“Organizational health refers to how effectively leaders run their companies: how they make decisions, allocate resources, operate day-to-day, and guide their teams to deliver higher performance.” According to a recent McKinsey evaluation of 1,500 companies in 100 countries, the increase in EBITDA achieved by companies that took concrete actions to improve their organizational health came to 18%.

McKinsey senior partners Arne Gast and Brooke Weddle and their coauthors highlight that self-reflection is a big part of achieving organizational health. “Leaders should be asking themselves, ‘How do I run the place each and every day—in each and every meeting—in ways that are both healthy and conducive to creating high performance?’,” they say.

The researchers invite the readers to consider the following data points:

Health and M&A. In merger situations, healthy organizations—those that applied various health interventions during the integration phase and emphasized organizational health throughout the integration—gained a 5 percent median change in TSR compared with industry peers after two years. The change for unhealthy companies was –17 percent over the same period.

Health and transformations. In large transformations, companies that embedded organizational-health investments and initiatives in their change programs across an 18-month period saw 35 percent higher TSR than companies that did not invest in health.

Health and resiliency. Healthy organizations are not just higher performers, they are also more resilient and better able to manage downside risk. For instance, from 2020 to 2021, during the COVID-19 pandemic, healthy organizations were 59 percent less likely than unhealthy organizations to show signs of financial distress.

Health and safety. Companies with superior organizational health are better able than their peers to provide safe work environments, thereby limiting their exposure to financial, operational, and reputational risks. Indeed, companies in the top quartile in organizational health have six times fewer safety incidents than those in the bottom quartile.

The relationship between health and performance can be quantified in other ways, too, the authors point out — including in the areas of talent and culture. “In our experience, employees and leaders in unhealthy cultures often focus on what made them successful in the past rather than on what may be required going forward—and their entrenched behaviors and ways of working can take on a life of their own.”

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Source: McKinsey