Healthy organizations keep winning, but the rules are changing fast

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Healthy organizations keep winning, but the rules are changing fast

By Aaron De Smet et al., | McKinsey & Company | McKinsey Quarterly 2024

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Organizational health is a moving target. Leaders at today’s healthiest organizations don’t run them the same way that the C-suite did in 2003, when McKinsey launched the Organizational Health Index (OHI).  McK created the index to help organizations gain vital insights into whether they have the right practices in place to drive sustained performance. In the two decades since then, OHI research has consistently shown that the best predictor of long-term performance is organizational health: how well organizations align around a common vision, execute their strategy, and renew themselves over time.

Since 2003, McKinsey has regularly upgraded the OHI to reflect advances in organizational science and changes in the state of organizations.   Six key shifts that emerged from the data and why they matter for leaders trying to build healthy organizations in a rapidly changing world. 

The OHI measures organizational health through nine dimensions of organizational effectiveness, or outcomes: direction, leadership, work environment, accountability, coordination and control, capabilities, motivation, innovation and learning, and external orientation.  Within each of those nine outcomes are a range of practices, or behavioral manifestations of how leaders run an organization, that drive overall health. The authors expected that they would expand current concepts and add several new ones, which led to the number of measured practices growing from 37 to 43. This process revealed several fundamental and dramatic shifts in the management practices that drive organizational health. The six notable changes we observed were related to purpose, authoritative leadership, decision making, employee experience, technology and digital capabilities, and sustainability.  In essence, the world has changed, and the OHI captured those changes, loud and clear.

Six actions leaders can take to adapt to these changes are: to create a common purpose, show your employees the ‘why’; authoritative leadership is obsolete; navigate uncharted territory with facts and data, not intuition; help employees be at their individual best every day; spend on technology only when there’s a strong business case; and act responsibly.

3 key takeaways from the article

1. Organizational health is a moving target. Leaders at today’s healthiest organizations don’t run them the same way that the C-suite did in 2003, when McKinsey launched the Organizational Health Index (OHI).  McK created the index to help organizations gain vital insights into whether they have the right practices in place to drive sustained performance. 
2. The OHI measures organizational health through nine dimensions of organizational effectiveness, or outcomes: direction, leadership, work environment, accountability, coordination and control, capabilities, motivation, innovation and learning, and external orientation.  Within each of those nine outcomes are a range of practices, or behavioral manifestations of how leaders run an organization, that drive overall health.
3. Six actions leaders can take to adapt to these changes are: to create a common purpose, show your employees the ‘why’; authoritative leadership is obsolete; navigate uncharted territory with facts and data, not intuition; help employees be at their individual best every day; spend on technology only when there’s a strong business case; and act responsibly.

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Topics:  Strategy, Business Model, Organizational Health, Agility, Organizational Performance