The latest update of McKinsey’s Organizational Health Index offers some twists and surprises for leaders. See if you can identify the crucial drivers of a healthy organization.
Organizational health is crucial to long-term performance, yet it is a moving target. For more than 20 years, McKinsey’s Organizational Health Index (OHI) has examined the practices and outcomes that lead to better health (exhibit). Through extensive research that yielded our latest OHI insights, we identified emerging and evolving trends in technology, worker motivation, talent strategies, and leadership styles, among other critical health factors. Test your knowledge below.
Authoritative leadership
For decades, the standard view was that there was a time and a place for authoritative leadership—using authority, pressure, and influence to get things done. Reflecting that viewpoint, the authoritative leadership practice has been part of our OHI survey from the beginning. When we were updating the survey, we hypothesized that it would stay as one of the leadership practices.
Is some amount of authoritative leadership still necessary for organizational health?
How do you measure up? Only 33% of readers got this right.
Authoritative leadership is no longer an effective way to get things done. Previous leadership research tended to say that being directive and putting top-down pressure on people was necessary in some situations and that too little of it was bad for an organization. The new OHI data tell us that there is no situation in which leaders need to follow the old maxim “Do it because I said so.” In a big shift, authoritative leadership no longer appears in the OHI.
A - Yes
B - No
Employee experience
The OHI measures both outcomes (how well an organization aligns, executes, and renews itself to deliver sustained high performance) and practices (how leaders “run the place” every day to achieve those outcomes). We predicted that measuring individual employee experience, while leading to valuable insights, should not be included as a core aspect of the diagnostic. We believed it wouldn’t provide additional predictive value for organizational health beyond what is already captured by management practices.
Does employee experience add unique value in predicting organizational health?
How do you measure up? 92% of readers knew the answer.
Organizational-health outcomes and management practices remain critical, but the data show that some employee experience dimensions do add unique value in driving organizational health. For example, we tested several career-related employee experience questions, including whether employees learn new things at work, but found that how employees feel more broadly about the growth opportunities available to them more strongly predicted health. Therefore, we added a new section to the OHI called “employee experience.”
A - Yes
B - No
Purpose
In the past, employee involvement has been about engaging people in the “what” and the “how” of interpreting, evolving, and executing an organization’s strategy. We predicted that purpose, reflecting the “why” that inspires people, should be added as a new practice driving whether organizations effectively set a clear direction, leading to four direction practices, not three: purpose, shared vision, strategic clarity, and employee involvement.
Did we add purpose as a fourth practice that fuels whether the organization effectively sets a clear direction?
How do you measure up? Only 17% of readers got this right.
We did add purpose to the OHI, but it represents an evolution of employee involvement resulting in one new, fused practice: common purpose. Articulating a common purpose helps connect people emotionally and intellectually to an organization’s direction. Strategic plans may aim for annual revenue growth, but metrics alone don’t excite employees. In a rapidly changing world, leaders can deliver ambitious strategic plans by offering a North Star that helps guide people.
A - Yes
B - No
Decision-making excellence
Effective decision making is crucial to organizational health. If you’ve ever been at a company where decisions are made randomly, based on inaccurate input, or put off for far too long—or all of the above—you know this well. In updating the OHI survey, we predicted that decision-making effectiveness and efficiency would be a new practice driving the outcome of coordination and control, or whether the organization effectively measures and manages business performance.
Did we add decision-making excellence as a new practice driving coordination and control?
How do you measure up? Only 29% of readers got this right.
But there’s nuance here. It turns out that decision-making excellence, while crucial for organizational health, is not just one new practice but several practices that drive different outcomes. These include the new practices of empowering and decisive leadership (that drive leadership), plus the addition of data-driven decision making (that drives innovation and learning). Using data to inform decisions is central to continuously improving and debiasing big decisions related to innovation.
A - Yes
B - No
Tech and digital capabilities
Many organizations invest in technology to improve the employee experience, believing that happier employees are more loyal employees. We predicted that technology and digital capabilities would be added as a new practice driving the capabilities outcome, focused on the role of technology in making work easier for employees.
Did we add tech and digital capabilities as a new practice focused on making work easier for employees?
How do you measure up? Only 37% of readers got this right.
It’s not enough for technology to facilitate daily work, welcome as that is for employees. Tech also must optimize business performance. Just as a distinctive employee experience reflects thriving in a role and having psychological safety, among other factors, tech enablement should first and foremost create a competitive advantage for the organization. The new OHI practice, tech enablement, focuses on the role of technology in optimizing business performance, not just making work easier.
A - Yes
B - No
Environmental sustainability
Employees want to know that their organizations are doing their part to make the world a better place by acting responsibly and in ways that benefit society and promote the welfare of individuals and communities. We predicted that sustainability (including a focus on net-zero goals) would be added as a new practice driving external orientation, or whether the organization effectively engages with external stakeholders.
Did we add a practice focused on environmental sustainability?
How do you measure up? Only 45% of readers got this right.
We were right that sustainability is important for organizational health, but the concept by itself is too narrow. What employees really want is social responsibility broadly, including but not limited to sustainability. For example, the Edelman Trust Barometer has shown decreased trust over the past ten years in organizations headquartered in global powers. At the same time, people see these organizations as playing a critical role in society, trusting them more than other institutions, such as government and the media, to integrate innovation into society. Therefore, we have added social responsibility as a new practice driving external orientation.
A - Yes
B - No
Inclusion
The value of a diverse and equitable workforce is captured only if an organization is inclusive. We expected to add two practices related to inclusion. One focuses on creating an inclusive work environment that values the unique perspectives of all employees and where everyone feels they belong. We predicted that this practice would drive an effective work environment. We also expected to add a practice on inclusive leadership that focuses on how leaders foster this environment, include a diverse set of employees in decisions, and speak up when they see inappropriate behavior. We expected that this practice would drive the leadership outcome.
Did we add two new practices, one regarding inclusive leadership and another regarding inclusive work environment?
How do you measure up? Only 42% of readers got this right.
We added only one inclusion practice that drives the work environment. Research shows that the most predictive behaviors underlying inclusive leadership and inclusive work environments are the same: making employees feel like they belong and making them feel valued for their unique knowledge, skills, abilities, experiences, and contributions. Our research shows that great leadership is already captured in other leadership practices—empowering, decisive, supportive, consultative, and challenging. Therefore, inclusive leadership was not added as a new leadership practice. Instead, we added one practice that reflects how organizations foster inclusion and belonging and how that drives the work environment.
A - Yes
B - No
Talent deployment
All companies want to ensure that they have the best talent. However, attracting the best external talent and retaining great people once they’re hired is a tall order. We predicted that the talent acquisition practice, which is focused on hiring the best external talent, should be expanded to a broader practice that includes strategically and dynamically shifting talent within the organization.
Did we broaden the talent acquisition practice to include external and internal talent?
How do you measure up? Only 38% of readers got this right.
Dynamically deploying talent does add value in predicting organizational health, but this practice is different from external-talent acquisition. Talent deployment goes beyond internal mobility to include the dynamic and strategic deployment of talent across the organization to where it is needed most.
A - Yes
B - No
Aaron De Smet is a senior partner in McKinsey’s New Jersey office, Arne Gast is a senior partner in the Amsterdam office, Drew Goldstein is a partner in the Carolinas office, and James Rappaport is a senior asset leader in the Boston office.
The authors wish to thank Laura Pineault and Nicolette Rainone for their contributions to this quiz.
This article was edited by Barbara Tierney, a senior editor in the New York office.
