Road to recovery: organisational health and resilience

April 2021  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

April 2021 Issue

Traditional metrics – primarily financial – have long been held as the key indicators of a company’s health. An organisation could be considered healthy if it was functioning effectively and responding to change appropriately.

However, the lens through which companies view their health is changing. Other metrics, such as employee engagement, job satisfaction, staff retention, absenteeism, and cost and time to hire, among others, offer an alternative view that is just as meaningful as financial metrics.

Having a long-term vision and continuing to innovate allows companies to thrive. According to McKinsey’s Organizational Health Index (OHI), companies with this long-term orientation consistently score highest and thus are deemed ‘healthy’. Long-term thinking is key to companies surviving times of economic hardship when the temptation is to revert to short-term thinking.

“Organisational health is even more critical in times of constant change and extreme uncertainty, when the ability to quickly align, execute, and renew can be the difference between floundering and thriving,” says McKinsey. The COVID-19 crisis, for example, has certainly been a challenge for many companies, with long-term thinking giving way to the short-term imperative of keeping the lights on.

According to McKinsey, there is a clear relationship between organisational health and performance, at both the corporate and subunit level. From 2003 to 2011, healthy companies generated total returns to shareholders (TRS) three times higher than those of unhealthy ones.

What is organisational health?

The concept of organisational health is, for some, too vague to visualise or too wide-ranging to implement. Simply put, however, it is the capability of an organisation to achieve its strategic goals and its alignment. McKinsey’s OHI takes into consideration a number of quantifiable evaluations, diagnostics and recipes for success that allow a company’s leaders to calculate and accomplish health goals required to sustain long-term performance.

At its heart, organisational health relates to a company’s ability to function effectively, to cope adequately, to change appropriately, and to grow from within in the face of adversity and also in ‘peace time’. When the concept is broken down into its constituent parts, it points to common sense that benefits an organisation of any size or sector.

In their book on organisational health, Scott Keller and Colin Price, partners at McKinsey, identify nine elements that make up organisational health: direction, culture and climate, accountability, coordination and control, capabilities, motivation, external orientation, and innovation and learning.

“A ‘healthy’ company is one that is centred in its purpose and intentional in its practices,” says Teresa Coles, president at Riggs Partners. “It is one that knows how to engage its employees in living out its values every day. A healthy company understands what lies at its core, and how to channel that inner truth as a driver for organisational success.”

Leadership

According to Patrick Lencioni, an expert on business and leadership, healthy organisations share four common traits: (i) cohesive leadership; (ii) dedication to clarity among leaders, including the C-suite and throughout the rest of the business; (iii) dedicated, consistent clarification from leadership emphasising what is true and important; and (iv) a clarity check to ensure that clarity is achieved in any company process that involves people.

The importance of a leader’s influence on organisational health cannot be overstated. “Leadership and organisational health are intricately connected, and this connection has enormous significance in helping to establish, sustain and, if needed, improve the health of the organisation,” says Randy Grieser, founder and chief vision officer at ACHIEVE Centre for Leadership. “Organisational health is largely driven by what leaders value, how they behave and, in turn, what they communicate both explicitly and implicitly.”

According to Ms Coles, a company’s organisational health is only as strong as its chief executive’s ability to articulate and demonstrate it. “They must demonstrate leadership traits that are centred in purpose vs. profit, humanity vs. human resources, and guidance vs. governance,” she says. “Specifically, chief executives know they must master three things to build a strong, resilient culture: setting a vision, modelling the way and leading with emotional intelligence.

“Being an intentional leader is about helping people achieve greater significance in their work and in their lives. Continually reminding employees of the value of the organisation’s work, and their contribution to that work, is key to building a strong culture that can withstand significant workplace crises,” she adds.

Assessing organisational health

Maintaining organisational health is a challenge for most companies and it is easy to quickly fall into ‘ill health’, particularly in times of great stress. It is important that companies understand their organisational health and review it regularly.

In terms of their health, workplaces are almost never all good or all bad. Rather, they exist on a spectrum of less healthy to more healthy. “In organisations at the unhealthy end of the spectrum, people are usually less motivated and may be influenced by an element of fear that can drag down their engagement and productivity,” says Mr Grieser. “In healthier workplaces, people have a sense of empowerment that energises and inspires them to perform at a higher level. Healthy organisations create a sense of belonging, purpose and engagement, which ultimately drives desired behaviours and results.”

Strengthening organisational health requires an assessment of the specific factors that contribute to that organisation’s performance across a number of indicators. “Organisational health is not a single point standard and there is not one route to it,” says Naomi Stanford, an organisation design practitioner and author. “For example, a person choosing a vegetarian diet is not necessarily healthier than a person who eats meat – both individuals can be healthy but their routes to it differ.

“Generally, for organisations you are looking at indicators within ranges, such as level of turnover of staff, number of customer complaints, speed to deliver and so on,” she continues. “Good data that is focused on a few key measures for a specific organisation will give insight into the relevant aspects of health. Leadership plays a part in organisational health by helping identify what indicators need to be monitored for that organisation and being interested in all-round health – not a single focus on it.”

One of the key features of strong organisational health is the presence of a clear, well defined organisational culture. In short, culture must be a top priority for companies that want a healthy workplace, but it is perhaps one of the hardest metrics to measure.

Culture relates to how an organisation works together daily. Do people like being at work? Are managers respectful? Is it a place only focused on hitting goals, or are there aspects of fun and personal development along the way? All these things matter, but they can be difficult to measure.

Arguably, too many workplaces focus on perks such as free lunches, nap rooms and beer fridges as a way to enhance organisational health, when their priorities should lie elsewhere.

“Although perks may sound great and can help employees feel good about their workplace some of the time, the truth is that they only get at a small part of what makes a workplace healthy,” explains Mr Grieser. “While they are enjoyable to have, and perhaps even helpful, they are almost meaningless in the absence of a healthy workplace. For example, all the perks in the world will not make up for having a manager who treats staff poorly, or help an employee feel good about work when they have to regularly deal with toxic conflict.

“A far better way to strengthen organisational health is to focus on six key pillars of healthy workplaces: communicate your purposes and values, provide meaningful work, focus your leadership team on people, build meaningful relationships, create peak performing teams, and practice constructive conflict management,” he adds.

COVID-19 and organisational health

Over the last year or so, organisational health and resilience have perhaps never been so important. Businesses of all sizes have suffered since the onset of the COVID-19 pandemic and the associated lockdowns and social distancing measures. If companies are to recover from the crisis and go onto thrive, they must consider the role organisational health will play.

The pandemic has been an important test of organisational health and culture. Companies have been forced to use existing resources, structures and processes creatively to survive, to be flexible in their approach, and to rely on quick decision making and informal coordination. Resisting change and steadfastly clinging onto pre-existing routines and control structures could have disastrous consequences.

“For some organisations, COVID-19 has made them stronger and fitter; for others, it has exhausted and depleted them, leaving them ill-equipped to make a recovery,” suggests Dr Stanford. “Some sectors have been much more badly hit than others. Having the capacity to rapidly learn, challenge assumptions and think critically are useful leadership qualities to encourage thinking of COVID-19 as an opportunity to change and renew.”

As companies reassess their workplace culture, business strategies and HR, the crisis may have opened eyes to the importance of organisational health and the need to invest in it. “Certainly, we will see things like a remote workforce begin to become much more of a norm in the future,” says Ms Coles. “This only reinforces the need for strategic attention to organisational health. Companies must learn how to effectively recruit, onboard, coach and cultivate these remote employees in a way that makes them a good cultural fit for the organisation.”

As companies continue on the road to recovery, technology will have an increased role. “We are seeing seeds of evolution now in the use of AI to support organisational business performance, such as in warehouse optimisation,” points out Dr Stanford. “This does not at the moment include other health indicators, such as employee wellbeing, but the links between the various indicators will undoubtedly be made. The availability of vast lakes of data can be more confusing than helpful, so knowing what data to pay attention to and what is not relevant is an analysis skill to cultivate.”

Products and services are being developed to help organisations measure and pinpoint employee engagement issues, from peer-based coaching programmes to more effective internal communications platforms. New technology allows companies to identify areas of weakness. By getting to grips with their organisational health, companies can improve engagement and productivity, and ultimately performance.

© Financier Worldwide

BY

Richard Summerfield