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Managing Performance by Leveraging the Organizational Health Index (OHI)

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
  1. Accountability
  • Role clarity
  • Performance contracts
  • Consequence Management
  • Personal Ownership
  1. Coordination and Control
  • People Performance Review
  • Operational Management
  • Financial Management
  • Professional Standards
  • Risk Management
  1. External Orientation
  • Customer Focus
  • Competitor Insights
  • Business Partnerships
  • Government and Community Relations
  1. Leadership
  • Authoritative Leadership
  • Consultative Leadership
  • Supportive Leadership
  • Challenging Leadership
  1. Innovation and Learning
  • Top-down Innovation
  • Bottom-up Innovation
  • Knowledge Sharing
  • Capturing External Ideas
  1. Capabilities
  • Talent Acquisition
  • Talent Development
  • Process based Capabilities
  • Outsourced Expertise
  1. Motivation
  • Meaningful Values
  • Inspirational Leaders
  • Career Opportunities
  • Financial Incentives
  • Rewards and Recognition
  1. 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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About Mark Bridges

Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.

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