Organisational health is the prerequisite and stimulus to key performance metrics.

What is Organisational Health?

Organisational health is an organisation’s inherent ability to align around a common vision, execute against that vision effectively, and renew itself through vision led innovation. A healthy organisation sustains high-level long-term performance against a vision.

A simple (and my preferred) way of understanding -health is how the ship is run in relation to where it is going, no matter who is at the helm and what waves rock the vessel. An element increasingly more important than ever within the coming period.

Why is organisational health important?

Think of an organisation as a human body, generally ‘healthy’ refers to having normal-functioning organs and systems to carry out daily activities without impairment, the same can be said about organisational health.

McKinsey reports that organisations with high levels of Organisational Health (OH) deliver roughly three times the returns to shareholders as those with lower levels of OH, achieve measurable improvements in organisational well-being and demonstrate tangible performance gains in as little as six to 12 months. In fact, the tangible benefits of high organisational health is evident to the extent it appears across sectors and regions, as well as in different contexts.

In terms of financial performance, recent research has highlighted a strong, positive, and static correlation between financial performance and health. Companies making changes to their health, realised disproportionate increase in earnings and total returns to shareholders (TRS) by an average of 7 and 9 percent, respectively.

How exactly can a positive health benefit a company?

 By definition, a healthy organisation is one where all units and individuals are internally aligned, operating as one unit and every output, deliverables and activities are supplementary and/or supportive of one another.

Suppose a company is subjected to market disruption that means it undergos significant changes. At one end, an unhealthy company will experience prolonged difficulties with business units and individuals within operating in discord. Although at surface level they may appear to be prudently addressing market challenges head on, in reality its units and individuals are carrying out activities that achieve individualistic as opposed to collective benefits. In contrast, while such market disruption may have some adverse effect on a healthy company, its units and individuals operate symbiotically, whereby individual outputs/activities complements and supports those in other areas of the business, and that enables the ‘healthy’ company to address challenges as a cohesive conglomerate as opposed to sub-units.

Put simply, the distinction between an unhealthy and healthy company is this. In the short-term, the former may display marginally better performance gains than the latter at a sub-unit level, which have no strong real-world evidence. However, healthy companies are proven to sustainably perform better as a whole, rather than as sub-units, in the long-term.

It’s a zero-sum game for unhealthy organisation

In an unhealthy organisation, each individual unit may appear to be successfully addressing market challenges. However, the lack of strategic alignment suggests benefits gained from such approach at the cost of other units is probable and occurs unprevented.  Therefore, typically healthy organisations are better positioned for the long-term and more resilient to change.

Why is organisational health more important now than ever?

Organisational health is vital irrespective of circumstances, but especially crucial during times of significant changes, such as the anticipated incoming recession, which influences an organisation’s longevity.

Evidence of a global economic recession within the coming months is substantial and convincing. There are speculations that the degree of impact will at least be equivalent or greater than that of the 2007/8 financial crisis – which makes sense as it will occur on the backend of the COVID-19 pandemic – and Brexit, for UK businesses. As well, the recent change in political leadership in the UK further adds significant changes facing UK businesses. Business survival during these times will not be assured, however the probability will be strengthened if high levels of healthiness exist.

The prerequisite to optimal performance

A profitable company isn’t built upon short-term performance goals. It takes a long-term strategy and people who can execute it. In other words, it takes a healthy organisation. A healthy organisation is the prerequisite and stimulus to various performance metrics, including financial performance. Although in theory, the inverse could be true whereby performance has the capacity to influence health. Nevertheless, in such instance health still remains valuable as an indicator of performance, even more valuable when such performance is abstract and difficult to assess, organisational health provides a lens through which savvy business leaders can evaluate it.

ERWIN'S HOT TAKE: Organisational health will surpass all other disciplines in business - as the greatest opportunity for improvement and competitive advantage.

Discuss your challenge in confidence with one of our strategy directors