Executives often worry that work on “soft” management issues is not only hard to quantify but also difficult to justify with boards and skeptical “short-termist” investors. Reassuringly, however, McKinsey research highlights the way initiatives to boost talent, strengthen values, and reinforce corporate culture appear to directly improve the bottom line.

We recently analyzed hundreds of global businesses whose employees and managers participated in an extensive (and ongoing) organizational survey.¹ For each of these businesses we established an organizational profile—an assessment of corporate effectiveness in nine key areas that, we believe, underpin organizational excellence (Exhibit 1). We then compared the results with various aspects of these companies’ financial performance.²

Significantly, we found that companies ranking in the top quartile for overall organizational quality (a straight average of the nine areas) were more than twice as likely as those in the bottom quartile to have above-average margins for their industry (as measured by earnings before interest, taxes, depreciation, and amortization). Other metrics—including the ratio of net income to sales and growth in enterprise value—also helped us identify the correlation between good organizational performance and above-average financial...