“Organizational Health is how most successful companies develop and maintain a sustainable competitive advantage - It is a value multiplier” - Andrea Sotgiu Managing Director Lavan
Let’s define a few, perhaps obvious things before we delve into organizational health, but important to distinguish the true value of business health.
A business doesn’t exist unless it develops value, a dependable distribution channel(s) to capture client demand, and a monetization process to sustainably support operations capable of reliably delivering on promises.
There are 3 main approaches or combinations a business can adopt to deliver value and succeed;
Cost, producing similar quality products or services at lower costs to competitors, selling at the same price for higher market profit margins or lower price to undermine competitors.
Differentiation, creating uniquely desirable products and services and or a Niche offering a specialized service/product and charging a premium price. Positioning is focused on design, quality, new product/service innovation, development, and branding rather than outsourcing, efficiencies, cost reductions and process innovation.
Every company must develop enough value to have at least one advantage to successfully compete in the market. An edge can be achieved over competitors in two fundamental ways;
An assessment using a myriad of available models and tools such as Porter's value chain analysis or 5 forces, SWOT, or PEST and variations that have inspired consultant biased tools reveals competitive advantages or disadvantages to help a strategist Identify the best sustainable differentiation
Taking advantage of external changes such as political, economic, socio-cultural and technological factors that affect a company’s external environment - PEST
Internal changes drive value through an ability to perform activities that deliver a product or service differentiation, and or do so more cost effectively. Usually, superior differentiation and customer value will be the result of many interrelated activities and strategies used. The best combination of them should be used to pursue sustainable differentiation advantage. Obviously producing goods at lower costs than the market price and or delivering superior products or services is the essence of any sustainable business.
The traditional support activities of M Porter’s value chain like Information Systems (technology) R&D, and Management are highly important drivers for differentiation advantage.
Exponential technologies and accelerating digital transformation are, in part reasons why business disruption is rife. Fundamental to innovation companies like Uber, and Airbnb are uniquely solving problem spaces through new business models. Tech applications enabled the scalable recruitment of an outsourced workforce - who utilize their personal assets; owner drivers’ vehicles, and owners' homes, replacing the need for company capital outlay on cars and hotels - preventing the need for burgeoning, unwieldy balance sheet positions of their competitors. With less onerous faster opportunities to scale, and broader distribution channels world-wide customers, both companies have altered and disrupted transport and hospitality business landscapes through value not previously seen in those markets - and arguably they have created new categories.
Along side the support activities the primary activities of M Porter’s value chain; inbound logistics, operations, outbound logistics, marketing and sales, and service create value that exceeds the cost of production for higher profit. Lean processing enables cost reduction and competitive pricing. Value add components enable market penetration and or increased margins.
Primary and support activities shaped by strategy, business models, operating frameworks like OGSM, and performance systems, (all often associated with cerebral frameworks and complexity) when executed well can lead to operational excellence driving dependable future output.
Operational output is the result of execution, the quality of which is relative to the abilities of leadership to develop and nurture the best, most conducive environment for the right people in the right seats and capacity to perform. Aligning talent strategy to business strategy is the essence of Organizational Health and when it is the highest priority, permeating the whole company, the company is best positioned to outperform. As the leadership goes, so goes the business.
Many companies possess the ability to manage and tweak strategy, develop new business models to try and stay ahead of competition. Most often their leadership is comfortable in the business disciplines and cerebral side of the equation. They spend their time levering those drivers to achieve performance. The issue is that at best they can gain incremental value, that is often short-lived and does not gain a sustainable advantage. They fall short in the other, more influential side of the equation - Creating a proven process for talent optimization, and an environment necessary to harness the people to optimize their operation - largely because owners and leaders often lack the experience and knowledge to develop organizational health authentically. It cannot be accomplished by outsourcing, or delegated to an HR department. HR is integral to a cohesive leadership team all of whom are at the heart and soul of company health just like the parents of a functional family. Companies not actively engaged in this discipline eventually struggle as health is how their competition creates differentiated value and a sustainable advantage to win in the long run.
Organizational Health can only happen effectively through appreciation of the ideology and a commitment to disciplined implementation and practice management.
Cohesive leadership is the result of key behavioral principles. Trust, commitment, collective buy-in, peer accountability, owning, achieving and failing together. Cohesive leadership teams who develop organizational health are able to operate above the rim.
They clearly articulate their vision, and what they're trying to achieve. Their core values authentically carry behavior, and align to objectives actively representing the principles of the organization. Values are integral to all aspects of culture and operations, including programs, hiring, aligning talent and business strategies, training, and relations with the community. They support, seek to divest control and see their people shine through achievement. They balance accountability with compassion. They harness the passion of their people, energy, creativity and full capacity towards aligned goals, working to deliver on a company vision. Their resources row in the same direction and great things happen.
Signs of organizational health are no politics, or confusion, great moral, productivity and low turnover. In healthy organizations’ management, operations, strategy, and culture work well together. People in healthy companies trust and learn from one another, identify issues and recover faster from mistakes. They are more effective at solving problems and make better decisions, faster. Healthy organizations get smarter and better at execution over time. They achieve results closer to their full performance potential and gain a clear advantage. They do not suffer from the inefficiencies plaguing companies with poor health such as - politics, lack of clarity, apathy, ego, employee disengagement, and limited accountability, where behavioral misalignment and inconsistency are their downfall.
Strategy doesn’t typically fail in formulation. It fails most often through implementation, the execution in the trenches, when people don’t have the necessary skills or attitude to perform. Accountabilities are not held, so fail. The where you are going is not effectively turned into the how to support and achieve the goals to deliver the results necessary to deliver the desired outcome(s).
It is helpful to start with the end in mind, and begin with the vision. A company’s vision shines a light on aspirations, strategy illuminates a path to achieve them - The whole team executes collectively, succeeds and fails collectively.
We have a complete set of simple concepts and practical tools that have helped thousands of entrepreneurs get what they want from their businesses. By mastering this simple way of operating, owners and leadership teams systematically and permanently improve. ROSE℠ operating model harnesses leadership cohesion and a framework for organizational health.