An organization’s health – how an organization aligns around a common vision and strategy, executes with excellence, and renews itself to sustainably achieve performance aspirations – explains up to 50 percent of performance variation across companies. Healthy organizations outperform their competition at every level, delivering 3x total return to their shareholders.
Organizational health is even more critical in times of constant change and extreme uncertainty, when the ability to quickly align, execute, and renew can be the difference between floundering and thriving.
To measure the impact of COVID-19 on organizational health, we utilized McKinsey’s Organizational Health Index (OHI), which has been deployed on thousands of companies over the past 15+ years and has 6+ million respondents in its database. The OHI assesses both the effectiveness of company practices and the outcomes they drive to understand what is working well and what needs improvement.
Overall, compared to previous years, the average OHI score remained stable. Across the board, employees appear to have rallied with increased sense of motivation in the face of crisis. In addition, companies have interacted more with government, and they appear more engaged in their communities.
Perhaps counterintuitively, some companies truly are thriving during these challenging times. Below are the common practices they are getting right – and a few things to avoid.
Changes that move the needle
Companies that are thriving in today’s environment are emphasizing a consistent set of management practices that can be categorized into three themes:
- Doing things differently: Use the situation as an opportunity to innovate more and faster, with greater emphasis on externally generated ideas and best practices. The healthiest companies emphasize bottom-up innovation powered by employee contributions and top-down innovation championed by leaders. For example, a retailer retrained its brick-and-mortar employees to be influencers in online shopping and increased revenues.
- Protecting the core: Instill speed through quick codification of knowledge and clear roles and responsibilities. This seems to have helped companies anticipate and react to numerous changes. For example, a major industrial factory rapidly adapted its business model and codified relevant processes early, helping the company run at 90 percent capacity with only 40 percent of the typical workforce.
- Motivating through meaning: Focus on meaningful recognition and inspiration to maintain (and even increase) employee motivation. We’re seeing many examples of companies putting employees first, including reducing senior management salaries to avoid layoffs. Likewise, we’ve observed a shift in how leaders engage with employees who are working remotely, favoring dialogue vs. “telling,” and trust and empowerment vs. command and control. Some companies are purposefully moving to remote workforce models that emphasize output over input to maximize engagement and productivity.
The same thriving organizations are also de-emphasizing practices that aren’t serving them right now, including:
- Sticking to pre-COVID long-term visions (vs. adapting to changing circumstances). For example, many fashion companies repurposed their machinery to make personal protective equipment, and one sporting goods company shifted focus to workout apps and trainers, driving an 80 percent increase in users within the quarter and a 30 percent increase in digital sales.
- Formalizing long-term expectations and previously set KPIs, which may not be as useful in a rapidly changing environment, by emphasizing performance contracts and operational management.
- Overly pushing and challenging employees, instead of unifying teams behind a single purpose and framing questions for them to investigate. New leadership behaviors should de-emphasize command and control hierarchy and seek to incorporate “bounded optimism” and “deliberate calm.”
How do organizations adopt the practices of these thriving businesses and embed change across a company (which has already changed in many ways)? In our next post, we explore utilizing the influence model to help do this successfully.
The authors would like to thank Randy Lim, Kim Rubenstein, Gunnar Schrah, and Krzysztof Siuda for their meaningful contributions to this research and blog post.