HOW ORGANIZATIONAL HEALTH INDEX CAN BE USED TO

IMPROVE LONG TERM PERFORMANCE IN A STATE-OWNED

ENTERPRISE IN INDONESIA
Adi Budidharma Kurnia, Akhmadi Tri Cahyono, Jenny Jatemin, Windu Isdansyah Jahya

ABSTRACT
Every organization has its unique style and environment of work, which often contributes to its culture. It is a
system of shared values and beliefs that develop within an organization, which guides its members' behavior.
This system is extremely important because it will determine the health condition of an organization. An
organization's health is critical for sustained long-term performance. A healthy culture encourages the employees
to stay motivated and loyal towards the management. It can increase productivity, growth, efficiency and reduce
counterproductive behavior and turnover of employees. However, many leaders may overlook organizational
health because of lack of understanding on how to measure and improve it. The subject enterprise in this
research, a state-owned enterprise in Indonesia, is fully aware of this importance, and its organizational culture
health index (based on Cultural Entropy Score by Barret Value Center) based on 2017 survey result has shown
that measuring and understanding the index and doing the appropriate corrective actions can be beneficial to
actualize the enterprise’s mission and achieve its business objectives as expected by its key stakeholders. The
research found that three important behaviors are identified as the keys to the organizational culture. The paper
provides some recommendations as countermeasures toward obstacles that can limit the enterprise’s operations
and performance.

Keywords: corporate culture, organizational culture, organizational health index, shared values, change
management

1. INTRODUCTION
Indonesia is a country with great economic potential as Southeast Asia's largest economy. It
has a number of characteristics that put Indonesia in a great position as a newly advanced economic
development, such as:
• The 4th largest population in the world, with 60% of it is productive young people.
• 2016 GDP (PPP-based) Indonesia at the 8th rank (World Development Indicators, 2018).
• Moody's Global Ratings raised Indonesia's credit rating to Baa2, changes the outlook to be
stable, due to an increasingly effective policy framework which is conducive to
macroeconomic stability (Shah, A and Diron, M, 2018).
The development of public infrastructure has been the government’s focus to make Indonesia
regions free from the dependence on certain commodities. This development of public
infrastructures is one of the most important strategies of the government’s nine priorities, which is
to increase productivity and competitiveness by such efforts as constructing 2,000 kilometers of
roads, developing new airports and 10 seaports, establishing 10 industrial estates along with
housing for workers, and building 5,000 traditional markets.
This paper focuses on a leading Indonesian state-owned enterprise that is involved in
engineering and construction work in Indonesia, as well as abroad. The enterprise will remain
anonymous throughout this paper to maintain its confidentiality. The enterprise’s businesses
include civil engineering, building construction, and construction of industrial plants, as well as
energy facilities. Established in 1960 and public-listed in 2007, its primary customer is the
government of Indonesia as well as other Indonesian state-owned enterprises. Consequently, it has
obtained many infrastructure development projects since 2015, and it has drafted a number of
ambitious objectives that should be reached by the year 2025.
The ambitious 2025 objectives necessitate the enterprise to have aggressive and fully engaged
employees to handle those ambitious targets from the Government and other demanding customers.
This can be achieved if only there is a healthy organizational culture in the enterprise. As Ingham
(2013) stated that any individual or a small group located anywhere at any level within an
organization can have a very large impact on its strategies and direction, the organization needs to
take a profound interest in their people and the way they are engaged and interconnected between
each other. This was exactly what the enterprise’s management wanted to know about its
organizational culture.
A survey conducted by a third-party consultant was initiated in 2017 to assess and measure the
enterprise’s existing Organizational Culture Health, using the Barrett Values Tool. The Tool
provides powerful metrics that enable leaders to measure and manage the cultures of their
organizations and the leadership development needs of their managers and leaders. This tool has
been used by a wide range of organizations internationally to assist in understanding organizational
culture and to assist with the process of a cultural transformation. It measures the Cultural Entropy,
which is the reflection of the degree of disorder within a system. Entropy is represented by the
number of limiting values on the survey instrument that the whole collective employees have
chosen. The higher the percentage, the less healthy the enterprise is.
One of the important findings of the third-party survey was that Organizational Culture Health
Index of the enterprise has a cultural entropy of 14% (index for the overall organization), which is
classified as "culture with minor issues". Drilled down to the details, the survey showed that one
particular department, Department of Industrial Plant (DIP), which has the largest number of
employee (439 employees), is the one with the worst index (22%). DIP is classified as having
"Significant Issues". The study suspected that some energy and effort of the employees were
utilized for ineffective and unproductive activities. This could also indicate the level of conflict,
friction, and frustration in DIP. Therefore, organizational culture in DIP has been the focus of the
study.
At the time of the study and the write-up of this paper, the enterprise has not launched any
formal strategy to overcome the issues in DIP. If the management continues to do nothing to
improve the situation, it may become worse and the employees in such a situation may do things
out of compulsion, and the enterprise may face difficulty to retain good talents as they will not stay
long in an organization that does not embrace a sense of alignment between employees and
organizational goals.
The purpose of this paper is to analyze how the enterprise can change or improve its
organizational culture so that all employees can contribute their best to boost its performance,
short-term as well as long-term, toward a sustainable growth. The culture of an organization is
pragmatic, explicit and changeable. Business practices such as decision-making system and other
internal control system are examples of organizational culture.
A study on corporate culture by Graham et al. (2017) concluded that "a survey and interview-
based analysis of 1,348 North American firms concluded that over half of senior executives believe
that corporate culture is a top-three driver of firm value and 92% believe that improving their
culture would increase their firm's value." Organizational culture refers to various attributes of
organizations. They may include the culture of performance-oriented, long-term employment,
quality enhancement as well as employees' perceptions on leadership, communication style, human
resource management and job conditions (Rodsutti and Swierczek, 2002). Since attributes of
organizational culture are diverse, it is difficult to measure organizational culture as a holistic
concept.

Engaging all employees in improving organizational culture is very important as we

understand that employees are the ones who run the operations of the organization. Improved
culture can only stick if it is rooted (or have the buy-in from the employees), otherwise it may go
back to the previous culture (Kotter, 1992). It is very crucial that consistency and persistence in
 aligning with the new system and procedure, policy, guideline or any other formal documents of
the corporate are well established to ensure the success of the change or improvement.

2. METHOD
This study used the results of the third-party survey as the initial step. The third-party survey
was conducted with the objectives of finding out the enterprise’s organizational culture health,
understanding the obstacles of good performance, and knowing employees' expectation of
organizational culture. Hofstede et al. (1990) mentioned that organizational culture can be
observed through behaviors of its members. The culture includes such deepest levels as values,
rituals, heroes, and symbols. On the other hand, Patterson et al. (1996) argued that aspects of the
organizations such as perceptions, thoughts, and behavior of the organization's members should be
referred to as organizational climate. From this perspective, the observable items are
organizational climate, while the deeply rooted items are the culture. However, many researchers
did not emphasize the differences between climate and culture of the organization. Chatman
(1991) and O'Reilly et al. (1991), as cited in Denison (1996), mentioned that they believed the two
aspects explained the same thing. Therefore, organizational culture consists of both invisible and
visible parts. The invisible parts are the values shared among organizational members, claimed as
the core of organizational values, and the visible parts are expressed as organizational practices
(Hofstede et al., 1990).
Based on the above literatures, the third-party survey was formulated to consist of the
following questions:
• 10 values or behaviors that describe personal values: responsibility, teamwork, honesty,
commitment, family, discipline, respect, loyal, togetherness and adaptability.
• 10 values or behaviors that describe the current working environment in the working unit or
department (current organizational culture): teamwork, togetherness, responsibility, commitment,
safe working environment, productivity, customer satisfaction, innovation, caring and
professionalism.
• 10 values or behaviors which are very important to achieve better performance in the working
unit or department (desired or expected organizational culture): teamwork, togetherness,
responsibility, commitment, safe working environment, productivity, quality, innovation, caring
and professionalism.
The questions were mapped onto six areas of organizational cultures: stability (financial issues
and corporate growth), relationship (interpersonal, customers, and vendors), system and process
(written procedures and policies), learning and growth (individual and organizational
development), strategic collaboration (teamwork and spirit of togetherness), and giving impact
(social contributions internally and externally).
It was rather challenging to determine the instrument to be used in this study. However, the
study conducted by Jung et al. (2009) concluded that there was no ideal instrument for cultural
exploration. It all depended on “fit for purpose”, depending on the reason for which it was to be
used and the context within which it was to be applied. Considering the nature of the subject
enterprise, this survey was conducted using stratified random sampling. The result was validated
by management and employees through Focus Group Discussion (FGD). The survey was
responded by 3,944 respondents (out of 4,774 employees in the total population), with 396
respondents from the Department of Industrial Plant (DIP, one of the departments in the subject
enterprise), out of 439 employees in DIP. The survey result can be summarized as follows:
• Organizational culture health index was 14% for total and 22% for DIP, which was classified as
Department with "significant issues".
• Top 3 expected behavior or values in the organization: innovation, professionalism, and lead by
 example.
• Top 3 identified obstacles in the current organization: long working time, ineffective employee
development plan, and cost reduction.
Despite the availability of the third-party survey's summary as shown above, the study could
not identify the exact and concrete reasons (root causes) behind the result. Therefore, a further
survey using questionnaire was conducted and then followed by interviews with the representatives
of DIP including the staffs and management team.
The survey in DIP was conducted through questionnaires to all DIP employees as the main
respondents and the management team as additional respondents. The study used stratified random
sampling, which was the same technique as the survey conducted by the third party, but in a
smaller scale as it only covered DIP employees. The total number of respondents was 204, or
about 51% of DIP employees as of mid July 2018.
The questionnaire consisted of 18 questions in Indonesian language and it was sent via Google
Form to DIP employees in mid July 2018. It was developed with the intention to address top three
expected behaviors/values and top three identified obstacles in the organization. A Likert scale of 1
to 5 was used to express opinions of “very unproud” to “very proud”. The questions addressed
such issues as employee development plant, innovation, professionalism (with focus on reliability,
competency, and accountability), working hours, lead by example, cost reduction, and space for
open questions to obtain more inputs from the respondents.

3. RESULTS
After compiling the respondents' answers in a Likert scale of 1 to 5 and classifying the written
comments into the enterprise’s values, the study found that, among all questions, only one question
(“Are you proud to work for this enterprise?”) that had a very high mean of 4.25, with 84% of the
total respondents answered 4 or 5 (proud or very proud). This indicated that most of the
respondents were proud to be the employee of the enterprise. This shows a good signal to develop
the expected organizational culture.
The survey showed that innovation, professionalism, and lead by example were the top three
expected behavior or values.
% of respondents All Responses’
who answered 4 or 5 Mean
Innovation 62 % 3.70
Professionalism 42 % 3.24
Lead by example 42 % 3.21
Table 1. Top Three Expected Behaviors/Values

The survey showed that long work hours, ineffective employee development, and cost reduction
were the top three identified obstacles.
% of respondents All Responses’
who answered 4 or 5 Mean
Long work hours 48 % 3.44
Ineffective employee development 49 % 3.40
Cost reduction 67 % 3.89
Table 2. Top Three Identified Obstacles

The survey also found that there was 9% of respondents said that agility, caring, and
excellence were great corporate values. However, the implementation was still far away and there
 were many obstacles along the way. Around 83% of respondents (who were DIP employees, and
thus, represent DIP employees only, not the entire enterprise) indicated that the top three expected
behavior/values were closely related with the enterprise’s values of agility, caring, and excellence
(ACE). However, agility was only mentioned by one respondent as one of the expected values.
This is very much different from the enterprise’s Corporate Values that puts agility as the first
value among the three values.
In addition to the questionnaire, the study also included interview sessions with DIP
management team, including the DIP General Manager and Corporate Organization Development
Manager. The interviews revealed that
• It seemed that DIP employees still needed more explanation about the enterprise's vision 2020,
which is "To be one of EPC (Engineering, Procurement, and Construction) and the best
Integrated Investment Corporate in Southeast Asia".
• For the sustainability of the business, the enterprise needed organizational transformation by
changing the organization structure.
• To measure the successful implementation of the expected corporate culture in every business
unit in the enterprise, regular and continuous monitoring activities were needed.
• Unclear job description and relatively low workload at the head office created unnecessary
unproductive discussion with those at the fields/projects (mostly engineers).
• Employees' demand for the transparency of payroll structure and promotion mechanism
structure was the evidence of lack of communication between the leaders and the employees.
• Teamwork was still quite challenging in DIP because the concept of "internal customer" was not
yet understood.
• Paradigms of millennial employees and the management team in problem-solving and decision
making were different.
• Millennials thought that innovation should be something big and rewarded.
• Change management in the enterprise needed a strong change agent in each business unit or
department, including DIP.

4. DISCUSSION
A high-performing organization with a strong alignment between culture and strategy
produces more financial growth and better employee engagement (Anderson, Anderson & Lee,
2015). Many leaders of organizations may overlook organizational culture health because they
have a lack of clear way to measure and improve it, whereas almost all companies perform better if
they improve their health. Around 80 percent of companies that took concrete actions on health saw
an improvement, with a median six-point increase in their overall health (Gagnon et al., 2017).
The subject enterprise of this study was fully aware of this importance, and its organizational
culture health index based on Cultural Entropy Score by Barret Value Center resulted from the
survey conducted in 2017 proved that corrective actions must be taken. The enterprise constantly
focused on its clients, accomplishment, positive image, and capability to achieve sustainable
growth, while at the same time served all stakeholders' best interest. It held on to the motto of
Spirit of Innovation and empowers its new Corporate Values based on the principles of agility
(change, focus, fast), caring (accountable, respect, safety-oriented), and excellence (commitment,
innovation, professionalism). The enterprise is urged to have aggressive and fully engaged
employees to achieve ambitious targets from the Government and other demanding customers,
which can only be accomplished if it has a healthy organizational culture. Having further survey
with in-depth questions on the reasons behind the index of 22%, it brought us to the root causes of
the unhealthy or unfavorable organizational culture, as discussed below.
As shown in Table 1, with the frequency of 62% and the mean of 3.70, the result showed that
 DIP employees understood that management recognized their innovation and their contribution to
the organization up to a certain extent. This is aligned with one of the enterprise’s values:
excellence (commitment, innovation, and professionalism). The survey found that only 7 out of
204 respondents selected "Innovation" as their expected culture. Meanwhile, no one respondent
selected "Innovation" as an obstacle. Therefore, "Innovation" will not become the priority of the
proposed actions for improvement.
With the frequency of 42% and the mean of 3.24, the result suggested that DIP employees’
perception on professionalism was still quite low. This phenomenon was not only for staffs but
also including management team as well. Comments on the survey revealed that "professionalism"
was dominantly considered as an expected culture and "non-professionalism" as an obstacle.
Various reasons were given, but the major ones were that employees and management tend to
blame each other -- instead of taking responsibility -- in case of delays or failures of projects;
horizontal and vertical communications were not good enough and the spirit of teamwork was not
strong enough; management does not have the required competencies to accomplish their roles and
responsibilities, and they are perceived as not good leaders; decision making on organization
structure and performance appraisal were not conducted based on the transparent system/procedure.
With regards to leading by example, the result showed that with the frequency of 42% and the
mean of 3.21 it suggested that that DIP employees had low respect to management team because
they did not see the leaders acted as what they were expected to be (role model). The respondents
wrote that conflict of interest in the promotion or recruitment of new position and discipline issues
were the examples of how leaders did not give a good example nor walked the talk. This should be
of particular attention to the management because as Kotter and Heskett (1992) mentioned,
organizations with culture that emphasized leadership at all levels outperformed those that did not
by a huge margin.
Table 2 shows that, with the frequency of 48% and the mean of 3.44, the result might suggest
that DIP employees thought that their private life was influenced by the imbalance workload. It
might also be because of the not well-planned projects or lack of competencies. Surprisingly, only
5% of respondents mentioned this particular issue as an obstacle.
Ineffective employee development plan has also been an issue to the employees. With the
frequency of 49% and the mean of 3.40, the results showed that DIP employees thought that the
enterprise should spend more on employee development strategies by providing trainings to
improve the competencies so that the tasks can be done as planned with a good quality.
Surprisingly, this issue was raised by 26% of respondents an obstacle.
With the frequency of 67% and the mean of 3.89, it showed that DIP employees thought that
cost reduction was really an obstacle in daily operations. The respondents mentioned that it could
be avoided if proper planning was done beforehand and competencies of all related people are good
enough. They also agreed to work harder for cost reduction if it was well planned without
sacrificing the quality.

5. CONCLUSION
Comparing the previous third-party survey results (which covered all employees of the subject
enterprise) and the results of the further surveys conducted in this study (which focused on DIP
employees only), the study showed that this study’s further survey basically provided similar
results on the top three expected behavior/values and the top 3 obstacles.
Except for innovation, this study revealed relatively negative results, which need urgent
actions for improvement. Why urgent? Because many complaints and inputs gathered in the
survey were mentioned towards the management team and the Head Office policies or systems,
especially those related to human capital strategies. Among all complaints, only cost reduction and
decision making were not directly related with human capital. If the situation remains as is, the
 motivation of the employees may deteriorate, and talents may leave the enterprise. As mentioned
earlier that a healthy organizational culture encourages employees to stay motivated and loyal, and
this may promote healthy competition in the workplace. Employees will do their best to perform
better than their co-workers and get recognition and appreciation from the management.
This study’s survey results suggested that employee development plan should have the highest
priority for immediate action. The expectation is that having a transparent system and procedure in
choosing employees for training or other development program is a must. A fair performance
management system should be in place. This is not an easy task because according to the interview
with the management team, in order to execute the performance management system well, they still
needed to improve the job descriptions. Therefore, the improvement action should commence with
the development of comprehensive job descriptions for each position. The management should
ensure that each position holder and the direct superior understand it thoroughly. Having done that,
then the enterprise should develop a performance management system, socialize the system and
make sure all employees understand the method of evaluation, including the scoring and rating
system. Based on the performance appraisal results, the management needs to analyze the gap
between the required competencies against the current competencies, and then fill in the gap or
minimize the gap by providing appropriate learning and development programs. To ensure that this
is done regularly and consistently, developing standard operating procedures on this process and
relating it with a reward-and-punishment system may be a good idea. Most importantly, the
management must consider this program as an important investment on human capital.
The second highest proposed action for improvement is regarding professionalism.
Professionalism is the concept of work ethic, which describes how a person conducts the job. It is
defined as reliability, competence, and accountability. Since the word of professionalism was
dominantly mentioned in the comment section of the survey, the management must work out
improvement actions on this issue immediately. At the same time, the definition of professionalism
must be defined clearly and understood by all employees. This is to avoid different perception and
to ensure the success of improving the "professionalism" level of all employees, including the
management team. This is not an easy task either, and therefore, full support from top management
and acceptance from all employees are also very important to ensure the success.
It is understood that DIP still has other issues or problems to be solved, however, based on the
surveys, if these proposed actions for improvement are implemented consistently, the enterprise
can expect that the organizational health index in DIP will improve at least to a level of not more
than 20%, that is “culture with minor issues”. To ensure the successful improvement, measuring or
assessing organizational culture health should be done regularly, annually if possible or at least
once in two years. This is how the Organizational Health Index can be used to improve long term
performance of the enterprise.

BIBLIOGRAPHY
Anderson, G. M., Anderson, M. J and Lee, J. B. “Defining Corporate Culture,” NACDonline.org,
March/April (2015): 36-37.
Denison D.R. “What is the difference between organizational culture and organizational climate/ A
native’s point of view on a decade of paradigm wars,” Academy of Management Review 21 no.3,
(1996): 619-654.
Graham, J. R., Harvey, C.R., Popadak, J., and Rajgopal, S. “Corporate Culture: Evidence from the
Field,” 27th Annual Conference on Financial Economics and Accounting Paper, Duke I&E
Research Paper No. 2016-33, Columbia Business School Research Paper (2017):16-49.
Gagnon, C., John, E., and Theunissen, R. “Organizational health: A fast track to performance
improvement,” McKinsey Quarterly, September (2017): Retrieved from https://www.mckinsey.
 com/business-functions/organization/our-insights/organizational-health-a-fast-track-to-
performance-improvement
Hofstede, G., Neuijen, B., Ohayv, D.D., Sanders G. “Measuring organizational cultures: A
qualitative and quantitative study across twenty cases,” Administrative Science Quarterly 35
(1990): 286-316.
Ingham, J. Strategic Human Capital Management, Creating Value through People. New York:
Routledge, 2013.
Jung, T., Scott, T., Davies, H.T.O., Bower, P., Whalley, D., McNally, R., Mannion, R. “Instruments
for Exploring Organizational Culture: A Review of the Literature,” Public Administration
Review 69, no.6 (2009): 1-10.
Kotter, J.P. and Heskett, J.L. Corporate culture and performance. New York: Simon & Schuster,
1992.
Patterson, M., Payne R. and West M. “Collective climates: A test of their socio-psychological
significance,” Academy of Management Journal 39 no.6 (1996): 1675-1691.
Rodsutti, M.C. and Swierczek, F.W. “Leadership and organizational effectiveness in multinational
enterprises in Southeast Asia,” Leadership & Organization Development Journal 23, no.5
(2002): 250-259.
Shah, A. and Diron, M. “Moody’s upgrades Indonesia’s rating to Baa2, changes outlook to stable.”
Retrieved 2018 from https://www.moodys.com/research.
World Development Indicators (2018). Retrieved from https://data.worldbank.org