Organizational Health 101: How to Assess and Improve It?

As a business owner, you're likely familiar with the term "organizational health." It's a concept that helps leaders build resilient, sustainable, and robust companies that can operate effectively in the long run. Given the ever-changing nature of modern business, a company's health is closely tied to its productivity, profitability, and other key factors. In this post, we'll explore the concept of organizational health and provide tips on how to measure and enhance it.

What Is Organizational Health?

Organizational health refers to the overall well-being of a business. It encompasses factors such as employee satisfaction, operational efficiency, financial stability, and the ability to adapt to change. 

For companies to thrive in today’s business environment, those with good organizational health can make informed decisions, assess risks, and drive growth, innovation, and profits. Companies with a healthy workforce can also anticipate and tackle change proactively to avoid potential issues - creating a sustainable business model that can withstand economic downturns and grow in the long run.

Organizational Health: Fast track to business performance improvement

Often, the drive to meet financial targets can lead business leaders to solely prioritize the balance sheet, disregarding a controllable and measurable factor that has proven to be effective in accomplishing success: organizational health.

Investing in the health of your organization can lead to increased profitability for a variety of reasons:

• Employees who are happy and fulfilled in their positions are more likely to be productive and motivated, which can translate into higher sales and better customer experiences. 
• A strong company culture that emphasizes open communication, collaboration, and innovation can foster a sense of loyalty and commitment among employees, reducing turnover and helping to attract top talent. 
• Additionally, focusing on employee wellness and work-life balance can reduce absenteeism and healthcare costs, as well as improve morale and job satisfaction.

4 Metrics to Assess Your Organizational Health?

Frequently monitoring and evaluating the well-being of your company is essential. It allows business leaders to apply fixes whenever needed and avoid unsustainable growth. Here are four significant indicators to take into consideration.

1. Revenue per employee

Revenue per employee (RPE) calculates the average profit that each employee makes. Organizations can assess the effectiveness, productivity, and profitability of every person and the business as a whole by looking at their revenue per employee. 

A higher RPE typically means that your employees have a higher level of productivity and efficiency.

2. Cost per employee

Cost per employee (CPE) measures how much it costs to employ each team member. This includes expenses like sourcing and recruitment advertising costs, onboarding, and referral bonus program costs. This metric gives insight into how efficient your organization is at managing its resources. 

Lower CPE doesn’t have to be your go-to every time you monitor your organizational health. However, you want to ensure you receive value for your invested money.

3. Average span of control

The average span of control is an important metric in organizational design. It measures the number of employees reporting directly to a manager. It’s a significant health indicator that helps business leaders find a balance within their organizations.

By analyzing this metric, you can get an idea of how many layers of management your organization has and if the current structure is efficient.

Span of Control

4. Layers for each department

Layers for each department is a metric that indicates the number of layers of management in each department of your organization. This metric gives insight into how bureaucratic your company is. 

A lower number of layers typically indicates that your organization is more agile and able to adapt quickly to change.

Layers and Depth

3 Tips to Improve Your Organizational Health

In addition to the metrics mentioned above, here are three tips to help you improve your organizational health and make sure that your business is poised for success.

1. Stop oscillating between hiring and firing

Keeping track of important headcount metrics and quickly identifying outliers and trouble areas can help you make informed decisions and take necessary actions to ensure your team's success. With the right tools and resources, you can stay on top of your organizational health and guarantee that your operations run smoothly.

Say goodbye to having to hire and fire all the time!

2. Keep your organization lean and mean

It’s essential to track your span of control ratios and the number of layers in your company to ensure you are not creating unnecessary bureaucracy. Additionally, analyzing headcount distribution will help you identify areas that are overstaffed or understaffed, allowing you to make informed decisions about resource allocation. You can build a more efficient, effective, and productive workplace by taking a thoughtful approach to organizational design.

3. Monitor your headcount spend in real-time

The last tip is to avoid unsustainable growth and manage your burn. One way to do this is by tracking headcount spend by department, location, and other relevant factors. By identifying salary outliers and monitoring your salary distribution, you can ensure that your resources are allocated most effectively and efficiently.  

With these measures in place, you can confidently navigate growth challenges and ensure your organization remains healthy, sustainable, and successful for the longer term.

Headcount Planning

Conclusion

Maintaining the health of your organization is crucial to ensuring long-term success. By measuring and monitoring key indicators, such as revenue per employee, cost per employee, and average span of control, you can gain valuable insights into your organization's efficiency and productivity. 

Achieving organizational health can only be accomplished by significantly reducing bureaucracy and closely monitoring headcount expenditure in real time. These measures will result in a streamlined and highly efficient operation that will pave the way for success. To learn more about how Agentnoon can help you enhance your organizational health, schedule a demo call with us.