What is organizational health?

We're at the end of an eight-year period, which was marked in the beginning by the demise of Enron and marked at the end by the demise of Lehman Brothers. During that near decade, the quasi-religious mantra of business was shareholder value: Focus on performance and on performance alone. That's what real managers did. They decomposed activity to work out the value creation potential and they focused on performance. Everything else was stuff that needed to be done to run the machine.

This article was originally posted on the Management Innovation eXchange (MIX), an open innovation project aimed at reinventing management for the 21st century.

We now know what that philosophy of management produced: an apparent growth in global GDP followed by an even larger decline in global GDP. It produced a lack of sustainability of corporate earnings. The same is true in the public sector. Focusing exclusively on performance  simply does not produce long-term shareholder value, sustainable competitive advantage, or an ability to achieve the mandates of the organization in the public sector.

So, how can we focus instead on longer term organizational health?  For me, health is the capacity of the organization to compete not only today, but tomorrow. I think of it as having three elements:

• One part of health is the degree of organization alignment.  Does the organization know where it's going?  Are the people within that organization aligned about that direction? That may sound simplistic, but in many organizations it's not the case.  There isn't a deep level of alignment around purpose and mandate from the leaders all the way through to the frontline employees that make a difference to the customers. 
• The second element is the capacity for execution, the ability to turn ideas into action. How much interference is there? How much excess complexity slows the corporate, metabolic rate?  
• The third element of health is the capacity for renewal. Is the organization changing at or just above the rate at which it's changed in the past? Or is the organization really focusing on changing at the rate required by the industry?

So, if you think of that as health, it's the ability to get aligned, to execute at a world-class level, and to renew. 

Why is that so much more important now than it has been in the past? Simply because the returns for health are greater than that which they have been in the past. Focusing exclusively on performance previously is now just table stakes. The degree of competitive intensity means that competitive advantage doesn't confer to the company with the best widget. It confers to the organization that can reinvent itself and defend itself from attackers -- wherever they may come from --  better than anyone else. It's impossible to get a defendable, sustainable advantage unless you can adapt rapidly. That's why having a healthy organization is more important now than it's ever been.

(This post is adapted from a video interview.)