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Company Performance vs Company Health
Can focusing solely on performance be counter productive to a company?
Performance is what is delivered to stakeholders in financial and operational terms. What about the "Health" of a company - where does it come into play? Should a company focus on both at once and why?
Focusing only on performance can work for a while but is not sustainable over the long term. I recognize four stages of organisational fitness: fit to survive, fit to perform, fit to thrive and future-fit. At a given moment, an organisation may be focused only on one of these aspects. Over the long term, successful organisations balance all aspects.
both at once. The company exists to realize results, otherwise your not in business your in social services.. My view on Company Performance vs Company Health is that both have to co-exist. if it requires a change in leadership or people, that is what it takes. As long as the moral campus, mission, vision, and strategy are aligned, then performance will result.
Performance is good for shareholders, but health needs to be at same time the focus of any company. Health starts with long term strategy, customer satisfaction, new product development, increase of market shares, employees empowerment and long term sustainable revenues for future development. without health, performance will be just a short term result and can degrade very quickly.
VC companies get burned by this question all the time. When using EBITDA as a performance metric to set a value for a company, VC firms forget how easy it is to "game" the metric of EBITDA. A company can go for years without buying a single spare part for the equipment, make no additional investment in infrastructure and make the performance of the company appear great. When you pull back the curtain and take a better look at the infrastructure, age of the equipment, spare part availability and most importantly the morale of the workers, you may find a very sick company.
We have been hired by many VC firms, after the acquisition, to come in and clean up the mess of what appeared to be a very strong performing company. Those same VC firms now hire us to assess the company health as well as performance prior to acquisition now.
John P DuBois
President optimize, Inc.
Scott Cook Great question! I believe that company health > company performance. Company performance is a derivative of company health.
McKinsey & Company have an Organizational Health Index (OHI) which measures organizational health based on proprietary organizational effectiveness outcomes and management practices.
- An organization's OHI is benchmarked to 1700+ organizations
- Companies with top quartile OHI deliver on average 3x greater Total Return to Shareholders, over time [company performance]
- Nine organizational health outcomes are measures across the organizational ecosystem, both hard and soft skills
- Accountability, coordination and control, capabilities, motivation
- Direction, innovation and learning, work environment, external organization