Part 1: Organizational Health: Beyond Performance

Most companies want their organization to be exemplary. But most companies and their associates are not sure what exemplary means or how to get there. Despite all that is written regarding organizational excellence, nothing we are aware of combines a view on the “steady state” of high, sustainable organizational performance with a dynamic perspective on how companies can transform themselves to achieve it.

Organizational health is about adapting to the present and shaping the future faster and better than the competition, and is just as important as focusing on the traditional drivers of business performance. Getting and staying healthy involves tending to the people-oriented aspects of leading an organization. Make no mistake: cultivating organizational health is hard work. And it shouldn’t be confused with other people-related management concepts, such as employee satisfaction or employee engagement.

I have found that the recipe for excellence in a particular organization is specific to its history and culture, external environment, and aspirations, as well as the passions and capabilities of its people. Creating and sustaining your own diagnostic delivers results in a way that your competitors simply can’t copy.

In this first of a two-part blog post, I’ll define organizational health, discuss why it is so important and explain the difference between health and performance. In the second part, I’ll present a framework for pursuing a conjoined health and performance matrix.

Why Organizational Health?

The case for organizational health starts with an understanding of how it relates to performance. Performance is what an enterprise delivers to stakeholders in financial and operational terms. It is evaluated through such measures as net operating profit, return on capital employed, total returns to shareholders, net operating costs and stock turns.

Health is the ability of an organization to align, execute, and renew itself faster than the competition to sustain exceptional performance over time. It comprises core organizational skills and capabilities such as leadership, coordination and external orientation. Traditional metrics just don’t capture these critical health factors.

According to a study by Pew Research titled Corporate Success in the Post Recession World, at least 50 percent of any organization’s long-term success is driven by its overall health. Data from one survey on why change programs fail shows that what we might see as the usual suspects — inadequate resources, poor planning, bad ideas, unforeseen external events — account for less than a third of the failures. More than 70 percent resulted from poor organizational health, manifested in symptoms such as negative employee attitudes and unproductive management behavior. Furthermore, companies undergoing transformations revealed that organizations focusing on both performance and health rated themselves as nearly twice as successful as those focusing on health alone and nearly three times as successful as those focusing on performance alone.

Unlike many of the key factors that influence performance — changes in customer behavior, competitors’ moves, and government actions — your organization’s health is something you can control. It’s a bit like our personal lives. We may not be able to avoid being hit by a car speeding around a bend, but by eating properly and exercising regularly we are far more likely to live a longer, fuller life.

Of course, that doesn’t make the pursuit of performance and health any easier. Most companies know how to keep a close eye on performance, but company health often suffers from neglect. In a Gartner CEO and Business Executive Survey of over 2,000 companies, only 16 percent chose near-term performance over organizational health, with the appropriate alignments and roles and responsibilities. More than 65 percent chose the company’s health for the longer term. The survey implies that organizations, while valuing organizational health, see it as more of a future state, as compared to a near-term objective.

What’s more, even when companies do understand both performance and health, many pursue them separately. The result can be human resources-led “people programs” that bear little relationship to a company’s strategic and operational imperatives, performance-improvement initiatives that cut more muscle than fat, or both.

Next week, I’ll share what I call “The Five Frames” of performance and health. In the meantime, how do you view organizational health? Does your experience differ from what I discuss here?

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