How Organizational Capital Boosts Financial Performance
Companies have significantly better financial performance when they create a culture of consultative and challenging leadership, skill development, and collaboration. These factors also support bottom-up innovation, and positive and inclusive work environments, that McKinsey referred to as building “Organizational Capital.”
Sustained Excellence
McKinsey’s Global Institute looked at the impact of investing in human capital and skill development on company performance. Looking at 1,800 large companies across 15 sectors they assessed how much these companies focused on human capital and whether they financially outperformed their sector peer.
It turns out there is a significant impact. The study identified what McKinsey calls People + Performance Winners. These companies excel at creating opportunities for employees to build skills, which they measured by looking at internal mobility, training hours, and organizational health scores. They also consistently clear the highest bar for financial performance. P + P Winners achieve more consistent results and have greater earnings resilience, along with the ability to attract and retain talent.
McKinsey asked, ‘How did they succeed on both fronts?’ The additional key element for these companies is what McKinsey calls Organizational Capital – their management practices, systems, and culture. It’s not enough to simply hire and train the great talent, it’s essential to create the environment where they can thrive. Think of it as the car that surrounds a driver. Even the best drivers are able to perform at higher levels when they have the best steering, braking, engines, and safety features in their cars.
As McKinsey noted in their report, “P+P Winners have a distinctive signature characterized by consultative and challenging leadership styles; bottom-up innovation and collaboration; positive and inclusive work environments; and rewards and advancement opportunities for employees.”
This research is important for all HR professionals and leaders who care about performance. It reinforces the view that we at NextBridge have always held: People and company performance are a “both/and”conversation. Investing in one while not investing in the other will move the needle on some indicators of company success, but it won’t create sustained, consistent success in a variety of economic environments. Those companies that have the highest success are those that excel at balancing their investments and building organizations that thrive.
