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What is organizational health? Why it’s important and how to assess and implement it

At a glance

  • Organizational health refers to how well a company, institution or other collective entity operates effectively, grows sustainably and adapt to change.
  • According to a study by McKinsey & Company, companies that scored higher on McKinsey’s Organizational Health Index “deliver[ed] roughly three times the return to shareholders” than companies ranked toward the bottom of the index.
  • A business degree from University of Phoenix can help graduates evaluate a business’s overall health and strategize how to optimize it.

When people are healthy, they are better able to take on physical stress, recover from illness and push themselves to achieve goals. Alternatively, ill health can leave individuals vulnerable to stress and disease.

The same can be said for an organization. When a team or business is not in a healthy state, it can be undermined by environmental forces that healthier organizations are ready for.

Enter organizational health, a concept that helps leaders build durable, sustainable and vigorous companies that can operate effectively in the long run. Given the vicissitudes of modern business, the health of an organization is deeply linked to that organization’s productivity, profitability and other factors.

What is organizational health?

Organizational health arose out of the concept of occupational health, which broadly focuses on building a workplace where employees feel valued. Organizational health, however, connects that concept more explicitly to the overall success of a business.

There are various definitions for organizational health. As a Forbes article notes, “Organizational health refers to the ability of an organization to cope with change and continue to function with a high-performance workplace culture.”

That definition changes slightly in the International Journal of Environmental Research and Public Health, which states, “Organizational health describes an organization’s ability to operate effectively, grow sustainably and adapt smoothly to change.”

Common among these definitions is the presence of change. Industries experience change in the form of environmental, political, social and economic events. Organizational health is a helpful concept for building the necessary resiliency within an organization so it can withstand and even thrive in the face of inevitable change.

How to assess organizational health?

There’s no single metric to evaluate organizational health, and its exact nature depends on the specific needs of an organization.

Some factors, however, can impact organizational health and its twin goals of productivity and a positive company culture. Read on to learn more.

Leadership

From executives to managers, leaders in the workplace are well placed to see how individuals fit into the larger company goals and mission.

Managers can serve as role models for employees. By putting their energy, honesty and empathy on full display, they can motivate their employees to bring those same traits to the work they do. This can create a coherent company culture that motivates every employee to succeed.

When evaluating leadership, it’s important to see if managers are serving as positive role models.

Do leaders behave in a way that’s consistent with the organization’s mission? Is information clearly and efficiently transmitted from the executive level on down? When every level of leadership is aligned in both word and action, everyone wins.

What is organizational leadership?

Accountability

When employees are unclear about how their success is measured, it can be difficult to work toward an organizational goal. Accountability in this context is all about transparency surrounding what leadership expects of employees and vice versa.

When employees know the goals they are accountable for, they have a clearer idea how to contribute to the company’s mission.

When evaluating accountability, it’s important to assess how clearly goals are set and communicated within the organization. Without clear accountability, for example, it can be hard for an employee to know whether to take on more work or to take some off their plate. This can lead to an uneven distribution of work, resulting in bottlenecks and inefficiency.

By implementing a culture of transparency and open communication, organizations can ensure team members are accountable to each other and thereby working together toward a common goal.

Direction

Speaking of transparency and open lines of communication, clear direction is crucial to organizational health. Employees may have a clear understanding of the goals for which they are accountable, but if they don’t have clear direction on how to achieve those goals, productivity can suffer.

Good direction sets up employees to work independently toward their objectives. Instead of asking their superiors for input on every minor task, they can be empowered with the right skills and understanding to overcome obstacles independently.

Direction comes down to being clear with employees about processes and workflows. Written guides, for instance, covering common business processes can help employees feel more capable of completing tasks independently. In addition, employees who understand company structure can direct questions to the person best suited to answer them.

Coordination

If direction describes how employees interact with their superiors, coordination describes how employees interact with each other. Poor coordination can result from ill-defined roles, uneven distribution of work or unclear processes.

The effects of poor coordination are numerous. When employees don’t (or cannot) communicate with each other clearly, for example, tasks can be missed or done twice-over. Crucial information can fall through the cracks. In all, a lack of coordination reduces the ability of an organization to work efficiently when challenges arise.

Much like direction, coordination hinges on clearly communicated priorities and objectives, as well as positive working relationships among employees. Clearly defining the responsibilities of each employee within a team can help that team work as one.

Motivation

Understanding what motivates employees in their work can help leaders make that work more meaningful to the staff. When employees feel this sense of motivation, they’re more likely to dedicate energy and enthusiasm to their work. That extra energy may be just the thing to fulfill a quarterly sales quota or push a marketing campaign to new heights.

Talking to employees directly is key to understanding what motivates them. Opportunities for professional development, for example, can help employees grow in their jobs. In addition, when employees find a connection between their work and their personal values, they can more easily find a purpose that motivates them to succeed professionally.  

Values

Company values can provide a sense of direction and purpose to the work that employees do day to day. It is not enough, however, to articulate these values. Strong leadership must also serve as an example of putting company values into action. When employees see their leadership align with company values, they feel more motivated to align their own work accordingly.

Alternatively, it can be deflating for an employee to see leadership break with its communicated values.

Does the organization implement policies that translate its values into material actions? Is there a sense of “organizational justice” where employees feel that everyone in the organization is held to the same high standard? These questions can help evaluate the place of values in the overall organizational health of a company.  

Benefits of improved organizational health

Improved organizational health can result in both short-term and long-term benefits.

Productivity and problem-solving

Organizational health helps companies align every employee to the same goals. When employees are well directed, coordinated and motivated, they can complete tasks efficiently and make independent decisions, all of which encourages high productivity.

A study by McKinsey & Company supports this theory. Its research revealed that companies that scored higher on McKinsey’s Organizational Health Index “deliver[ed] roughly three times the return to shareholders” than companies ranked toward the bottom of the index.

The same study also found that 80% of the surveyed companies that improved their organizational health saw success in their overall performance.

Productivity hacks from around the world

Recruiting

As we’ve seen, positive organizational health can translate to more motivated employees who find purpose in their work. This in turn can improve the company’s reputation through word-of-mouth conversations and testimonials, which can attract talent.  

Employee retention

The same phenomenon that attracts talent can also help companies retain talent. Organizational health not only makes employees feel motivated, but transparency and efficiency can help avoid the headaches that drive employees away.

Good organizational health encourages high employee performance and gives employees a stake in the overall success of the company. This can help boost employee retention overall.

How can you improve organizational health?

According to the consulting firm Table Group, a four-step model can improve organizational health. The steps are:

1. Building a cohesive leadership team

With so much of organizational health coming from the top down, it’s no wonder that leadership team-building is a priority. A team that’s aligned in values, coherent in processes and ready to lead can have a positive effect across the company.

2. Creating clarity

After the leadership team is assembled, it’s crucial that all members have a clear understanding of their roles in the context of the larger company. Eliminating discrepancies is much easier with a smaller group of core leaders than it is across the organization. When the entire leadership team is on the same page, they can better communicate with employees.

3. Overcommunicating clarity

Having clarity is one thing. Communicating it is another. This is where specific protocols and work processes are useful.

It is not enough, however, just to communicate goals and procedures. Leadership is responsible for repeating this information as many times as necessary to guide every employee to the same page.

4. Reinforcing clarity

By integrating clarity into the processes that employees perform every day, leaders reinforce company goals and values. This can help create employees who are self-sufficient and who don’t need constant input to ensure their objectives align with the company’s.

Here are a few more ways to improve organizational health:

Strengths-based management

Put simply, strengths-based management evaluates the abilities of each employee and assigns tasks that play to (and develop) those strengths. This can help employees feel they’re making a unique contribution to company goals.

In addition, overall productivity can benefit when employees are assigned tasks for which they’re well suited.

One-on-one conversations between employees and managers can help clarify strengths. These conversations can direct the future trajectory of each employee toward their best role in the organization.

8 different management styles

Solicit employee feedback

All efforts to improve organizational health can benefit from employee input. Soliciting this feedback can verify which measures are working and where there’s room for improvement.

Asking for this feedback frequently and directly can make employees feel included in decision-making without being overwhelmed by intensive questionnaires and surveys. Additionally, when employees see their input implemented, it can help motivate them in their work and in the company as a whole.

Utilize industrial-organizational psychology

Industrial-organizational psychology applies concepts of psychology to the workplace to improve organizational health. Experts in this discipline may conduct surveys and interviews that give leadership a clearer view of each employee’s unique strengths, weaknesses and personality.

Additionally, applying industrial-organizational psychology concepts can lead to protocols for evaluation and implementation that take employee personality into account.

Read more about industrial-organizational psychology on our blog!

When businesses prioritize organizational health, the benefits can be seen in both the short term and long term and up and down the organizational ladder. Understanding this concept, and its implementation, can help businesses better prepare for new challenges and opportunities.

Leading a company is no easy feat. A business degree from University of Phoenix helps prepare students for the unique challenges they’ll face within the modern business landscape.