September 2, 2020

Total Performance Leadership Blog Post #31: Why an Organizational Health Index Could Be Your Most Important Move This Year

By Rob Andrews

Staying Healthy Matters

Think about the lengths to which we go to protect our health, and that of the people and pets we love. We get thorough annual physical exams. We get two dental exams a year. We get annual skin and eye exams. We take our pets to the vet for checkups and vaccinations. Consistently, we make conscious decisions and commitments to invest time and money in our health. We eat right, take vitamins, and go to the gym. We value physical health above all else. Why then, are most business leaders reticent to monitor and protect their most important business asset, their organizational health and culture?

Organizational Health Overlooked

Organizational health is often overlooked because of what Jim Collins calls quantitative bias. It’s easier to look for answers around things we’ve measured for decades, and what we’ve studied in business school. Most organizations are full of smart, well-educated, highly accomplished people who know how to do their jobs. Your biggest threat is not incompetence, rather an environment of insidious politics, divided leadership, ambiguity, inadequate measurement systems, and lack of clear purpose. The bad news is these conditions do not appear on any financial statement and can easily go undetected. The good news is that these conditions, if properly diagnosed, can be treated quickly and very effectively.

Our own examination of companies that perform at the very top of their sectors, often delivering shareholder returns near double their peers, reveals nine principles at work, which are the imperatives to building cultures of peak performance. The principles are listed below. The extent to which these principles are at work in your organization can be measured, much the same way we measure blood metrics, BMI, resting heart rate, circulation, sleep patterns, nutrition, exercise, and the like.

Principles for a Culture of Peak Performance

  1. Unified Leadership can be measured. If leadership’s message on the shop floor is consistent with top leadership’s message, your leadership is aligned. It is also extremely rare. Your leadership is aligned if your organization says it is. We’ve found it amazing how accurately we can measure the extent to which your leadership is unified. In every peak performing organization we’ve studied, leadership is in lockstep, from top to bottom. Styles vary widely but the message is absolutely consistent.
  2. Leading with purpose is the great multiplier and is the only way you can hope to fully engage your workforce, particularly millennials. Fewer than 5% of organizations have harnessed the power of purpose and having a clear purpose does not make things easier, just clearer. Operating with a clear sense of purpose, which drives your vision, strategy, tactics, and behaviors, will also be reflected in your bottom line. It can and should be monitored carefully, as an elite athlete monitors his/her physical condition.
  3. Disciplined hiring practices begin day one, and can be measured by the power of your employment brand, the size of your applicant pipeline, the number of applications per position you fill, your workforce turnover, your return on human capital, and your fully loaded employee costs vs. your highest performing peers. Most organizations have woefully inadequate hiring practices that result in cultural misalignment, inadequate performance expectations, organizational ambiguity, and unnecessary turnover.
  4. Measuring what matters is much easier than I imagined. Peak performers we’ve studied do a fine job of managing their financial statements, risk profiles and the like. They also measure employee engagement, customer experience, provider engagement, social impact, leadership effectiveness, purpose impact, hiring effectiveness, cost containment, project health, and constant improvement. In short, they are measuring organizational health and cultural strength by constantly monitoring their performance against the nine principles.
  5. Cost leadership means extracting all costs that do not support the organization’s purpose, strategy, customer, and employee experience. Costs can be like cholesterol, waist size, and BMI. Unless you’re paying close attention, costs get out of whack. Peak performers stay on top of costs; what their peers are doing around cost and what other sectors are doing to minimize extraneous costs. Supermarkets as an example, have the most efficient supply chains in the world, while hospitals traditionally have had the least.
  6. Customer Experience is one of the most misunderstood terms on the planet. Raving fans, in other words, are customers who routinely tell positive stories about you, becoming your most effective and inexpensive form of advertising. Customer experience is all about how the customer feels about themselves while interacting with you. They feel special, valued, and loved. Achieving this level of customer experience requires a commitment from the top and pushing autonomy and authority to keep the customer coming back to the lowest levels in the organization. Rare as it is, measuring customer experience is not difficult.
  7. Stakeholder engagement means not favoring one group over another. Peak performers, without exception, have learned to engage shareholders, management, board members, employees, and providers alike to build cultures of peak performance. The notion of favoring shareholders over other stakeholder groups has proven to be counterproductive and not in the best interest of anyone, shareholders in particular. Like the other principles, stakeholder engagement can and should be monitored.
  8. Clarity in everything is tantamount to keeping your knives sharp. Peak performers measure the degree to which their stakeholders understand what leadership is up to. Leaders consistently communicate so their stakeholders believe what they are saying, know where they are going, and understand there is something in it for them. They are careful to relate to stakeholders, communicate strategy, implications, urgency, hardball issues, and rewards at the end of all the hard work. This is a formulaic communications methodology that ensures clarity and is measurable.
  9. Around the curve means maintaining a state of healthy paranoia. Peak performers understand the world is changing at a dizzying rate. Amazon, now worth over $1 trillion, didn’t exist 27 years ago. Apple, now worth $2 trillion, was on the verge of bankruptcy in 1997. I’ll refrain from rattling off the long list of once famous companies, seemingly bullet proof, that are now extinct. Top performers are constantly looking forward, backward and all around. They consistently examine their playbooks, operating models, and strategies. These amazing organizations take nothing for granted and are always on offense.

It’s important to note that some of the organizations we’ve studied have been on and off our list of peak performance companies. Regular checks on your organization’s cultural health are absolutely critical, both for organizations aspiring to peak performance and for peak performers who want to maintain. Organizational health complacency can be fatal. A peak performance culture, which constitutes the only sustainable competitive advantage of which we are aware, is incredibly perishable. Our study indicates there are nine principles at work in organizations that perform at the very top of their sectors.

Elegant Simplicity

I’ve been studying high-performance organizations for decades, but the elegant simplicity of our present day OHI came squarely in to focus during the summer of 2014, when we began working with the board of one of Houston’s largest and most successful engineering construction consulting firms. Our reputation for conducting successful C-Suite searches caused the acting CEO to want to retain us to conduct four C-Suite level searches concurrently. One was to be a CEO search in which he would be a candidate. The others were for a CFO, CIO and CHRO.

At the time, Allen Austin had no experience in civil engineering, but recognized that the firm, while having a record year in sales and profits, was not prepared for such an undertaking. We suggested instead that we administer an organizational review, which we now call Organizational Health Index.  We suggested that if the board were satisfied with the results of the review, we would move forward with one search, that of the Chief Executive Officer.

At a fraction of the cost the firm was willing to pay, we conducted a six-week review that turned out to be invaluable. To be candid, when we proposed the original review, I knew we could do it, but I didn’t know exactly how. After a bit of reflection, we began with a needs analysis questionnaire which is the basis for our C-level searches. We dusted off an old cultural survey I’d used three decades ago when I was running a 500-store retail division, and we topped it off with one on one interviews from the top of the organization to the front lines. We even included three of the firm’s longest tenured customers.

The output from this first OHI delivered value far beyond our expectations, as this was an organization that had been described as “firing on all cylinders and raining money”.

The report gave us numerical scores for the firm’s cultural health and how effectively they were leveraging each of the nine principles. These scores provided a base line and a method to measure progress toward a culture of peak performance. We expected that. It gave us a very clear notion of the leadership necessary to take the firm to its highest level and we expected that. What we did not expect was the input from the one on one interviews.

Looking back, it appears the order in which we conducted the assessment was important. After the questionnaires and surveys, its seemed as though the stakeholders we interviewed were ready to tell us EVERYTHING about which we hadn’t asked! We discovered things that were previously unknown and likely would have remained so. Many of the impediments to progress were clearly identified as were many of the solutions.

From this report, a go-forward strategy was developed, and we then had the information necessary to conduct the CEO search, and to begin the journey toward a culture of peak performance. The search was extremely complex in that the firm had never hired an outside executive. The firm’s capital structure, which included 23 shareholders was a further complication in that the CEO reported to a board of directors who are also his direct reports.

The search itself took eleven weeks and on January 1, 2015, our new CEO was officially on board. 69 months in, this organization experienced a 78% increase in top line revenues and a 319% increase in EBITDA. These kinds of engagements are the ones of which we are most proud. It’s not about the transaction, it’s about the relationship. It’s not about filling a seat or delivering a leadership product in a vacuum, it’s about helping our clients achieve their boldest vision and most lofty objectives.

If you’re open to beginning a discussion around your organizational health and a culture of peak performance, give us a call.

Warmest Regards,