Here is a brief excerpt from an article written by Aaron De Smet, Bill Schaninger, and Matthew Smith for the McKinsey Quarterly, published by McKinsey & Company. They discuss new research that suggests that the performance payoff from organizational health is unexpectedly large and that companies have four distinct “recipes” for achieving it. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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For the past decade, we’ve been conducting research, writing, and working with companies on the topic of organizational health. Our work indicates that the health of an organization is based on the ability to align around a clear vision, strategy, and culture; to execute with excellence; and to renew the organization’s focus over time by responding to market trends. Health also has a hard edge: indeed, we’ve come to define it as the capacity to deliver — over the long term — superior financial and operating performance.

In previous articles and books, such as Beyond Performance, we (and others) have shown that when companies manage with an equal eye to performance and health, they more than double the probability of outperforming their competitors. Our latest research, at more than 800 organizations around the world, revealed several new twists:

o We found that the linkage between health and performance, at both the corporate and subunit level, is much clearer and much larger than we had previously thought. With the benefit of more data and a finer lens, we discovered that from 2003 (when we began collecting data on health) to 2011, healthy companies generated total returns to shareholders (TRS) three times higher than those of unhealthy ones.

o We further discovered that companies consistently outperforming their peers generally followed one of four distinct organizational “recipes.” We had already recognized these patterns but hadn’t understood their strong correlation with health, operational success, and financial performance.

o We also uncovered a practical alternative to the common (but too often disappointing) approach of seeking to improve corporate health by closing every benchmark and best-practice gap. More tailored initiatives that combine efforts to stamp out “broken” practices while building signature strengths not only are more realistic but also increase the probability of building a healthy organization by a factor of five to ten.

In short, we’re more convinced than ever that sustained organizational health is one of the most powerful assets a company can build. We’re also clearer on how to achieve it, including the pitfalls to avoid on the road. We hope this is welcome news to leaders worried about the long term, who frequently complain to us that the benefits of their one-off reorganization initiatives are ephemeral.

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Here is a direct link to the complete article.

Aaron De Smet is a principal in McKinsey’s Houston office, Bill Schaninger is a principal in the Philadelphia office, and Matthew Smith is a principal in the Washington, DC, office.

The authors would like to thank Michael Bazigos, Scott Blackburn, Lili Duan, Chris Gagnon, Scott Rutherford, and Ellen Viruleg for their contributions to the research presented in this article.