Most Organizations Are Unable To Turn Critical Decisions Into Action

European organizations are more effective than those in the U.S. — China reports a high rate of healthy organizations.

NEW YORK, November 1, 2005 — Most organizations exhibit "unhealthy" traits and behaviors that prevent them from turning decisions into action, according to new research by Booz Allen Hamilton. Globally, the U.S. has a higher rate of ineffective organizational profiles than every country in Europe. By contrast, China ranked near the top of the study in organizational health.

Booz Allen based its results on more than 50,000 responses to both an online evaluation tool and individual company surveys. The Org DNA Profiler^SM diagnoses distinct organizational personalities by examining a company's structure, decision rights, motivators and information. Companies are then sorted into one of seven distinct organizational DNA profiles, defined below. The Profiler captured data from 24 industries, 100 countries, and more than 10 internal departments and functions. Key findings of the study include:

Most organizations are unhealthy. By a margin of nearly 2 to 1, respondents declare their own organizations are ineffectual. Only 31% of those who filled out the survey at www.orgdna.com reported traits and behaviors found in a healthy organizational profile. The survey found "passive-aggressive" to be the most common corporate type, at 27%. Such an organization seems congenial, even conflict-free, yet still resists meaningful change.

Booz Allen's research has found that healthy organizations are defined by their ability to turn important decisions into action. "Healthy organizations are good at execution — they get things done," said Gary Neilson, Senior Vice President of Booz Allen, and author of the recently-published book, "Results: Keep What's Good, Fix What's Wrong, and Unlock Great Performance," by Gary Neilson and Bruce Pasternack (Crown Business). "By contrast, unhealthy organizations stumble and eventually stagnate — they can't execute."

Organizational health varies by country, and the U.S. trails most of the world. More than 15,000 responses reported the country of origin, and these responses revealed significant differences across regions and countries. The news is not good for the U.S. Every European country, bar none, has a higher ratio of healthy to unhealthy profiles than the U.S., and only Japan, Canada and Australia ranked lower. A second arresting finding is that China is one of the most robust nations when it comes to organizational health. More than half (54%) of all surveys completed in China resulted in a healthy profile, versus 31% in the overall sample and 33% in the U.S. Japan had the lowest percentage of healthy profiles, at 19%.

Larger organizations are more unhealthy. Profiles often change as organizations adapt to changes in culture and the competitive environment. However, these changes are usually for the worse, not the better. Large organizations are more likely to exhibit dysfunctional traits and behaviors and report an unhealthy profile than smaller firms. Smaller organizations, those with revenues up to $500 million, reported 41% healthy and 59% unhealthy profiles, compared to only 27% healthy and 73% unhealthy for those with revenues over $10 billion.

Some industries are unhealthier than others. No industry emerged as particularly healthy, and the utilities industry had the highest proportion of dysfunctional organizational types, with 76% unhealthy and 24% healthy profiles. Other "unhealthy" industries include energy, healthcare, capital goods and technology hardware. The "healthiest" industry is real estate (45% healthy vs. 55% unhealthy), followed by commercial services and supplies, food/beverage/tobacco, and retail.

Unhealthy organizations lack clear decision rights and don't share information effectively. Overall, only 45% of respondents believe that people in their organization have a clear idea of what they are accountable for. Among "unhealthy" profiles, that number drops to 23%. In ineffective organizations, only 16% believe information flows freely within their organizations, and only one in five feel that they and their colleagues have the information they need to understand the bottom line impact of their day-to-day choices.

Healthy organizations are nearly twice as likely to be profitable as their unhealthy peers. Not surprisingly, 48% of respondents who generated healthy profiles report better-than-industry-average profitability versus 27% of those who describe their organizations as unhealthy.

Senior management sees a far rosier picture than the rest of the organization. Sharp differences emerged between the attitudes of senior management and those of lower-level groups. Senior management was consistently more optimistic in their assessment of organizational health, suggesting that executives are out of touch with the rest of their organization.

Additional details from the evaluation include:

Within Europe, Switzerland (64% healthy vs. 36% unhealthy) ranked highest, followed by Italy (55% vs. 45%%), Finland (46% vs. 54%), France (45% vs. 55%), Sweden, (44% vs. 56%), Germany, (43% vs. 57%), the Netherlands, (38% vs. 62%), and the UK (36% vs. 64%). The U.S. had 33% healthy profiles, compared to 67% unhealthy profiles.

Overall, 54% of senior managers view their organization as healthy, compared to 33% in middle management, 30% of business unit staff, and 29% of corporate staff and line management.

78% of respondents in healthy organizations feel that everyone has a good idea of the decisions/ actions for which he or she is responsible, compared to 23% of respondents in dysfunctional organizations. In addition, 77% of respondents in unhealthy organizations said that decisions were often second guessed, compared with only 37% in healthy ones.

Information flows freely across boundaries more often in healthy organizations vs. unhealthy (61% vs. 16%); In healthy organizations, 78% said conflicting messages are rarely sent to the marketplace, compared to 39% of unhealthy organizations.

The organizational types most likely to be more profitable than their peers are Resilient (51%), Just-in-Time (47%) and Military Precision (40%). Passive Aggressive (28%), Fits-and-Starts (27%), Outgrown (26%) and Overmanaged (23%) are least likely to have above-average profitability.

Booz Allen designed this evaluation tool to provide insight into the basic elements of organizational effectiveness. "The first step in resolving execution breakdowns is to understand how the inherent traits of an organization influence — and even determine — how each individual thinks and acts on the job," said DeAnne Aguirre, Senior Vice President of Booz Allen. "That behavior is what drives results."

Methodology

More than 50,000 respondents overall completed an online evaluation to identify the "organizational DNA" that affects employee behavior and corporate performance. Approximately 30,000 respondents identified their organization's structure by completing Booz Allen's online evaluation, which is available at www.orgdna.com. An additional 20,000 participated in client-specific surveys set up for corporate, government, and not-for-profit organizations. The data includes responses from twenty-four industries, 100 countries, and more than ten internal departments and functions. Position or level within an organization as well as revenue size is included in the data.

Organizational Profiles

Of the seven organizational types identified by Booz Allen, three are considered "healthy":

Resilient: Flexible enough to adapt quickly to external market shifts, yet steadfastly focused on and aligned behind a coherent business strategy.

Just-in-Time: Inconsistently prepared for change, but can turn on a dime when necessary, without losing sight of the big picture.

Military Precision: Often driven by a small, involved senior team, it succeeds through superior execution and the efficiency of its operating model.

Four organizational profiles were identified as "unhealthy":

Passive-Aggressive: Congenial and seemingly conflict-free, this organization builds consensus easily but struggles to implement agreed-upon plans.

Outgrown: Too large and complex to be effectively controlled by a small team, it has yet to "democratize" decision-making authority.

Overmanaged: Multiple layers of management create "analysis paralysis" in a frequently bureaucratic and highly political environment.

Fits-and-Starts: Contains scores of smart, motivated and talented people who rarely pull in the same direction at the same time.

Booz Allen's DeAnne Aguirre, Lloyd Howell, David Kletter, and Gary Neilson are the authors of the full report, "A Global Check-Up—Diagnosing the Health of Today's Organization."