Organisational health is a vital determinant of long-term performance. It is the capacity of an organisation to align, execute, and renew itself faster than competitors, thus sustaining exceptional performance over time. Despite its importance, many executives overlook it, focusing solely on financial metrics. However, a strong correlation exists between organisational health and financial performance.
McKinsey’s Organisational Health Index (OHI) supports this correlation. The OHI measures nine dimensions of organisational health, including leadership, coordination and control, and external orientation. Companies with top-quartile OHI scores outperform those in the bottom quartile in terms of total returns to shareholders (TRS).
Organisational health also proves to be a significant predictor of future performance. Firms with improved health scores tend to sustain superior TRS performance. Moreover, the OHI can help companies identify areas requiring attention and assist in designing interventions to improve overall health.
Despite the clear benefits, some companies hesitate to focus on organisational health due to the perceived complexity and time required. However, the potential rewards far outweigh these concerns. It is essential for companies to understand their health, take steps to improve it, and track progress over time, to ensure long-term performance and competitiveness.
Go to source article: https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/organizational-health-is-still-the-key-to-long-term-performance