Organizational Health vs. Smart: Why Healthy Companies Win (The Advantage, Part 1)

How much energy is wasted inside your company every week? Not on the work, but on the games around the work: the meetings before the meeting, the emails you copy yourself on to cover your back, the confusion about who to ask. If you could put dollars on it, you would be shocked. And that is only half of it, because the same confusion and chaos means you are not making the money you should be making anyway. You get pounded twice.

This episode kicks off a two-part series on The Advantage: Why Organizational Health Trumps Everything Else in Business by Patrick Lencioni. His big claim: organizational health is the greatest untapped competitive advantage in business. I work with company owners all over the country, and I believe it completely.

What is the difference between a smart company and a healthy company?

Lencioni says most organizations spend an enormous amount of time on being smart, and very little on being healthy. A smart company focuses on the traditional parts of business: strategy, marketing, finance, technology, operations, product development and competitive advantage. I say yes to all of it. You need a strategy. You need to be a beast operationally, on time, efficient and profitable. That is where my own gifting is.

But these are the technical and intellectual parts of running a company, and they are where business schools, consultants and executives spend most of their time. A healthy company is also smart, but it adds a focus on people and the organization itself. Why does that matter? Because when two companies compete in the same market doing very similar things, the one that is a great place to work with a great culture tends to outrun the other.

I see smart companies struggle in three places most often:

• Marketing. Many have not figured out how to share who they are and what makes them different.
• Finance. We are not great at knowing our numbers and tracking them day to day, week to week and month to month.
• Technology. Even smart companies are not fully using what is available to them today.

What does a healthy organization look like?

Here is what you find inside a healthy company:

• Trust among team members. People can say what needs to be said.
• Productive conflict. Conversations that may get heated, but are productive.
• Commitment to timely decisions.
• Accountability. Leaders, department heads and parents are accountable for what they are responsible for.
• A focus on results. Not on being busy and working long hours.
• Clear communication. I have walked into companies of 10, 15 or 20 people and heard someone on the front line say they honestly do not know who to talk to. They thought Bill was the guy, but Bill said to talk to Susie, and Susie said that is John's. In a healthy company, everyone knows who to talk to.
• Leadership alignment, low politics and low confusion.

Our job as leaders and managers is to create and maintain environments where people can crush it. Organizational health means people work together, and work together effectively, without a lot of drama, politics or confusion.

A few questions will tell you where you stand. Does your leadership team trust one another enough to close the door and have the hardest conversation, even a personal one? Is everyone clear on priorities and how they are measured? Are leaders sending the same message? Are people holding each other accountable, not to catch someone doing wrong, but to ask how are your results and what can I do to help?

What are the signs of an unhealthy organization?

1. Politics. Games, meetings before the meeting, make sure you do not say that, make two copies and keep one. All of it is a waste of time and energy.
2. Confusion. People are not sure what they are supposed to do, how to respond or even whether a task is theirs. It hurts morale, profitability and customer satisfaction.
3. Low morale. People who arrive right at start time, leave right at the end, and stay only because the pay is decent and the job is easy. Low morale crushes profit and customer satisfaction.
4. Silos. Nobody knows what is going on because there is no way to communicate clearly. You have to find the right person with the right computer. It is I, I, I, not we.
5. Poor communication. I do not know who is in charge. The last time I brought something up, somebody got mad. So I will not bring it up again.

Why does organizational health pay off?

I spent 20 years at a company in Atlanta where the owner appreciated us. We worked hard, we communicated, we were trained, and we were celebrated with trips, bonuses and anniversary gifts. I never looked for another job in all that time. That is the first benefit. Here are the others:

1. Lower turnover. There are not enough great places to work, so when you find one, you stay.
2. A better customer experience. Empowered, accountable people with the right tools handle customers better. They fix the process when something was unclear.
3. Higher profitability. I have watched a company climb from 5% margins to 20% margins over about three years by getting healthy.
4. Faster decisions. Time is money. Healthy teams get in the room, gather the facts they have, and decide. A wrong decision made quickly, then adjusted, still beats waiting weeks or months while you lose opportunities and pay interest.
5. Better execution. The team is on time, margins are right and customers are happy. Everything starts to work.

Lencioni describes four disciplines of a healthy organization: build a cohesive leadership team, create clarity, overcommunicate that clarity, and reinforce it. Part 2 of this series covers the last three. This part covers the first.

Why does trust have to come before strategy?

Lencioni's phrase is trust before strategy. John Maxwell said everything rises and falls on leadership, and I have found that to be true. If owners, department heads and VPs are on the same page and trust one another, you can go crush strategy. If not, the best strategy in the world will stall.

Here is what breaks leadership teams:

• Egos. Someone who thinks what they need to say is more important than what others need to say. There is no I in team, but ego removes the we.
• Politics and hidden agendas. People leaving a meeting and holding a second meeting to say they will do something different. Politics is fear based, and fear is a terrible filter.
• Lack of trust. The inability to close the door and have a difficult conversation. The hardest voice to manage is the one in your own head, telling you to table it for later.

Your homework, if you have not done it: read The Five Dysfunctions of a Team by Patrick Lencioni, and get your leadership team to read it too.

What is vulnerability-based trust?

Vulnerability means being able to say, I messed up. I told the story of a pastor who stood on stage one Sunday and told the whole church that he and his wife were struggling as parents. You could feel the room relax. If the person in charge is struggling too, it is okay that I am. Business works the same way. If you are the VP of sales and your team missed a week of follow-up, say it: we missed this, I did not manage it, here is the new process, you will not see it again.

Two other parts of this:

• Ask for help. No one has all the gifts. You have two, three or four things you are amazing at. When you say I am not good at this, who can help, someone will step up.
• Practice authentic leadership. Say it like it is. If cash flow is tight, talk about it. If customer satisfaction is terrible, talk about it. If you are crushing it, talk about that too. Leaders who hide the truth cannot get help carrying the load, because people cannot help with a load they cannot see.

So I will ask you: when was the last time you admitted to your team that you were wrong? If it has never happened, change that. If it has been a while, it is time for another.

How do you have healthy conflict without it getting personal?

Healthy cultures are not afraid of conflict that is heated but respectful and business, not personal. Close the door and say, this is not acceptable, let us talk about what happened, why we thought it was the right decision, and what we learned. Someone may even be in tears over a costly mistake, and that is okay. Then figure out where the process went sideways and put a new checklist or guardrail in place.

Two rules keep it healthy. First, fight in the room, leave united. You can argue hard, but once the decision is made and everyone has said I will support this, you walk out as one team. Second, avoid artificial harmony. If you are thinking this is ridiculous while you smile and say it will be fine, that is a lack of trust. Say it out loud. Better decisions come when people get it off their chest, we work it through, forgive, and move forward.

The takeaway for part one: healthy organizations start with a healthy leadership team. In a small company, that might be two or three people. Start there.