Managing Performance by Leveraging the Organizational Health Index (OHI)

Editor's Note: Take a look at our featured best practice, Organization Design Toolkit (103-slide PowerPoint presentation). Recent McKinsey research surveyed a large set of global executives and suggests that many companies, these days, are in a nearly permanent state of organizational flux. A rise in efforts in Organizational Design is attributed to the accelerating pace of structural change generated by market [read more]

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The typical approach to improving productivity focuses on assessing variance in quality, time, rate, service, or cost, around which management systems develop incrementally or revolutionarily.

Organizational Health Index, on the contrary, focuses on improving performance through improved alignment of organizational systems.  For example, by improving competence of key components such as mindset, work design, technical expertise, or relationships; or through improving the interface between work processes, or the interaction between work practices.

Simply put, the capability of an organization to achieve its strategic goals and their alignment defines an organization’s health.  The Organizational Health Index (OHI) leverages logical consistency to manage the organizational health.  OHI entails quantifiable evaluations, diagnostics and recipes for success that allow the leaders to calculate and accomplish the organizational health goals, required to sustain long-term performance.

Organizational health refers to the need to address soft (leadership, direction or culture) and hard factors (accountability, reporting lines, or controls) affecting performance.  The organizational health index is an ongoing continuous improvement system applicable across an organization.  The OHI measures not only the current health level, but also determines the next steps for an organization.  There are numerous advantages to the organizations implementing it, including:

• Benchmarking organizational health against the rivals.
• Aligning the organizational systems, units, and people by communicating shared goals and priorities; and highlighting and plugging the disconnects.
• Improving organizational performance by pinpointing variances and opportunities to improve health and drive business success.

The OHI Diagnostic Framework provides a roadmap for leaders and managers to improve organizational health.  It measures the organization against the 9 most critical health outcomes; these outcomes comprise both hard and soft organizational elements.  Careful measurement of these 9 elements has a proven link with improved financial performance and earning above-average EBITDA margins:

1. Direction
2. Accountability
3. Coordination and control
4. External orientation
5. Leadership
6. Innovation and Learning
7. Capabilities
8. Motivation
9. Work Environment

There are 37 management practices under these 9 health outcomes, developed to help companies identify the behaviors most critical to their health journey:

1. Direction

• Shared Vision
• Strategic Clarity
• Employee Involvement

2. Accountability

• Role clarity
• Performance contracts
• Consequence Management
• Personal Ownership

3. Coordination and Control

• People Performance Review
• Operational Management
• Financial Management
• Professional Standards
• Risk Management

4. External Orientation

• Customer Focus
• Competitor Insights
• Business Partnerships
• Government and Community Relations

5. Leadership

• Authoritative Leadership
• Consultative Leadership
• Supportive Leadership
• Challenging Leadership

6. Innovation and Learning

• Top-down Innovation
• Bottom-up Innovation
• Knowledge Sharing
• Capturing External Ideas

7. Capabilities

• Talent Acquisition
• Talent Development
• Process based Capabilities
• Outsourced Expertise

8. Motivation

• Meaningful Values
• Inspirational Leaders
• Career Opportunities
• Financial Incentives
• Rewards and Recognition

9. Work Environment

• Open and Trusting
• Internally Competitive
• Operationally Disciplined
• Creative and Entrepreneurial

Years of research have shown the healthiest companies to align with 1 of the 4 recipes for organizational health.  These recipes constitute concrete management practices and activities for the organization to implement.   Leaders need to acknowledge and align to the recipe that is appropriate for them.  They can use these success recipes to plan and implement a change program that results in sustainable outcomes.  The 4 recipes for organizational health are:

1. Leadership
2. Market Maker
3. Continuous Improvement
4. Talent

Interested in learning more about the other recipes for Organizational Health and the OHI Diagnostic Framework?  You can download an editable PowerPoint on Organizational Health Index here on the Flevy documents marketplace.

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Organizational Design (AKA Organizational Re-design) involves the creation of roles, processes, and structures to ensure that the organization's goals can be realized. Organizational Design span across various levels of the organization. It includes:

1. The overall organizational "architecture" (e.g. decentralized vs. centralized model).

2. The design of business areas and business units within a larger organization.

3. The design of departments and other sub-units within a business unit.

4. The design of individual roles.

In the current Digital Age, there is an accelerating pace of strategic change driven by the disruption of industries. As a result, to remain competitive, Organizational Design efforts are becoming more frequent and pervasive—with the majority of organizations having experienced redesign within the past 3 years. This has only been exacerbated by COVID-19.

Frustratingly, only less than a quarter of these Organizational Design efforts are successful. Most organizations lack the best practice know-how to guide them through these Transformations effectively.

Learn about our Organizational Design (OD) Best Practice Frameworks here.