What are the key indicators of business health?
Category : Business Health
At Company Pulse, we are focused on improving business health. But what do we mean by “business health”? And how can you tell whether a business is healthy – what are the key signs to look out for?
We have taken to heart McKinsey’s work on business health, and they have offered the following description: “Healthy organizations don’t merely learn to adjust themselves to their current context or to challenges that lie just ahead; they create a capacity to learn and keep changing over time.”
(McKinsey Quarterly, June 2011).
The Darwinian cliché is “survival of the fittest”. In business, as in Darwin’s view of natural selection, we incline to “survival of the best adapted”. (The phrase “survival of the fittest” was coined by Herbert Spencer and accepted by Darwin on the basis that “fittest” meant “better adapted for the environment”, not the common modern meaning of “in the best shape”.) A healthy business is one that is better adapted to its environment than its competitors. This could mean satisfying customers better, having a more efficient supply chain, being better at innovating, or one of a host of other characteristics, depending on market and industry conditions. A healthy business should have the appropriate current capabilities to meet the challenges of its business environment, including operating efficiently, and being able to learn from mistakes and build on successes.
The results of being well-adapted should be demonstrated by recent performance. A healthy business is one that generates resources for the future. A sound track-record does not just mean growth (whose importance if often exaggerated), but consistently strong results and the ability to turn a good top line into solid profits and, most importantly, cash.
Then we need to take into account that the environment is continually changing, and this change drives natural and business evolution. Change in the business environment is faster now than ever before, and accelerating. So, in addition to being well-adapted to the current environment, healthy businesses need to be able to change to keep up with, or stay ahead of the competition. We therefore look for adaptability and flexibility, as shown by strategic-thinking and innovation, along with a nimble response to any new opportunities.
So what are the specific indicators of business health? Under the 3 headings of current capabilities; recent performance; and adaptability + potential, Company Pulse business health checks include measures of the following:
– Staff skills and competences
– Property plant and equipment
– Supply chain
– Management information systems
– Customer service and complaint management
– Capacity management
– Financial results
– Customer satisfaction levels
Adaptability + Flexibility
– Recruitment and training
– Cost base flexibility
– Business innovation, research and development
– Business strategy
– Corporate governance and accountability
We have measures and benchmarks across multiple dimensions so that topics can be aggregated in different ways (notably also under PULSE: People + Processes; Utilisations + Outcomes; Logistics + Infrastructure; Strategy + Finance; and Ethos + Relationships). As good business health is a balance between a number of factors, we present our findings in the form of a balanced scorecard covering these different dimensions.
There is no one measure of business health. But we believe our approach of benchmarking a range of measures and analysing across multiple dimensions allows you to draw the appropriate conclusions about how well your organisation is adapted to its current business environment and its fitness to face potential future business challenges.