the organization in maintaining a supportive and productive work environment. You can do this by tracking these three core KPIs:

  • Employee retention rate: Monitor employee retention rates as a key indicator of organizational health. High turnover can indicate issues with leadership, compensation, or work-life balance.
  • Customer satisfaction scores: Organizational health often impacts service quality. So, measuring customer satisfaction can provide indirect insights into the internal state of the organization.
  • Productivity metrics: Assess productivity levels across various departments to determine if leadership and organizational practices support employees’ ability to perform their roles.

How do you improve organizational health?

You can approach organizational health in five focal areas:

1. Be a leader and visionary

Leadership is more than managing day-to-day operations. It involves inspiring and aligning the entire organization with a clear and compelling vision. Effective leaders embody the values they wish to see throughout the organization, ensuring that their actions and decisions reinforce the strategic goals.

This includes not only setting the direction but being actively involved in your company, which strengthens trust and clarity across all levels.

2. Cultivate a supportive culture

A healthy organizational culture is one that promotes transparency and open communication, creating an environment where employees feel valued and recognized for their contributions. This involves more than just financial rewards – it includes acknowledging efforts in meaningful ways, providing growth and development opportunities, and fostering a positive workplace.

Such a culture enhances employee satisfaction and loyalty, which are critical for long-term success.

3. Focus on engagement and productivity

To keep your teams engaged and productive, emphasize continuous learning and well-being initiatives. This includes offering training and development programs that cater to the needs of employees, promoting work-life balance through adaptive working arrangements, and implementing wellness programs that address physical and mental health.

Engaged employees are more likely to be motivated and maintain high productivity levels, contributing positively to your overall goals.

4. Adopt an agile mindset

This business landscape seems to be in constant flux – and this could well be our ‘new normal’. The ability to adapt to change is crucial for maintaining organizational health. Embrace new technologies and processes. Train your teams to be prepared to handle the changes.

Effective change management strategies include involving employees in the change process, providing clear communication about the benefits and impacts of the change, and offering training and support to ease the transition.

5. Communicate far and wide

Strong internal communication is crucial for maintaining a healthy organization. This ensures all employees are informed on company developments. This helps them understand their specific roles within larger objectives, and feel involved in the organization’s journey.

Ensure regular updates, establish open forums for feedback, and include tools that facilitate easy and transparent communication across different levels of the organization.

A healthy body, a healthy mind, a healthy workplace

Just as maintaining a healthy body is crucial for personal well-being and effectiveness, fostering organizational health is essential for a company’s resilience and productivity.

Organizational health, involving comprehensive management of leadership quality, workplace culture, and employee engagement, acts as the backbone of business operations.

It supports the company’s ability to innovate and adapt swiftly to market changes, mirroring how a well-cared-for body responds to stress and recovers from illness.

Investing in organizational health is a strategic priority that yields long-term benefits, enhancing overall performance and ensuring sustainable success.

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