Mark Lundegren

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If I were to ask about the health of the organization you run or work for, how would you think about this idea?

You might understand my question as referring to the physical health of your workers or co-workers, or the level of daily stress that is typical. You may initially see my question in terms of the demands your organization makes on its members, and whether it leaves time for life outside of work.

All of these considerations are of course important aspects of healthy modern life and work, but they really don’t answer the question of how healthy the organization is, as an entity unto itself (understanding that any organization’s health influences and is impacted by the health of real people).

But just as with real people, organizations can be seen as relatively and thus comparatively healthy or unhealthy – as existing on an organizational health continuum – once we examine and broaden our thinking about the basic nature of all forms or expressions of the important quality we call health.

Three Definitions Of Health

I would encourage you to stop and spend a minute thinking about health as a natural quality of living things – be they living individuals, groups, or even whole societies – and to craft a simple definition of health.

Don’t be disappointed if you can’t come up with a good working definition right away. In truth, even among people whose job it is to think about and advance health – including physicians but also other professionals in various fields – we frequently fail to reach a full and enduring sense of what health is in its essence.

To illustrate common thinking about health, and to get us to a fuller and perhaps enduring definition of it, let me describe three potential ways of defining the natural phenomenon we call health:

#1: Present Functioning – a common way to think about health is whether an organism or entity is currently within specification – whether it is functioning in key ways as similar organisms or entities typically do. This definition of health is implicit when a person has medical or psychological tests, or when an organization is audited in one or more areas. In both cases, the assessment compares present functioning against relevant benchmarks. There is nothing necessarily wrong with this approach or definition of health, especially when the assessment is broad-based, but essential improvements are possible. While snapshot approaches to health can provide valuable information and identify problem areas, they’re still a limited overall model for defining and thinking about health. After all, people, organizations, and even entire ecosystems can be “within spec” in multiple areas, and yet fail to remain this way or to otherwise endure for long. Measures or snapshots of present functioning, even when broad and holistic, can be inadequately focused on and poor predictors of future functioning or health. In these cases, they provide only a limited sense of the underlying health trajectories that inevitably accompany all present states of personal, group, or ecological functioning.

#2: Future Functioning – whether with people or organizations, predictions of future functioning are a quite different and arguably more difficult calculation than assessments of present functioning (if only due to natural complexity or compounding randomness across key influences). In this second perspective on the phenomenon of health, a practitioner is asked to measure a specific set of current factors and make predictions about future prospects, and thus to define health primarily in terms of these predictive factors. This definition of health is expressly at work when we complete a lifestyle questionnaire or give blood when buying a life insurance policy. It is also in use when an enterprise is assessed against key practices known to reliably undermine organizational longevity (poor accounting, weak governance, etc.). In practice, while many physicians and bankers (to begin a list) are unwilling to make or at least communicate predictions of future functioning, instructively actuaries, statisticians, and accountants do just this all the time – and they often do so with a high degree of accuracy. Unfortunately, these common predictions of future functioning are generally in narrow areas only and can be of limited assistance to people and organizations seeking sustained vitality and innovation. Such predictions are frequently limited to questions of longevity or future costs, for example, and thus usually give us a picture of future viability, rather than future health (which we all understand is more than completing activities of daily life or making payroll). For this reason, current predictive models are often of only limited help in the mastery and promotion of true future health, or rather are too constrained in their scope of endeavor and modest in their definition of health.

#3: Future Potential – if we want a way out of these two boxes – one seeing health in perhaps broad but present terms and another in future and predictive but narrow terms – an obvious solution is to combine them. By this, I mean taking some of the breadth of definition #1 and adding in the predictive focus and statistical mindset of definition #2. In this approach, a broad set of factors would be used to predict (and thus define) health in fairly robust terms and not just as future viability or self-maintenance…at least statistically and with a margin of error. Leaving aside for a moment questions of which specific factors might be measured, you can perhaps immediately see that this third approach asks us to think about health in a new, more expansive, and ultimately superior way – in terms of future potential or the likelihood of future flourishing. It asks us to assess how likely a person, organization, or other living entity will be vibrant and relevant in the future – in the case of an organization, to its workers, investors, clients, and other stakeholders. Health, in this third sense, is therefore recast as a quality or set of characteristics that reflects a person’s or an organization’s adaptive potential. For organizations, this definition might be expressed simply as the probability an organization will delight workers, investors, clients, and other stakeholders at some future date. If you want, go ahead and score your organization right now, based on your firsthand knowledge and intuition, on a 1=low to 10=high scale and for ten years from now. Consider this an initial assessment of your organization’s future potential and thus its current state of adaptive health (as opposed to its current size, popularity, or even profitability).

Predicting Organizational Adaptiveness

If we explore the idea that organizational health is a measure of an organization’s future prospects for thriving or its potential for robust adaptation – and thus a measure of likely resilience and agility under a range of potential scenarios – we can see that a health continuum naturally arises. This continuum ranges from poor survival prospects to a high potential to flourish and create value in the future.

Unfortunately, the science of which factors best predict resilience, agility, and future potential, in other words those factors that most accurately measure organizational health, is not a known but closely guarded secret among the business elite or a clandestine global illuminati (since such valuable information would quickly proliferate via its application). Indeed, past academic works from our most prestigious institutions are replete with examples of lauded organizations that were held up as archetypes, only to fail before long. Thus, the science of true organizational health – of enduring organizational thriving – is still a nascent one.

But all is not lost. After all, a number of notable organizations today have endured over considerable stretches of time – and have managed to thrive and not simply remain viable – though perhaps still not enough in number, nor with a common enough method, to enable definitive predictive models. At the same time, many more organizations have failed to thrive or even endure in this time – creating a database to predict, if not organizational health, then at least key risks of accelerated failure and unhealthy stagnation.  Broadly, this material offers us two critical lessons: 1) the essential need to master fundamentals or known viability risks, and 2) the importance of a strong and sustained focus on progressive value creation (suggesting that we use the idea of value – client benefits minus client costs – as a useful definition of or proxy for organizational health).

Today, modern organizations and their professional consultancies are full to the brim with people focused on the first of these essential lessons or strategic imperatives, and this general effort (typically spanning an organization’s product or service delivery teams and its staff functions) is usually effective at mitigating fundamental failure risks. What is frequently overlooked is of course the second imperative of progressive value creation, and the companion insight that excessive focus on present functioning and risk mitigation is itself an inevitable source of failure risk – and perhaps the principal means of reduced organizational health in our time.

On this crucial point, I’m sure you can think of examples of organizations in your market or sector that have been or are being carefully managed toward mere viability, if not to eventual irrelevance. This is typically not through misplaced intentions, but through unbalanced action, natural human presentism, and an inadequate sense of organizational health – especially a failure to see health in terms of our future or adaptive potential. Some organizations may be “built to last,” but few are built to adapt and thus to naturally seek ongoing relevancy and health.

A Working Definition Of Health

I’ll leave you to consider how best to measure and inspire progressive value creation in your organization, but will underscore its importance, even while again acknowledging the conceptual and perhaps inevitable imprecision of this endeavor. When we consider the specific cases of thriving and failing organizations over time, the test of a continuing focus on new value creation seems paramount – amidst evolving technology and client alternatives, changing clients and client preferences, and ongoing risks of internal focus, gridlock, and managerial regression.

In practice, you can often create a revealing window onto your organization’s health level simply by asking current and prospective clients about their perception of your organization’s relative level of innovativeness or their likelihood to recommend your organization to others (and why in both cases). But let me also leave you with a specific and more robust definition of organizational health – one that may prove quite useful to you and your organization, especially if you have reached a point where your client mix or operating model is changing or needs to change.

This particular definition of organizational health is centered on client value, and it assumes that present operations and basic failure risks are well-managed. I like the definition because it is simple to express in a formula, though it does take some work to operationalize the metric,  in the form of a sufficient enough accounting of its two variables.

The formula is (Client Benefits – Client Costs)/Client Costs. I’ve reproduced the formula in the chart below:

Though not perfect, this fairly simple formula can help to unlock new focus on sustained innovation and has at least six important advantages in the leadership of any organization:  1) it is fairly simple and easily understood by all, 2) it frames health in terms of client value and encourages client focus, 3) it expresses health as a ratio or percentage, making comparisons and measurement over time easier, 4) it allows assessment of client value and organizational health across multiple markets or client segments (notably old and new ones), 5) it promotes a fairly broad assessment and keen awareness of varying and changing client costs and benefits, and 6) it permits measurable goals aimed at progressive improvement in client value and organizational adaptiveness.

On this last point, once this or another organizational health measurement is in place, your organization’s (or another’s) progressivity rate is easily measured via simple Rule of 72 calculations.

Your Next Steps

I hope this discussion of organizational health proves valuable for you and your organization. Whether you are an organizational leader, worker, investor, client, or other stakeholder, our discussion should give you new tools and perspective to think about your organization’s present and how its focus today inevitably will contribute to its potential tomorrow – and thus how its present operations reflect and even naturally reinforce its current state of health.

Whatever personal or collective lessons you take away from Organizational Health, I’d enjoy hearing about them, especially as you begin to make use of these important ideas within my overall Natural Progress strategy method.

Health & best wishes,

Mark

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