Sweet Spot – GLOH

Building Blocks of Resilient Organisations: locating the Sweet Spot at the intersection of Governance, Leadership and Organisational Health.  

An overall organisational success lies across many successful dimensions, and there is no one element that will make or break the organisation on its own. Instead, all dimensions work harmoniously to achieve favourable results, so that if one element lags, the other can support that. It is for this reason that organisational success cannot be attributed to one specific thing, but instead, we should attempt to delve deeply to understand how the key elements interact with each other to bring about long-term, sustainable results.   Throughout the Covid-19 pandemic, we have seen that organisational resilience has been one of the key factors that enabled organisations to successfully navigate the unprecedented times and transform themselves when faced with challenges. So, we decided to take a look at what constitutes organisational resilience and how organisations can build it, bringing about transformative change in the process. The key for this – finding the Sweet Spot.   But first, what do we mean by Sweet Spot?  The definition of sweet spot is an optimum combination of factors or qualities, or a particular point where something will be most effective and beneficial. So, how do we locate the sweet spot of resilience in organisations?   Organisational resilience is directly linked to company leadership and people who make up the organisation. In most organisations, this will extend across three levels – corporate governance, which determines the company strategy and direction; leadership, which shapes how the organisation is being led and how the strategy is communicated; and organisational health, which is the general outlook on how the organisation interacts with its employees and how they interact with the organisation as a result. So, for us, the sweet spot in resilient organisations is found at the intersection of good governance, phenomenal leadership, and great organisational health. It is these elements that directly contribute towards the overall success of any organisation.   Sweet Spot – delving into the details  Governance, leadership, and organisational health are closely interconnected and directly impact each other. However, getting only one of the components right is not sufficient. Each of these essential pillars provide organisations with a strong foundation for long-term success and enable organisations to reach their optimal level of growth.   So, let us have a closer look at the three pillars we believe organisations need to optimise to the right level, in order to find their sweet spot of sustained high performance.  Governance  Governance is to an organisation what an oven is to a cake mix. The oven, especially at the right temperature, is what “makes” (nice golden colour and texture) or breaks (burns, dries out) a cake.  Corporate Governance is concerned with the way in which companies are directed and controlled and to what purpose. It identifies who makes decisions, and who has accountability, authority, and power. It also ensures that businesses have appropriate decision-making mechanisms in place and that the interests of all stakeholders are considered, balanced, and managed. It is widely recognised that good governance is imperative to the success of an organisation, regardless of its size, and plays a key role in adding value and maintaining the trust of stakeholders. As a custodian of the organisational culture the board is also responsible for setting the right tone for a healthy environment. The board needs to reflect and uphold the company values, principles, and purpose in the way they deliberate, make decisions, and operate. This is probably the most important step towards shaping the organisational culture.  As the core entity that moves the organisation in the desired direction, it is imperative that organisational resilience also starts at the board level. Not only will this directly influence the organisational culture in a positive way, but it will also enable the organisation to adapt to change quicker. A study conducted by McKinsey has looked at how the Covid-19 pandemic has challenged the way companies work. It found that the most resilient and adaptable boards that implemented structural and process changes, as well as strengthened collaboration between directors and the management, said that their boards’ decisions and activities had a high or very high impact on the organisation’s value creation during the crisis. This shows that as the pandemic is pushing corporate resilience to the top of the board agenda, it will be imperative that boards continue to reflect the qualities and values that are related to resilience, such as agility, flexibility and adaptability, if they are to remain in the world that is moving at a pace that is faster than ever.   Leadership  Organisational leadership is the primary responsibility of the company’s C Suite and particularly, the CEO (Chief Executive Officer). A company’s leadership is the bedrock of its success, as the purpose of leadership is not only to implement strategic thinking and accomplish the goals and objectives, but to also communicate the purpose, vision, and goals of the organisation effectively. It’s about communication in overdrive.   This communication is imperative for establishing a healthy organisation in which employees are engaged with the company’s vision and goals, feel a sense of belonging and buy into the purpose of the organisation. The findings from McKinsey’s survey illustrate the importance of this – 82% of employees believe that a company purpose is important, but only 42% said that their company’s stated purpose drives impact. Phenomenal leadership will avoid such gaps and reinforce behaviours that reflect organisational purpose and values, whilst inspiring others to perform in their best capacity. This way, leaders become the glue that holds the organisation together, and act as a bridge between governance and the overall organisational health.   ‘’Governance and leadership are the yin and the yang of successful organisations. If you have leadership without governance you risk tyranny, fraud, and personal fiefdoms. If you have governance without leadership you risk atrophy, bureaucracy, and indifference.’’  

• Mark Goyder, a founder of Tomorrow’s Company. 

Organisational Health  Organisational health is the single, greatest advantage of a company, and essentially, is a result of good governance and phenomenal leadership. When we speak about organisational health, we are not only speaking about the culture of the organisation but the overall way in which the organisation works. Most leaders focus on “smarts”, such as strategy, marketing and finance. Smart organisations are good at decision sciences in technical or functional areas, all of which are critical. Healthy organisations, on the other hand, create the kind of empowering and inclusive cultures that can take advantage of a ‘’smart’’ environment. They minimise or eliminate toxins, such as politics and confusion, and raise morale and productivity, and by doing so, retain the best employees.   Organisational health is closely linked to increased innovation, productivity and motivation. Nearly every company sees significant advancements in their business, financial performance and innovation when they improve company culture. In a healthy organisation, employees are engaged with the strategy, and are aware of the company’s purpose, direction, and values. Needless to say, the overall organisational health is what contributes to the resilience of organisations. According to McKinsey, it is ‘’even more critical in times of constant change and extreme uncertainty, when the ability to quickly align, execute, and renew can be the difference between floundering and thriving.’’   Creating a culture that encourages honest conversations and facilitates an environment where people can thrive and perform to the best of their abilities, requires not only a strong commitment from the leadership, but also a continual oversight from the board. However, if leaders commit to investing in these improvements, companies will benefit from it significantly, even with minor changes in place.   —  Good governance, phenomenal leadership and excellent organisational health can transform any organisation and bring long-term, sustainable success. It is imperative that organisations invest in each of these elements to create that tripartite ecosystem, if they are to reap the benefits of high performance. Companies that find this sweet spot win, and people who work in them – thrive. The Covid-19 pandemic has highlighted the need for good governance, leadership, and organisational health more than ever before. It is these three pillars that have enabled organisations to be agile and thrive in times of uncertainty. Our hope is that the organisations that find their sweet spot can become an example of best practice and drive forward the values of excellence and integrity, establishing those as a norm, rather than exception.   —  How We Work with Organisations to Find the Sweet Spot  Governance  At Lumorus, we can help you to identify the key components of good governance framework for your particular organisation. Our range of governance advisory services are designed to enable the board to provide effective stewardship and to help the management to understand how the company’s strategy and operations impact all of its key stakeholders and drive long-term performance.  Leadership  Leadership sits at the heart of what we do. For us, the journey to a successful company starts with building great leaders, because great leaders are capable of inspiring and nurturing greatness in others. We believe that when nurtured, leadership has the power to generate not only greater profits but also to build better societies. Our goal is therefore to develop exceptional leaders by helping them exceed the limits of their own expectations and ultimately boost performance and impact. Through our portfolio of bespoke services, we can help you to measure the effectiveness of your leadership, navigate challenges, take decisive action, and build your resolve to drive your organisation’s performance, inspire your team and create long-term value.  Organisational Health  In our view, organisational health is deeply correlated with performance sustainability as it is an indicator of company’s ability to align around and achieve strategic goals. We believe that boards and management teams can help foster long-term shareholder value by forging a culture that is aligned with the business strategy. Therefore, at Lumorus we closely align and relate organisational health to theories and methodologies regarding sustainable performance. As with all our solutions, our organisational health approach is grounded in our engagement framework and our core values. We will partner with you to help you transform your organisational health into one which embeds inclusive behaviours across the business and an environment in which your people feel they belong.  Everything we do is data driven, practical, relevant and works at a pace that fits your organisation. So, let us help you find your Sweet Spot!  Sources  ICAEW, 2013. What are the overarching principles of corporate governance?  London Stock Exchange Group, 2012. Corporate Governance.  McKinsey, 2020. Purpose: Shifting from Why to How.  McKinsey, 2017. Organizational health: A fast track to performance improvement.  McKinsey, 2021. How boards have risen to the COVID-19 challenge, and what’s next.  PwC, 2015. 18th Annual Global CEO Survey.   About Lumorus  Lumorus is a UK-based governance, leadership & organisational health consultancy. We provide bespoke services using a mixture of diagnostic tools and development that assist organisations and their leaders to perform and create long term value. To find out more about our organisation, visit our website at https://www.lumorus.com.