Why Is Organizational Health So Important?

Organizational health refers to the ability of a business to align, execute, and renew itself faster than its competition. Organizational health targets a business’s financial sustainability, increases its operational profits, and develops its employees to meet the challenges of the competitive landscape.  

What is Organizational Health? 

The concept of organizational health first appeared in literature more than 40 years ago. Warren Bennis (1962) was one of the first theorists to discuss organizational health. He used this concept to measure how effective an organization is. 

Bennis identified three key dimensions of organizational health: adaptability, coherence of identity, and the ability to see the world clearly. A business that sustains its organizational health yields more powerful assets and generates total returns to shareholders three times higher than unhealthy businesses. 

Understanding Organizational Health and Its Impact on Business Performance 

Strong organizational health propels a business’s performance and helps its leaders create a path for ongoing improvement. An example of organizational health occurs when business owners learn from their mistakes and continuously improve their ability to compete in unique ways that competition cannot copy.  

Strong organizational health can propel a business’s performance and help create a path for continued improvement. To maintain organizational health, companies must have a clear history of the business, a good handle on the external environment, and a passion for understanding the capabilities of their workforce as it relates to organizational performance. 

Leveraging Intellectual and System Capabilities for Competitive Advantage 

One of the most challenging tasks for businesses is to achieve a competitive edge by developing their employees through improved organizational capability. This refers to the internal development of internal policies, procedures, and processes that help support proper behaviors to maintain the business’s competitive advantage and the needs of all internal and external stakeholders.  

A successful business utilizes intangible resources, capabilities, and core competencies to enhance its intellectual and system capabilities and gain a more competitive advantage than physical assets. Intellectual and system capabilities address the business’s capacity to manage human intellect and convert it into valuable products and services. When organizations develop their human resource practices and procedures around organizational health, specifically in talent development, it helps owners have confidence in their employees when thinking about succession planning. According to researchers, organizational health strongly correlates with operational success and financial performance. 

When owners in FOBs increase communication with their employees about the company's strategic direction, trust is built. Trust is a crucial element of organizational health as it is critical for the long-term survival of a business. When owners formally and informally share knowledge about the direction of their companies, all stakeholders, employees, customers, and suppliers have a sense of confidence and trust that the business is performing. This trust is called knowledge-based trust, which is grounded in knowledge about another party and develops through repeated interactions. 

Key Practices for Sustaining Organizational Health 

We help facilitate our clients through a strategic road map that can help them look at the past, think of the current state, and develop a plan for the future. We look at how to grow the business, use operational efficiency, and develop the employees within the organization to help achieve the goals for the short- and long-term sustainability of the business as well as maintain your strategic advantage.