People & Strategy Winter 2015 Vol. 38 Issue 1 - 26

How We Track Health

processing sites. In this case, we found a strong
correlation between health (as defined by the
site-specific summary score) and performance
(defined as a carrier's specific proprietary
amalgamated metric across indemnity,
expense, and customer-satisfaction metrics).
Health differences explained about one-third
of the variation in performance.3 This is a significant number, since the remaining twothirds includes known determinants of
performance, such as competition, macroeconomic forces, and local-market dynamics (we
did not evaluate the relative importance of
these forces, which, unlike organizational
health, leaders cannot control).
After replicating these findings across many
clients and industries, we began to wonder
about the strength of the health effect. Could
health possibly explain performance variations across companies, industries, and
geographies?
When we compared the health metrics of
more than 270 publicly traded companies4
with their financial-performance metrics, we
found that the healthiest generated total
returns to shareholders that were three times
higher than those of companies in the bottom
quartile and more than 60 percent higher
26

PEOPLE & STRATEGY

than those of companies with "middle-of-theroad" health profiles. We have not yet isolated the specific health effect for the sample
as a whole, but judged by the energy and
insurance-company examples, it is likely to
be substantial.

For the past 11 years, we have
measured and tracked organizational health in hundreds of
companies, business units, and
factories around the world. We
ask employees (more than 1.8
million and counting) about their
perceptions of the health of their
organizations and what management practices they do or don't see
in them. We then produce a single
health score, or index, reflecting
the extent to which employees say
that their organizations are "great"
in each of nine dimensions (or outcomes) of organizational health. To
establish more precisely what each
organization looks like, as well as
its strengths and weaknesses, we
also ask employees how frequently
they observe four to five specific management practices-how
managers run the place-that drive
those nine outcomes. Exhibit 1
(left) provides some flavor of how
the management practices, 37 in
all, line up against the outcomes.

Management Practices
Matter
The most interesting findings, though, came
when we looked more closely at the healthiest
organizations in our database. Obviously, all
had high health scores as measured by the
nine outcomes of health.
But when we delved deeper and looked at the
37 practices that management teams focus on
to deliver those outcomes, we discovered that
four combinations of practices, or "recipes,"
were associated with sustained success.
Indeed, further analysis showed that companies strongly aligned with any of these four
organizational recipes were five times more
likely to be healthy and to deliver strong,
sustained performance than companies with
mixed (or random) recipes.
Each of the four clusters we identified from the

data reflects a distinct underlying approach to
managing, including core beliefs about value
creation and what drives organizational success. Each can be described by the specific set
of management practices prioritized by companies that follow it (see Exhibit 2, p. 27).

People & Strategy Winter 2015 Vol. 38 Issue 1

Table of Contents for the Digital Edition of People & Strategy Winter 2015 Vol. 38 Issue 1