ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

After more than two decades of research on organizational health—based on a company’s culture, behavior, and management practices—we know that the link between how well leaders run the organization and its ultimate performance is undeniable. Healthier organizations see a range of benefits that their not-so-healthy counterparts do not: among them, these companies are more resilient, do a better job retaining talent, and realize higher earnings growth in both the short and the long term. As the fundamental relationship between health and performance endures, the features that make an organization healthy continue to evolve over time. This week, we look at the aspects of organizational health that, according to recent McKinsey research, matter now more than ever.

AN IDEA

Stay stronger for longer

So much in the business and economic environment has changed and challenged leaders in recent years. Yet the latest results from McKinsey’s Organizational Health Index (OHI) confirm that company culture remains a prerequisite for sustained success and superior performance. At the same time, the findings point to three insights about organizational health that speak to the current moment. According to senior partners Arne Gast and Brooke Weddle and their coauthors, decisive (as opposed to “authoritative”) leadership—which requires quick decision making and a commitment to act—is now a top predictor of health, especially when leaders empower employees on the front line. So are the pursuit of data-driven innovation (whether it’s of the bottom-up or top-down variety) and a dynamic approach to allocating talent that can both improve employee attraction and attention and enable companies to respond quickly to new trends.

A BIG NUMBER

4

That’s the number of foundational “power practices” that have an outsize effect on an organization’s performance: strategic clarity, role clarity, personal ownership, and competitive insights. McKinsey’s Bryan Hancock and Brooke Weddle say a company’s organizational health journey should start with these four practices, which are must-haves for good health and performance. Companies should also stay on top of the newer elements of the OHI that reflect the shifts and challenges that today’s organizations face. Among these elements are employee experience (including well-being, connection to meaning, career growth, and inclusion) and workplace flexibility. Weddle notes that some management practices, such as practicing feedback and having a common purpose, are new to the survey and help define what a healthy organization looks like in 2024.

A QUOTE

“A fully remote organization can demonstrate a level of health that rivals, if not exceeds, the performance of most traditional companies.”

That’s McKinsey’s Patrick Simon and his colleagues on the lessons learned about the relationship between flexible working conditions, now tested in the OHI, and organizational health. Simon and coauthors studied the practices and norms of companies that have been fully remote since before the pandemic, all of which achieved top-quartile health scores. “It is possible to reach an exceptional level of organizational health through clear values, transparent decision making, and intentional ways of working designed to overcome limits and coordination challenges,” they say—thus demonstrating the value of these characteristics to all companies, no matter where employees get their work done.

A SPOTLIGHT INTERVIEW

Just as organizational health requires maintenance and an ongoing commitment, so does the process of removing the organizational friction that can undermine health. According to Robert I. Sutton, organizational psychologist and Stanford University professor emeritus of management science and engineering, a glut of meetings, emails, and bureaucracy can negatively affect both employees’ and customers’ experiences with a company. Enter the “friction fixers,” who look for ways to make things easier at work, a role that anyone in the organization can play. They also understand that friction fixing is a process. “The best friction fixers tend to view organizations as malleable prototypes, not as something fixed that they can’t do anything about,” Sutton says. What’s more, “a great friction fixer redesigns the system so that it’s hard to do something that adds burden on everyone.”

– Edited by Daniella Seiler, executive editor, Washington, DC

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