Improving organizational health in Indian companies

McKinsey research shows that organizational health is the strongest predictor of long-term value creation, offering a sustainable competitive advantage. Over time, healthy organizations consistently deliver three times the TSR of their less healthy counterparts, regardless of industry.¹Alex Camp, Arne Gast, Drew Goldstein, and Brooke Weddle, “Organizational health is (still) the key to long-term performance,” McKinsey, February 12, 2024.

In this article, we discuss insights from a McKinsey study that surveyed 50 organizations in India and 79,735 employees inside these organizations to explore how Indian organizations can bolster their organizational health. We identified several crucial practices across three categories that support these efforts. Each category builds upon the other like layers of a pyramid, first establishing a general foundation of practices, then employing essential regional practices, then finally developing distinguishing practices (Exhibit 1).

Image description: A pyramid chart shows the factors that make up good organizational health in India, starting with foundational practices at the base and ending with differentiating practices at the peak. The base layer consists of universal power practices that every organization should have, such as strategic clarity, role clarity, personal ownership, and competitive insights. The middle layer consists of foundational practices that Indian companies prioritize, such as decisive leadership, meaningful values, employee conduct and innovation, process based capabilities, and talent acquisition and enablement. The top layer consists of differentiating practices that only the healthiest companies in India prioritize, such as customer orientation, talent deployment, and operational discipline. Source: Organizational Health Index, McKinsey, 2024, 682 surveys in global database (n = 2,619,975), 50 surveys from organizations based in India or surveys with greater than 50 respondents in India (n = 79,735) End of image description.

Universal ‘power practices.’ Four essential power practices form the foundation of our organizational health pyramid for India. Working on these practices is a no-regrets move to build a healthy organization globally and locally.

Local foundational practices for Indian companies. A step above the power practices, this list includes seven practices prioritized by all Indian companies in our survey, implying that they are foundational for success in India.

Differentiating practices of the healthiest organizations in India. Finally, at the top of the pyramid, the study identified the three practices that only the healthiest organizations in India focus on. These distinctive areas of focus demonstrate how other Indian businesses can build healthy organizations. Understanding these three practices is critical for organizations to not only build a best-in-class organization globally and locally but also cater to the unique talent requirements and growth drivers of the Indian market.

In this article, we take a look at each level of the practices. Organizations that successfully replicate these practices can bolster their organizational health and exceed market performance (see sidebar, “Assessing organizational health”).

The universal ‘power practices’

Starting from the bottom of the pyramid, these four foundational practices are indispensable for organizations across regions and sectors looking to improve their health. Regardless of the size and scale of the organization or the countries of operation, these practices form the foundation on which businesses can carry out their organization’s health agenda:

1. Strategic clarity. Healthy organizations effectively translate their visions and strategies into actionable and measurable objectives. These objectives are clearly articulated and shared with employees at all levels of the organization.
2. Role clarity. Employees in healthy organizations function within structures that create clarity and accountability for job tasks, and they understand how their roles contribute to the organization’s broader objectives.
3. Personal ownership. Healthy organizations create an environment in which employees feel personally obligated to do good work and invest in achieving performance objectives. This practice is also supported by leaders who encourage employees to have a personal stake in their jobs.
4. Competitive insights. Healthy organizations create an ecosystem that identifies and monitors competitors’ strengths and weaknesses. They assess the markets and then incorporate these insights into decision-making. This practice is integral to build an understanding of the competitive environment and how the company fits into that landscape.

These four practices are evergreen,²For additional information, see “Healthy organizations keep winning, but the rules are changing fast,” McKinsey Quarterly, August 2, 2024. regardless of advances in technology or changes in work culture. For all organizations, including those we surveyed in India, these are basics that are vital to maintain good health. If a company faces issues in any of these categories, it should tackle them immediately before prioritizing other initiatives. Then, it can layer on more region-specific practices.

Local foundational practices

To build a sustainable culture, companies can supplement the foundational power practices with foundational practices emphasized widely across India. Based on our research, seven practices fall into this category:

1. Decisive leadership. Organizations in India prioritize decisive, action-oriented leadership, which fosters clarity and momentum in decision-making.
2. Meaningful values. Organizations in India have values that people can relate to and appreciate, which helps leaders build connections at all levels of their organizations and rally employees behind them.
3. Employee conduct. Indian organizations enforce behavioral expectations and address misconduct.
4. Process based capabilities. Organizations in India document institutional knowledge and procedures, ensuring that this knowledge is preserved.
5. Employee innovation. Indian organizations encourage employees across levels to pursue innovation and continuous improvement.
6. Talent acquisition. Indian organizations emphasize new energy and fresh ideas by attracting the best external talent when and where it is needed.
7. Tech enablement. Organizations in India embrace technology to optimize business performance.

Local differentiating practices of the healthiest organizations in India

At the top of the pyramid, our research highlights three practices that set the top Indian companies apart. Our findings show these actions are most emphasized in the day-to-day by the healthiest organizations in India and differentiate and elevate them from the rest (Exhibit 2).

Image description: A slope chart compares the rankings of the top 12 practices the healthiest organizations prioritize with the rankings of the unhealthiest organizations. On the left side, the top five practices that the healthiest organizations prioritize are customer orientation, operational discipline, tech enablement, talent deployment, and decisive leadership. On the right side, the top five practices that the unhealthiest organizations prioritize are performance goals, talent acquisition, employee innovation, process-based capabilities, and tech enablement. Ten of the top 12 practices for the healthiest organizations are differentiating or local foundational practices, and only eight of the practices of the unhealthiest organizations are local foundational practices. Note: The top 12 practices are those that healthy organizations uniquely emphasize, meaning the practice is in the top 12 of the practice rank for healthy top quartile and at least +12 rank difference from unhealthy bottom quartile organizations. Healthy organizations reflect the top 25% of Organizational Health Index scores in the selected sample (n = 15); unhealthy organizations reflect the bottom 25% of Organizational Health Index scores in the selected sample (n = 12). Source: Organizational Health Index, McKinsey, 2024, 682 surveys in global database (n = 2,619,975), 50 surveys from organizations based in India or surveys with greater than 50 respondents in India (n = 79,735) End of image description.

1. Talent deployment. A key determinant of a high-performance culture is how talent and resources are optimally used. The healthiest organizations in India ensure the right people are in the right positions at the right time, which is essential for achieving performance objectives.
2. Customer orientation. India is a highly competitive market, with multiple companies vying for the same customers. Healthy organizations in India understand the dynamic nature of stakeholders in their external environment (customers, competitors, and business partners, for example). They focus on keeping customer priorities at the center of decision-making, delivering the best possible experience to gain a competitive edge.
3. Operationally disciplined. Healthy organizations relentlessly pursue operational efficiency through structured and disciplined processes. A strengthened execution muscle differentiates organizations, taking performance from good to great.

Sustaining good organizational health means treating it as a powerful tool to achieve long-term success. Measuring and managing organizational health with the same rigor as performance is imperative to maintain a competitive advantage. By leveraging these insights and practices, Indian organizations can achieve and sustain exceptional performance, ensuring long-term success and resilience in an ever-evolving business landscape.

Enabling an organization’s health agenda

High-performing organizations don’t just prioritize management practices or health outcomes—they build sustainable strategies to continuously improve their organizational health. To move from good to great, companies must focus on driving the behavioral shifts that enable sustained improvement, aligning culture with business goals, and meticulously planning the critical steps and structures needed to make change stick.

While most organizations focus on diagnosing behavioral shifts across different kinds of cultures and climates, most of them struggle to translate these insights into measurable improvements. This challenge deepens when it comes to companies solidifying consistent actions that ensure improvement over the years. Together, this trend highlights a common challenge: turning awareness into action. As the book CEO Excellence points out, “making soft stuff happen is hard.”³Carolyn Dewar, Scott Keller, and Vikram Malhotra, CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest, Scribner, 2022. Driving meaningful and consistent change requires a systemic approach. McKinsey’s years of work with clients in delivering large-scale transformation has captured this approach into the four quadrants of the Influence Model, which focuses on role modeling, fostering understanding and conviction, building capabilities, and reinforcing change through formal mechanisms.⁴Tessa Basford and Bill Schaninger, “The four building blocks of change,” McKinsey Quarterly, April 11, 2016.

Organizations that have successfully achieved and maintained better organizational health in pursuit of their performance agenda offer valuable lessons. For instance, a global consumer goods company with the goal of becoming a sustainability leader invested in leadership development programs that included real business challenges to encourage its leaders to spearhead the change. Another example comes from a financial-services firm seeking to encourage a high-performance culture that used real-time metrics and dashboards to track progress, enabling leaders to course-correct quickly and maintain momentum. Additionally, companies that integrate rewards and recognition into their change programs—firms that tie incentives to specific cultural behaviors—have seen significant boosts in employee buy-in and sustained engagement.

For organizations ready to embark on their change journey, McKinsey recommends a practical, action-oriented approach. Critical nonnegotiable steps could include the following:

1. Start by defining the North Star for both business performance and organization health, as well as the prioritized management practices that will help achieve this aspiration.
2. Design targeted interventions at both the program and intervention level to address specific behavioral gaps in target cohorts.
3. Identify key leaders (sponsors and other change agents) and encourage them to take ownership of the desired changes to the organization.
4. Establish clear metrics to measure progress and ensure accountability.
5. Deliver goals with mechanisms in place to provide continuous feedback and adaptation.

By taking these steps, organizations can initiate change and sustain it, creating lasting impact and unlocking their full performance and people potential.