We all know the importance of regular health checks and leading a healthy lifestyle but why do so few business leaders consider this important for their organisation?
The impact of culture on business performance is well known. "Culture eats strategy for breakfast" is attributed to Peter Ducker. The strategy sets the direction and keeps the organisation focused, laying down the rules of engagement. Culture is the environment in which a business's strategy lives or dies; it energises the team (or not) to play hard and win.
The competitive advantages derived through innovation, customer management, process improvement, operational excellence, and technology enablement are largely transient. Don't get me wrong; being knowledgeable and smart in all of these areas is the foundation for a successful organisation. However, if the organisation is not healthy, if politics get in the way, and there is confusion on what is critical, then optimising the human potential and aligning the organisation, its departments, teams and people, around common objectives will not occur.
Research indicates that roughly 70% of transformation programmes failto deliver their business case. Business leaders know the importance of technological advancement and digitisation of processes and operations, but successful implementation is a different story. Common pitfalls include an absence of accountability, poor employee engagement, insufficient management support and inadequate cross-functional collaboration.
Organisations are full of intelligent people delivering transformation initiatives using proven frameworks to maximise the chances of success. However, these common pitfalls suggest that politics, confusion or a lack of clarity may be getting in the way. Business leaders must understand and improve their organisation's health to successfully embed change and transformation.
What is organisational health?
Organisational health is a business's ability to function efficiently and effectively, evolve and grow from within, void of politics and confusion, resulting in high performance. The open and transparent nature of a healthy organisation enables people to learn from each other, identify critical issues, learn fast and learn often, cycling through problems, rally around solutions and quickly recover from mistakes.
Organisational health starts with the leader, whether it's the CEO or owner, the leadership team and cascades throughout the business. When leaders of an organisation put the needs of their department ahead of the organisation, when they are misaligned, confused and inconsistent about what is important, when they are less than honest with one another, they create real problems for the business and its people. Unhealthy organisations waste resources and time, have low morale and low productivity driven by politics, confusion, dysfunctional behaviour, and bureaucracy, all hampering performance, creating significant costs for the business and its people.
According to McKinsey, healthy organisations (top quartile) outperform unhealthy (bottom quartile) ones by a factor of circa three, based on shareholder returns. Analysis undertaken by Denison Consulting indicates that both Sales Growth and Return on Assets also increase by a factor of circa three between the top and bottom quartiles. Can your organisational leadership afford not to measure and manage organisational health to create a sustainable competitive advantage?
How to evaluate organisational health
Culture is a compelling force within an organisation, guiding employees towards what it defines as socially acceptable and preferable ways to behave. 'The way we do things around here.' Spend time within an organisation, and it becomes apparent how the cultural norms shape the organisation's response, decisions, and actions to customer, employee, and market forces.
While no one culture is necessarily better than another, executives need to ensure certain behavioural traits are being managed (and therefore measured) across their organisation to drive organisational health. High performing organisations have:
Clarity of mission (direction, purpose and priorities)
Employee alignment (commitment, ownership and responsibility)
Effective execution (efficiently move in the agreed direction optimising systems, structures and processes)
Adaptability (continuously improve and respond faster than competitors to markets and customers)
An organisation's health – its ability to align and achieve strategic goals is critical to long-term performance. Sustained performance requires different functions, teams and geographies to share a common set of goals and priorities. Many executives overlook organisational health because they lack a straightforward way to measure and improve it. Ownership of the culture resides with the leader and leadership team to manage and develop – leading from the front and exhibiting the desired behaviours.
We utilise the Denison Organisational Culture Model to evaluate a business's current organisational health, its comparison to high performing organisations, and identification of development areas. It evaluates the behaviours exhibited within the business across four traits and 12 indexes and compares these against top performing organisations. The model allows companies to identify the areas for improvement, prioritise development and monitor progress.
Leading a healthy organisation
A healthy organisation starts at the top with the leader and leadership team working as one, with collective accountability, putting the organisation ahead of personal aspiration and departmental success, with shared ownership of objectives. Emotional maturity is required to focus on the collective, building authentic and trusting relationships. Being open, transparent, honest and genuine, admitting mistakes and weaknesses, asking for help, acknowledging when others' ideas are better, speaking freely and fearlessly with one another, engaging in healthy conflict, removing politics, and constructing aligned clarity.
The organisational health framework is about clarifying and getting commitment on the following questions:
Why do we exist? Creates clarity and alignment concerning the core purpose of the business (its reason for being).
What do we stand for? The behavioural DNA of the organisation – the non-negotiable values.
What do we do? A concise description of what the organisation does.
Where are we going? The strategic ambition – a compelling and shared vision of where the organisation wants to be in five years.
How will we succeed? Identify the strategic filters to assess all decisions against.
What is critical right now? Identify the top priority for the leadership team to deliver in the next x months and its supporting objectives.
Who must do what? The leadership team's roles and responsibility in achieving the agreed top priority in the timeframe.
Once the leadership team have reached an agreement on the seven questions, add them to the management balanced scorecard alongside existing performance metrics. Highlighting and keeping them front of mind helps leaders to adopt and act with clarity and alignment.
Before communicating these more widely, the leadership team need to internalise and exhibit alignment and clarity. They do this through their actions and the prompt, clear cascade of decisions and key messages down the organisation. Then communicate, communicate, communicate. Consistent, relevant and authentic communication are crucial for a healthy organisation.
To ensure that the answers to the key questions become embedded in the organisation's structure, the leadership needs to reinforce through integration into the people processes. From recruitment and onboarding based on the core values; through performance management focused on the top priorities; remuneration, recognition and training built on the culture, strategy and operations.
The healthy organisation encourages and empowers its people to operate within the framework, focus and priorities established by the leadership. Make informed decisions and take risks within the defined structure; encourage people to learn fast and learn often, see failure as a learning opportunity; learn from mistakes whilst sharing the knowledge across the organisation; take responsibility for their choices and actions. Healthy organisations embrace their uniqueness and never strive to become something they are not.
As a leader, you have to balance short-term performance with mid and long-term strategic growth. Organisational health is essential in this journey - is it not time to start managing your organisation's health?
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