Why healthy businesses are better
Can you recognise which businesses are better than their competitors? The ones that are most profitable? Perhaps those that are growing fastest? Or generating the highest returns to shareholders? What about the ones with the most satisfied customers? Or employees? As soon as you start to think about it, there are many ways of measuring businesses.
Of course recent performance, whether measured by profitability, return on capital or shareholder value, is important as it keeps stakeholders satisfied and generates the resources to invest for the future. But most performance measures tend to be backward-looking and say little about future potential. We therefore believe that the best measure of a business is its overall health.
Research by McKinsey suggests that at least 50% of long-term business success is driven by organisational health. Good business health propels sustainable good business performance. In addition to outstanding performance, two key features characterise healthy businesses: top quality capabilities and a first-class ability to manage change.
Business capabilities, namely resources, organisational skills and management practices, effectively determine the potential level of performance that can be achieved in the immediate future. The level of performance a business actually achieves is a measure of how well it uses those resources and capabilities within the constraints of its competitive environment. Improving capabilities should lead to better future performance. That is why our business health checks cover topics such as skills, competences, logistics and infrastructure.
Agility, Adaptability + Flexibility – our label for the ability to manage change – determine how well a business can shape and react to its competitive environment. This environment is always dynamic and often turbulent. All businesses need to react to changing customer needs, competitors’ behaviour and new entrants. And even the smallest businesses can influence other players in their market through innovation. The ability to proactively and reactively manage change is critical to successful performance over the medium- and longer-term. Our business health checks cover all the important components of the ability to manage change, such as business strategy, organisation design, governance and innovation.
A neat way of thinking about these three elements of business health is that recent performance relates to the past, business capabilities to the present, and agility, adaptability + flexibility to the future. Healthy businesses typically have a superior track record of recent performance, have the capabilities to continue operating at this high level, and have the agility, adaptability + flexibility to continue excelling over the longer-term. The most successful businesses will demonstrate excellent all-round business health.
However, only a few businesses excel in all areas – most have room for improvement. A business health check is a great way to find out how healthy your business is and where it can improve.
Our unique framework delivers an all-round evaluation of your business health presented as a balanced scorecard that highlights areas for improvement. We back this up with a set of practical and actionable recommendations for improving your business health. You can start your business health check now by clicking here.
The best businesses demonstrate superior all-round business health. Part of being healthy is an awareness of their own strengths and weaknesses, along with a determination to minimise any deficiencies. And because they understand the importance of business health, healthy businesses are able to sustain great performance over the long-term.