- 11th February, 2025
- By Clair Turner
McKinsey's Organisational Health Index: key insights for modern leadership
McKinsey's most recent update on its Organisational Health Index has prompted me to reflect on how leaders can choose to evolve to meet today's dynamic challenges.
The findings are impressive. Organisations in the top quartile for health deliver around three times the shareholder returns of those in the bottom quartile, and they are less likely to show financial distress or safety incidents. What has moved is the definition of 'health' itself.
I spend most of my week working through exactly this with executives and their teams, and I am truly encouraged by the profound changes McKinsey's Organisational Health Index (OHI) report reflects in its framework.
Below are my reflections on what each shift asks of you personally, and where leaders often get stuck.
What the Organisational Health Index actually measures
The Organisational Health Index measures how well an organisation runs itself. It is a survey-based benchmark developed by McKinsey & Company that measures how well an organisation aligns around a shared direction, executes with discipline, and renews itself over time.
Drawing on employee and manager survey data across nine domains, it offers leaders a picture of how strong their organisation's foundations really are. The Organisational Health Index has two decades of data sitting behind it now, surveyed from more than two and a half million employee responses.
Six shifts in the OHI framework worth reading closely
The six changes cluster around purpose, leadership, decision-making, employee experience, technology and social responsibility. Taken together, they move an organisation's authority outward and accountability inward.
Empowering and decisive leadership has replaced authority
In the leadership domain, adopting empowering and directive leadership styles and relinquishing any hint of authoritative leadership is the sign of the modern leader.
This is what the OHI states about empowering leadership:
"Leaders should make sure those closest to the work have the autonomy to make their own decisions. Organisations that emphasise empowering leadership are 2.3 times more likely to use effective leadership to shape the actions of people in the organisation and 3.4 times more likely to be healthy."
What does this mean for leaders? Empowering leaders know that those closest to their work product are best placed to make decisions, leading to greater autonomy for these individuals. Decisive leadership is about making decisions quickly and following through.
In a fast and often disrupted organisational world, there is no room for hesitancy or flip-flopping. Employee satisfaction and productivity are bolstered by decisive leadership, driving the performance of individuals, teams, and the organisation.
Arnold Mindell called rank a drug, and I have written before about how positional power hides itself from the person holding it. Empowering others requires you to see your own authority clearly enough to hand some of it away.
Organisational purpose has to be lived, not published
Another takeaway from the OHI report is the importance of organisational purpose. Employees are engaged more by the 'why' over the 'what' than ever before. According to McKinsey:
"Articulating a common purpose helps connect people emotionally and intellectually to an organization's direction."
Organisations need to clearly articulate their 'why' and live it daily. It is the glue that binds individuals to a common organisational purpose and brings meaning to daily pursuits. If you want a starting point for articulating it, refer to Simon Sinek's work.
Purpose-driven organisations see numerous benefits, including increased employee engagement, higher retention rates, and stronger brand loyalty. When employees understand and connect with the organisation's mission, they are more motivated to contribute to its success. Leaders should regularly communicate and reinforce the organisational purpose, ensuring it is reflected in every aspect of the business, from strategic decisions to daily operations.
Data-driven decision-making now outranks lived experience
Leaders can no longer rely solely on inner knowledge or lived experience to make the right decisions.
As we mature, our brains become better at convergence than divergence, and we reach faster for stored patterns and past use cases. This is no longer effective.
Data-driven decision-making is now key; our brains simply cannot keep up with the pace of change and volume of information to rely on those internal judgements.
How does McKinsey infer data-driven decisions?
Data-driven decision making refers to basing business decisions on hard data rather than relying on intuition or personal experience. Although we expected this practice to align with the coordination and control outcome, we found that it more strongly predicted innovation and learning.
Data-driven decision-making enables leaders to make more accurate and objective decisions. By leveraging analytics and insights, leaders can identify trends, predict outcomes, and make informed choices that drive organisational success.
This approach also fosters a culture of accountability and continuous improvement, as decisions are based on measurable data rather than intuition or guesswork.
Thriving employees, not managed employees
'Employee experience' is a frequently used and often misunderstood term. Measuring employee engagement or satisfaction is complex and can suffer from confirmation bias. McKinsey's Organisational Health Index shows that when employees rate their own sense of satisfaction and measure their own productivity around criteria important to them, the data becomes healthy and impactful. The individual employee thrives in an environment where they co-create the sense of value they bring.
Leadership focus must turn toward a state of thriving rather than merely managing outcomes. I know this makes sense, particularly after reading "Languishing" by Corey Keyes, a book that explores the process of moving from languishing to flourishing.
Thriving across all life domains is possible, and organisations focusing on thriving are profoundly rewarded in terms of culture, productivity, and employee satisfaction. In healthy organisations, leaders focus on the individual and what thriving looks like to them.
Creating a thriving workplace involves providing opportunities for growth and development, recognising and celebrating achievements, and fostering a supportive and inclusive culture. Leaders should strive to understand the unique needs and aspirations of their employees, offering personalised support and resources that enable them to reach their full potential.
ROI on technology is now a leadership discipline
McKinsey's OHI report states that spending on technology should only be done when it makes employees happy, improves the work, and is beneficial for the bottom line.
The expectation to constantly innovate, improve communication channels, and enhance information storage and collaboration is ever-present. Building a business case at the outset to validate ROI is vital, especially in these fast-paced and uncertain times.
From consulting executives and their teams, I know the huge stresses that arise in organisations constantly adopting new technologies. The pressure of constant learning, on top of existing duties, impacts both leaders and their teams' productivity.
To effectively manage the integration of new technologies, leaders must prioritise training and support for their teams. This includes providing clear guidance on how to use new tools, offering ongoing learning opportunities, and fostering a culture that embraces change. Additionally, leaders should regularly evaluate the impact of technology investments to ensure they deliver the expected benefits and contribute to the organisation's overall goals.
Social responsibility now sits inside organisational health
Social responsibility has come to the forefront in the report, along with an increased need for employers to demonstrate social responsibility. This is especially true for younger generations in the workplace who see organisational health through this lens.
Leaders need to get ahead and stay ahead of what social responsibility means to them and then truly live it in their organisations. Social responsibility extends beyond philanthropy and includes sustainable business practices, ethical decision-making, and a commitment to diversity and inclusion.
Organisations that prioritise social responsibility not only contribute positively to society but also enhance their reputation and build trust with stakeholders. Leaders should integrate social responsibility into their strategic planning and daily operations, ensuring it is a core aspect of the organisational culture.
What the OHI framework asks of you as a leader
All six shifts point the same direction: less control, more accountability. That combination is harder than it sounds.
Excellent leadership is not a fixed approach. Rather, it is a response to the demands of the time and to the conditions you are actually operating in. The Organisational Health Index has been rewritten because those conditions changed. Your leadership needs the same treatment.
If you're struggling to implement these changes in your leadership role and organisation, let's have a conversation.
Best wishes,
Clair