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What is organizational health?

by Colin Price on December 14, 2010


colin-price's picture

What is organizational health?

We're at the end of an eight-year period, which  was marked in the beginning by the demise of Enron and marked at the end by the demise of Lehman Brothers.  During that near decade,  the quasi-religious mantra of business was shareholder value: Focus on performance and on performance alone. That's what real managers did.  They decomposed activity to work out the value creation potential and they focused on performance. Everything else was stuff that needed to be done to run the machine.

We now know what that philosophy of management produced: an apparent growth in global GDP followed by an even larger decline in global GDP.  It produced a lack of sustainability of corporate earnings.  The same is true in the public sector.  Focusing exclusively on performance  simply does not produce long-term shareholder value,  sustainable competitive advantage, or an ability to achieve the mandates of the organization in the public sector.

So, how can we focus instead on longer term organizational health?  For me, health is the capacity of the organization to compete not only today, but tomorrow.  I think of it as having three elements:

  • One part of health is the degree of organization alignment.  Does the organization know where it's going?  Are the people within that organization aligned about that direction? That may sound simplistic, but in many organizations it's not the case.  There isn't a deep level of alignment around purpose and mandate from the leaders all the way through to the frontline employees that make a difference to the customers. 
  • The second element is the capacity for execution, the ability to turn ideas into action.  How much interference is there?  How much excess complexity slows the corporate, metabolic rate?  
  • The third element of health is the capacity for renewal. Is the organization changing at or just above the rate at which it's changed in the past?  Or is the organization really focusing on changing at the rate required by the industry?

So, if you think of that as health, it's the ability to get aligned, to execute at a world-class level, and to renew.  

Why is that so much more important now than it has been in the past?  Simply because the returns for health are greater than that which they have been in the past. Focusing exclusively on performance previously is now just table stakes.   The degree of competitive intensity means that competitive advantage doesn't confer to the company with the best widget.  It confers to the organization that can reinvent itself and defend itself from attackers -- wherever they may come from --  better than anyone else.  It's impossible to get a defendable, sustainable advantage unless you can adapt rapidly. That's why having a healthy organization is more important now than it's ever been.

(This post is adapted from a video interview.)

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matthew-bagley's picture

How much time and energy is wasted on politics and confusion within organizations? Do most employees love their jobs or are they constantly frustrated? Do employees function as a cohesive team or do they vie for resources for their department, sometimes at the expense of the organization? I think the answer is clear on most of these questions.

Your article goes hand-in-hand with Patrick Lencioni's book "The Advantage". The health of an organization is a multiplier to its intelligence. Increasing the skillset of team members only gives incremental improvement with diminishing returns. The greatest opportunities lie in unlocking the latent potential of those in an organization through cohesive teamwork.

niko-van-eeghen's picture
Hi Colin, This was an interesting read - and from the role as a portfolio manager, these are items that can be tracked an improved. 
There does however, exist (what I believe to be) a natural conflict in 2 of the 3 points you listed - namely that of alignment and renewal. Renewal most naturally implies being flexible and therefore able to change direction, by adapting to the ever changing external environment. Alignment means sticking to a common direction for sake of e.g. synergies.
How do you feel the balance needs to be found in organizations between renewal and alignment? How to deal with the differing cultures that support these two? 
My understanding is that the capacity of execution goes some way here - through trying and failing fast in renewal. However, this still doesn't explain how to measure health when you need to measure alignment vs. renewal.
What are your thoughts on the matter?
paul-herr's picture
Hi Colin,
Here is one more item for your corporate health index--motivational health.  The best plan in the world will go nowhere, I suggest, without employees who are motivated to energetically execute it.  
Motivation is a complex topic, which may be why so many companies default to a simplistic money-and-fear approach ("Do it because I pay you, and if you don't do it, you are fired").  I describe a more nuanced approach to motivation in my book, "Primal Management: Unraveling the Secrets of Human Nature to Drive High Performance."  Here is a tool derived from my book to measure motivational-health.  Let me know what you think of it:
Warm Regards,
Paul Herr
patrick-fernandez's picture
Colin, I suspect that having these three elements will deliver the desired organisational health most of the time. Unfortunately, there are occasions when failure occurs even with all three elements present -- because what is being aligned is flawed in the first place. How do organisations develop the internal intelligence to recognise such flaws and re-align for success, well before embarking on execution and rolling out the renewal program?

It is also not hard to understand why things sometimes get out of alignment -- especially given the non-mechanistic and people centred environment that we work in. Organisational changes, external factors and personal circumstances can easily contribute to this mis-alignment. What is hard is being able to detect this in time to take corrective action. We need better diagnostic tools that do just this!

greg-stevenson's picture
The diagnostic tool I've been working on works as a corporate health barometer by constantly feeding back the communal conscience of the organisation and regularly introspecting. Analysis of the introspection gives the data points required to graph historical and present corporate health which can then be correlated with distinct interventions. More that that, the data collection mechanism is itself an intervention designed to improve corporate health.
ellen-weber's picture

Colin, I am intrigued by your thoughtful sweep of where we were, as well as suggestions you make to ensure we grow past the costly mistakes. Not sure we are showing much progress yet though;-(  It will take a dynamic shift away from the traditional leadership approach we advocate to bring about your concerns for alignment, action, and renewal.

For instance, I see clients who speak of transparency needed to ensure people move in the same directions, but then I notice hidden rubrics for rewards and other areas that lack of transparency adds problems and triggers conflicts at work. And in each of your well laid out areas for change, I can cite examples where people called for it, but failed to model it personally. When we do so, we’ll see talents rise to the top from diverse places, so that the mix is evident in every top row of leaders. Far or near? People still look to the models to see the magic we all crave, and it’s rare, but could become more targeted.

Imagine for instance, if a leader declared one day a month to align, act and renew and then used  reliable metrics to share personal and team results. With my MBA leadership students I get amazing results when these three stars you showed so well, line up visibly within participants. In fact with my January MBA Leadership  class, I plan to help students measure and share even finer results in our deliberate attempt to bring about more of what you called for and I support! Good luck with this work and do keep sharing it!

bernd-nurnberger's picture
Good point, Ellen. The rate of change towards transparency can be expected to follow an organizations's agility as well, the corporate metabolic rate, as Colin puts it. 

One of the first things I would like to make very transparent is the incentive system. In many places, only what gets measured gets done, to the point of people gaming statistics just to look good to bosses who do not know better. Transparency - not about individual performance achievements, but about the whole set of metrics, what and how the organization measures performance, if not health.  

For obvious reason, transparency should include executive's metrics, as well as compensation. Not how much compensation and bonus they get (scary, huh?) but for what they get it. Only with metrics being transparent can we begin to unravel the hidden agendas, perverse incentives and conflicts of interest that poison an organization and put its metabolic rate into a state of narcosis.

For some this may amount to radical organizational redesign. Why: Motivation.  Corporation 20/20 takes it on. 

steve-barnett's picture
OK, organisational health is “the ability to get aligned, to execute at a world-class level, and to renew.” I’ll go for that. Those are the abilities I want, but I’m still left with the problem of what to do to produce that kind of health. 

Seems to me that we have to revolutionise the way we see and manage our organisations: the purpose, nature and content of our organisational communication and interrelationships. That requires concerted, deliberate action to change the detail of the way we communicate with each other at work. 

I've been blogging about that. See What is and what produces organisational health?

krishnamurthy-prabhakar's picture
Sir, why the physical health with some indicators and environmentally sustainability of products and services offered by the organizations added to the Index? Dr.K.Prabhakar
lim-liat's picture
How do we measure the 3 things of alignment, execution and renewal and perhaps arrive at a Organization Health Index? Do we have evidences for the predictabililty of such Index?