Organizational health is your organization’s ability to unite around a shared vision and cope with change to meet company goals.
If your organization is healthy, employees are happy and productive, customers are satisfied and loyal, and the company regularly matches or exceeds industry benchmarks for financial performance. In fact, research from McKinsey finds that healthy organizations generate total returns to shareholders 3x higher than unhealthy organizations.
When people leaders understand and prioritize organizational health, they can help their companies respond to challenges and capitalize on opportunities in a changing business environment.
In this article, you’ll find a practical definition for organizational health and the fundamentals of healthy organizations, along with examples and principles for measuring health.
What is Organizational Health?
Organizational health is a business’ capacity to adapt in a world that’s constantly evolving. It refers to “the ability of an organization to cope with change and continue to function with a high-performance workplace culture.”
And these days, the business environment is always shifting. Many companies across industries are operating in difficult circumstances. In 2021, Gartner reported 47% of organizations experienced some kind of disruption. Businesses struggled because of a lack of talent, reduced customer demand, or new regulations. How well you respond to these challenges depends on your organizational health.
What Makes an Organization Healthy?
A healthy organization prioritizes alignment, clarity, open communication, and the employee experience. Brooke Weddle, a partner in McKinsey’s Washington, DC office, adds that healthy organizations also encourage innovation and respond to shifts in customer behavior to “renew” themselves.
Here are elements of healthy organizations.
Alignment in the organization is when everyone in the company — from leadership to middle managers and employees — works toward achieving a common goal.
Organizational alignment helps achieve company goals because it gives people a model to understand what success looks like and clear daily priorities to meet objectives.
In The Last Competitive Advantage, Patrick Lencioni provides a framework for improving organizational alignment:
- Build a cohesive leadership team that’s aligned with the company’s purpose, vision, and priorities.
- Create clarity by developing a straightforward strategy.
- Introduce a communication plan to share that strategy throughout the organization.
A Focus on Employee Well-Being
A healthy organization cares about its employees, and it demonstrates that concern through a range of policies to support the workforce.
The Journal of Management Studies finds that when HR teams introduce programs to prioritize employee well-being, and mental health in particular, the organization’s performance improves
To prioritize employee well-being, expand benefits that contribute to employees’ overall wellness and mental health; this may include additional support for family care. An AARP study showed when companies promoted family-friendly policies, like flexible working hours or dependent care, their share price increased. Companies with a higher number of female employees that prioritized such policies also saw a jump in sales. Exactly what route you take will depend on your employees, and you can use 1:1s, focus groups, or surveys to better understand their needs.
Commitment to Organizational Justice
Healthy companies ensure that all employees receive the same treatment — whether related to compensation, benefits, or promotions.
To reflect your company’s commitment to fairness, prioritize pay transparency. Pay transparency for location-based salaries has become particularly relevant since the surge in remote work. Check salary data to flag wage gaps and communicate how pay is calculated. You’ll also want to ensure your promotion process is fair by evaluating all employees on the same criteria. A Great Place to Work report showed that employees who believed the promotion process was fair were more likely to stay with a company.
Clear Processes and Workflows
In a healthy company, workflows are clear and communicated across the organization. As a result of these processes, employees understand how the company gets work done and makes decisions.
On the flip side, 59% of businesses said dysfunctional and fragmented processes blocked them from moving successful projects forward.
Organizations can establish clear processes and workflows by sharing their org structure and offering employee self-service for basic HR tasks.
Communicate a clear organizational structure
Communicating your company’s organizational structure can lay a solid foundation for clear workflows.
An organizational structure is a model that outlines employees’ roles, responsibilities, and relationships across the business, and an org chart visualizes this structure. For example, you can use an org chart to show new employees where they fall in the reporting structure and the teammates with whom they’ll work closely.
These efforts improve employees’ understanding of different roles (including their own) and create a more efficient onboarding process.
Allow employees to complete basic HR tasks on their own
Healthy companies reduce manual, inefficient processes. At InVision, the HR team frequently responded to internal requests for information about employees.
Shelby Wolpa, InVision’s vice president of People Ops, said HR handled a higher number of these requests for people data as the business scaled.
To prevent an information bottleneck, InVision revamped its intranet to give employees greater access to company information and allow them to complete self-service tasks.
Examples of employee self-service include allowing people to complete tax forms, manage paid time off, and update personal information on their own.
Opportunities for Professional Development
A healthy workplace provides opportunities for employees to learn new skills and grow their careers based on their unique strengths and goals.
Comparably, a platform that monitors compensation and culture at companies, created a list of Best Companies for Professional Development based on feedback from 60,000 US companies. They found companies that prioritized development by providing regular manager feedback and training opportunities for career growth had stronger employee engagement, with people willing to give more in their jobs.
For example, Fuel Cycle, a market research firm on the list, offers learning initiatives based on individual employees’ career growth plans. These initiatives include professional development projects like internal workshops, certification programs, and professional coaching.
To promote a culture of learning in your organization, consider providing professional development stipends for online courses, books, and conference tickets. LifeLabs Learning also recommends that managers schedule quarterly development check-ins with employees and put together this development plan template managers can use to guide the conversation.
Support employees in connecting their work to a larger purpose or set of values — in short, show people that what they do matters.
In its study into organizational health, Frontiers in Psychology found “meaningful work experiences” helped people create meaning in their lives. “The meaning paradigm is thus key to the sustainability, growth, success, and health of organizations.”
To help employees find meaning in their work, clearly articulate your organization’s purpose and contribution to society. According to Harvard Business Review, employees who link their work to service and build positive workplace relationships find a sense of meaning in their professional lives. Wharton professor Adam Grant found employees who engaged with satisfied customers for even five minutes were reminded of the impact of their work, performing better as a result.
3 Key Principles for Measuring Organizational Health
Knowing what impacts organizational health is only one piece of the equation, though. You also need to be able to measure your organizational health so that you can take action to improve that standing on a regular basis.
Ultimately, there are three key principles for measuring organizational health:
Agility focuses on how quickly and how often you can gather insights about the organization.
For instance, can you pull up information at a moment’s notice during conversations with managers and get regular updates to those data points? Or do you need to plan ahead to access information?
Ideally, you need access to regularly updated information at your fingertips. That’s because more agility means more regular feedback, which allows you to identify trends and take action quickly before those trends stem into larger problems that are harder to fix.
With an agile people analytics platform, you should not only have this information at your fingertips, but you should also be able to easily overlay data points on your org chart to quickly visualize trends and make information actionable for your team.
Common examples of data points that can provide the necessary level of agility to understand organizational health in real-time include:
- Employee engagement: Having employees fill out information for weekly 1:1s with their manager in your people analytics platform can provide a wealth of information about their engagement levels. One of the best indicators is to have employees rate their week (e.g. on a scale of 1-5), that way you can track how that rating trends for each individual over time.
- DEI: Running a DEI self-ID survey through custom forms in a people analytics platform like ChartHop can make it easy for your people team to build and adjust the survey as needed (no IT support needed!). This approach gives you agility to make changes to the type or phrasing of questions and makes it easy to collect and review data as often as you want.
- Pay equity: Reviewing compensation across any factor like team, seniority, gender, ethnicity, and more can help ensure pay equity. Tying that information directly to a people analytics platform that offers capabilities like scenario and compensation planning can make that data actionable by allowing your team to do off-cycle adjustments as needed.
Accountability is all about being transparent about what you measure, with the goal of bringing the entire organization into the conversation.
The more you can create a sense of accountability, the more you can get people at all levels of the company invested in organizational health initiatives. In turn, this can help all employees take steps to drive more “healthy” behavior in themselves and their teammates.
The keys to unlocking this sense of accountability lie in transparency and collaboration. Along the way, it’s essential to think through how you’ll protect sensitive information, as you can’t share everything with everyone. A people analytics platform that offers granular controls around access can make it easy to share just the right level of information with different audiences.
Some of the best ways to create a sense of accountability for organizational health include:
- Sharing full survey results in real-time: As your company creates surveys to gauge any type of information, the more you can share with the entire team (as appropriate), the better. For example, seeing complete information in real-time can help people understand where the organization stands and make them feel like they are a part of the solution. This stands in contrast to picking and choosing the “best” data points and only sharing those well after the survey has been completed, which doesn’t make people feel involved and can give a sense that the data is stale.
- Allowing for collaboration on key initiatives: Centralizing activities for key initiatives, like headcount planning, into a single platform allows for collaboration. In turn, this collaboration gives everyone a sense of ownership in the process and provides more visibility into plans for growth, both of which promote a high level of accountability.
Alignment centers on making sure everyone has the same understanding of qualitative and quantitative measures. For example, this understanding should make it easy for leaders to calibrate their sense of each measure against how the rest of the group perceives each one.
The more alignment you have, the fairer processes you can create, which allows everyone to move forward on the same page faster.
Building on the concepts of visibility and collaboration that are so important to accountability, one of the prerequisites for achieving alignment is giving everyone consistent, undeniable access to data — with the right permissions to protect sensitive information.
Examples of how exactly this access can improve alignment include:
- Calibrating performance reviews: Giving the leadership team the ability to visualize performance ratings by team and any other measure allows each person to understand if they have over- or under-rated their team or any certain group of people. This broad visualization ensures each person issuing reviews has the same sense of what each rating means. As a result, it not only creates a fairer end result, but can also help the process move faster.
- Understanding growth requirements: The best headcount planning allows managers to dictate what they need, but this type of bottoms-up approach requires deep alignment across teams. Specifically, leaders must have access to data to understand how other teams are scaling for growth so that they can plan accordingly for their own teams. Starburst saw the value of this alignment first hand, when their CMO realized their sales team was scaling at a much quicker pace than their marketing team — which would leave them without enough people-power to generate leads for the new sales reps to close. This information empowered the CMO to grow the marketing team in a commensurate way. Overall, this transparency helped the two teams work seamlessly together to achieve their goals and add millions of dollars to the company’s bottom line.
Build a healthier organization to improve business performance
Healthy organizations can handle almost anything. Research shows they’re strong enough to tolerate unpredictable events in the business world and flexible enough to keep up with changing customer expectations. As a result, they’re more likely to thrive in the long term.
To cultivate a healthy organization, determine which metrics matter most when it comes to achieving your key goals, measure where your company ranks on those metrics, and develop a concrete plan for improvement. Along the way, remember that every business is different, and you first need to establish a baseline of what it means for your company to be high-performing and successful.
If you’re ready to start improving organizational health, taking care of your employees is a good place to start. Our employee experience article shows HR teams how to prioritize the employee experience.