– When Korea’s Chamber of Commerce wanted to understand how Korean companies could raise their game, it turned to our Organizational Health Index (OHI). More than 40,000 employees at 100 Korean companies have completed the OHI survey, yielding insights into working patterns, leadership styles, employee mind-sets, and, importantly, differences between generations and genders. The findings could help the chamber recommend ways for Korean companies to improve their management practices, productivity, and business cultures.
Although this was the first time the Organizational Health Index had been applied at a national level, more than 1,300 companies around the world have used the tool since it was launched, in 2002. The OHI database holds over a billion data points, drawn from three million surveys completed by employees and leaders at these organizations. This massive data set allows the OHI team to create organizational-health benchmarks for companies in specific industries, geographies, and more.
So, in plain language, what is organizational health? “It’s how you run the place,” explains Bill Schaninger, a senior partner in our Organization Practice.” It’s about the basics of what leaders do, how they align the organization against a clear direction, and how well they execute. It’s also about how they renew the organization over time to deal with external forces, such as new competitors.”
Bill joined McKinsey, in 2000, after completing a PhD focused on organizational analysis and change. He was assigned to a team charged with finding out why some companies thrived over the long term, while others burned bright but fizzled. The team analyzed corporate performance over decades and across industries, conducted extensive interviews, and reviewed academic research. One basic truth emerged: companies that performed well over the long haul were managed for health as well as performance—their leaders were concerned not only with hitting quarterly targets but also with the organization’s culture and agility.
The team set about converting these findings into a questionnaire that could measure organizational health and withstand academic scrutiny. The first iteration, designed for an Australian client, ran to 250 questions. “The biggest surprise was it worked right out of the gate. It gave us a pretty accurate picture of the strengths and weaknesses of the organization,” recalls Bill. With further refinements, the team cut down the tool to 100 questions and started using it to help other clients understand and strengthen their businesses.
Over the years, the accumulation of data has allowed the OHI team to quantify the way organizational health contributes to financial performance. Healthy companies generate returns to shareholders roughly three times higher than their unhealthy counterparts do. They also identify the management practices that work for them. But there is no single path to organizational health. Instead, the data reveal four main “recipes,” or archetypes—bundles of related practices that increase the likelihood of creating a healthy organization. Companies that stick to a recipe perform better than those that mix management practices from different recipes.
Adding further nuances, the OHI team’s recent work shows that the most effective management practices for an organization depend on its health at the outset. For example, the leadership behavior that drives performance in a company at the pinnacle of organizational health won’t work (and could be counterproductive) in a turnaround. The video below explains this data-driven take on “situational leadership.”
For most McKinsey clients, the OHI is an annual survey allowing executives to track the health of their organizations over time. The launch of two alternative versions makes the tool available in new ways. OHI Live, now in pilot, puts one question a day to employees, helping a company to capture fluctuations in their attitudes and to track responses to specific events. A subset, myOHI, designed for small and midsize organizations, is available online at no charge as a self-serve platform.
The Korea Chamber of Commerce and other projects promise to add a third new option for exploring organizational health: the opportunity to compare companies across a peer group. “If building healthy organizations was simple, everyone would be doing it already,” says Chris Gagnon, leader of the OrgSolutions group. “The work we are doing is needed precisely because it is hard.”