McKinsey and Company
Colin Price, Director
Beyond PerformanceColin Price
Organisations shape the world
1 Four realities are shaping organisations today
First reality
The nature of competition has shifted from
‘scale and stability’ to ‘innovation and change’
Net income
per employee
1984 2011
Scale is no longer the key driver of company value
Number of employees in the company
Net income
per employee
Number of employees in the company
Second reality
The gales of ‘creative destruction’ are still raging
The recent downturn has been disastrous for many
CAGR-54%
2004 2009
0
55Share price
Third reality
Most corporate transformations end in failure
70%
1995
Transformations tend to fail for the same reasons
2000
70%
2005
70%
2010
70%
Fourth reality
However, some companies do re-invent themselves
5,000
0
15,000
10,000 10,000
5,000
15,000
0
10,000
5,000
15,000
0
10,000
5,000
15,000
0
1979 Q1 2009 Q3 1979 Q1 2009 Q3
1979 Q1 2009 Q3 1979 Q1 2009 Q3
A small number consistently out-perform the market
2 McKinsey investigates organisations and change
Our journey of discovery … described in numbers
Survey respondents
from over 1,300
organizations
participated in our
‘Organizational
Health Index’
research
CEOs and senior
executives
completed further
surveys regarding
transformational
change
600,0001,000,000
6,8006,800
Survey
Years were dedicated to
developing and refining
our understanding of
organization and change
Academic journal
articles and books
reviewed
CEOs and chairpersons
did face-to-face
interviews with us
Leading academics
reviewed, challenged,
and augmented our
findings33
900900
3030
44
Research
Market value $b, Jun 2007
88
Morgan
Stanley 120
RBS
76
Deutsche
Bank91
Barclays 111
BNP
Paribas
93
Unicredit
87
Credit
Suisse
Goldman
Sachs
Santander
254
Citigroup
165
JP Morgan 215
HSBC
67
Credit
Agricole86
Société
Générale 126
UBS
88
116
Performance alone can’t explain corporate success
176
94
44
7554
34 4660
85
4569
53
99
142
200
Market value $b, Jan 2011
14 6 13 9 28 25
23 27 55 15 68
21 18 30
82
Market value $b, Jan 2009
A theory of change: balancing performance + health
Performance
What an organisation delivers to stakeholders in financial and
operational terms
Health
The ability of an organisation to align, execute and renew itself
better than the competition
and
Jack Welch
Former Chairman and CEO of GE
Financial Times, August 2009
“The narrow pursuit of shareholder value
was the dumbest idea in the world”
3 The nine vital signs of organisational health
Innovation and learning
External orientation
Culture and climate
Direction
Account-ability
Coordination and control
Capabilities Motivation
Leadership
Organisational health comprises nine characteristics
One cluster relates to strategic internal alignment
Innovation and learning
External orientation
Culture and climate
Direction
Account-ability
Coordination and control
Capabilities Motivation
Leadership
Another cluster is about your quality of execution
Innovation and learning
External orientation
Culture and climate
Direction
Account-ability
Coordination and control
Capabilities Motivation
Leadership
A third cluster concerns your capacity for renewal
Innovation and learning
External orientation
Culture and climate
Direction
Account-ability
Coordination and control
Capabilities Motivation
Leadership
Leadership is at the core of all these characteristics
Innovation and learning
External orientation
Culture and climate
Direction
Account-ability
Coordination and control
Capabilities Motivation
Leadership
Strong health profiles correlate to high performance
EBITDA margin
StrongMediumWeak
68%
48%
31%
Health profile
Growth in value
62%
52%
31%
StrongMediumWeak
Health profile
Growth in net income
58%53%
38%
StrongMediumWeak
Health profile
R2 = 0.54
Performance
Health
Health matters, from refineries in an oil company …
R2 = 0.50
… to hospitals across a national healthcare system…Performance
Health
40%
60%
80%
100%
120%
140%
40 44 48 52 56 60 64 68 72
Average OHI outcome
Scorecard outturn
Scorecard
target
Average OHI
outcome
… to the business units in a Telco
Correlation coefficient (r) = 0.62
4 How to be rigorous about organisational health
Healthessentials
Discoveryprocess
Influencemodel
Changeengine
Centredleadership
Five ways to create balanced performance + health
How ready are we to get there?
Where do wewant to go?
What do we need to do?
How will we keep moving forward?
How will we manage for success?
Health
Define your organisational aspirations
Understand the mindset shifts needed within the organisation
Architect the implementation along the levers that drive people to change
Build broad ownership, take a structured approach and measure impact
Develop leaders to enable them to drive change
Performance
Set the overall performance goals
Determine gaps across technical, managerial and behavioural systems
Develop a portfolio of initiatives to improve performance
Design the approach to rolling out initiatives across the organisation
Set up mechanisms to drive continuous improvement
Strategicobjectives
Capabilityplatform
Deliverymodel
Continuousimprovementinfrastructure
Portfolio ofinitiatives
Where do we want to go?
Strategic objectives
Market beating … or just playing along?
Based on sources of advantage … or based on misdiagnoses?
Granular about where to compete … or conventionally defined?
Convertible to real action and resources … or just a vague statement of intent?
Ahead of trends and discontinuities … or optimised for the status quo?
Applying privileged insight and foresight … or just common math to common data?
Accounting for uncertainty … or assuming uncertainty away?
Balancing commitment with flexibility … or rigid and tactical?
Unbiased about alternatives … or subject to undetected biases?
A personal conviction to act … or missing personal decision-making?
Is your strategy:
Performance
Health essentials Health
Ailing Able Elite
Measure organisational health
Crafts and communi-
cates a compelling
strategy, reinforced by
systems and
processes …
… and provides
purpose, engaging
people around the
vision.
Creates a strategy
that fails to resolve
the tough issues.
Direction
Leadership
Culture and climate
Accountability
Coordination and control
Capabilities
Motivation
External orientation
Innovation and learning
Building a strong, innovative brand
and shaping market trends
Our most important asset is our
collective knowledge and talent base
Set the right health aspirations
Discipline, sound execution, and
managing the bottom line
Leaders are the glue and the engine
that drive performance
Health
Elite
Able
Ailing
Executive team
Senior manager
Manager
Officer
Admin staff 4949634062397248
5758714260407354
6584734972577775
7186716981538982
67
73
72
77
69100847387609793
Mean
75
Perceptions depend upon seniority
54
59
69
75
82
Health
How ready are we to get there?
Technical system
Managementsystem
Behavioralsystem
Capability platform Performance
True tests of corporate capabilities
Scarce within the industry
Superior to substitutes
Difficult to imitate
Discovery process
Sir Roger Bannister
“Doctors and scientists said that breaking the
four-minute mile was impossible, that one would
die in the attempt. Thus, when I got up from the
track after collapsing at the finish line, I figured I
was dead.”
Current state
Mindsets
(e.g. “Head
down, watch my
back”)
Behaviours
(e.g. minimal
performance
dialogue)
Practices
(e.g. no clear
performance
contracts)
Outcomes
(e.g. blame)
Desired state
Mindsets
(e.g. “If it is to
be, it is up to
me”)
Behaviours
(e.g. ongoing
performance
dialogue)
Practices
(e.g. clear
performance
contracts)
Outcomes
(e.g. accountability)
Identify limiting/liberating mindsets Health
Focus on the vital few
From transactional to“I am responsible for quickly and
efficiently meeting the needs
that my clients express”
From silos to“I know what’s right for
my area and no one else
can achieve what I can”
From blame to“I show up at each
meeting so I can
watch my back”
… relational“I bring the best of my company to
clients and address their needs
whether articulated or not”
… collaboration“I can learn from others and
there is great value in ‘mining
the seams’ together”
… accountability“I trust others to do what
they are supposed to do,
in a fair manner”
Health
What’s working, as well as what isn’t Health
What do we need to do?
Portfolio of initiatives Performance
A balanced portfolio
Short(1-2 years)
Medium(2-3 years)
Long(3-5 years)
Uncertain
Unfamiliar
Familiar Lack of focus
Poor innovation
Risky future
Influence model Health
Create the right context
Role modelling
“… I see my leaders,
colleagues, and staff
behaving differently.”
Compelling story
“... I understand what is
being asked of me and
it makes sense.”
Skills needed for change
“… I have the skills and
opportunities to behave
in the new way.”
Reinforcing mechanisms
“… I see the structures,
processes and systems
to support the changes.”
“I will change
my mindset and
behaviour if …”
Health
How will we manage for success?
Geometric: Successive waves of interventions
with increasing resource requirement
Linear: Sequential interventions with
stable resource requirement
Big bang: Concurrent interventions with
intensive but punctual resource requirement
Delivery model Performance
Organic: Light a forest fire and then stand
back
10 teams, each with
10 members, were asked for their collective
10 priorities
Change engine
Best possible result,
if all teams agree on all priorities
10 different priorities
Worst possible result,
if no teams agree on any priorities
1,000 different priorities
Actual number of priorities 922
Health
Level 1: Transformation
headline
To become a highly
competitive integrated
company, recognized as one
of the top five energy
producers worldwide and as
the employer of choice in
our industry
Level 2: Performance and
health themes
Health themes
Co
lla
bo
rati
o
n Ali
gn
me
nt
Cu
sto
me
r
focu
s
Acc
ou
nta
bil
it
y
Pe
rfo
rma
nce
th
em
es
Expanding production
Integrating value chain
Maximising downstream
More efficiency/safety
Level 3: Specific initiatives
Health themes
Pe
rfo
rma
nce
th
em
es
Cro
ss-
bu
sin
ess
co
un
cils
Sto
ry
casc
ad
e
Da
ta
sha
rin
g
Tale
nt
rev
iew
o
verh
au
l
Pricing
Learning
Vendor consolidation
Lean
Take a structured approach Health
How will we keep moving forward?
Continuous improvement Performance
Continuous improvement
First-line-manager driven
Thousands of small levers
Changing ‘the way we work’
Continuously improve across all functions
Top-down structural change
Top management driven
A few big levers
Project-based change
One-off improvements
218 cm
Western roll
224 cm1968
236 cm1980
Fosbury flop
Centred leadership
Peter Drucker
1954
“The purpose of an organization is to enable
common men to do uncommon things.”
Business excs
Car salesmen
19%
23%
50%
63%
65%Doctors
Police
Clergy
Journalists
Bankers
Lawyers
6%
13%
12%
It’s not easy being a business leader
Which professions do people respect most?
Gallup 2009; Julian Birkinshaw, London Business School
‘Reinventing Management’, November 2010
2.0
2.2
2.4
2.6
2.7
2.8
Friends
Spouse
My children
Co-workers
Clients/customers
Alone
Boss
Parents/relatives
3.3
3.0
With whom are you happiest (rating 1-5)?
Richard Layard 2009; Julian Birkinshaw, London Business School
‘Reinventing Management’, November 2010
Health
Coaching/mentoring/performance dialogue
External assessment
Feed-back
Special projects
Non-traditional training
Individual learningIn-house training
External training
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70 80
Informal coaching
Role models
Mentoring
Development plans
360°feedback
Performance evaluation
Job rotation
Job structuring
Speedy job rotation
Company effectiveness (% responses)
Importance to my development (% responses)Roles/assignments
Formal training
Building a leadership-rich organisation Health
5 How well do you balance performance + health?
Customer focusCost reduction 2
Accountability 3
Continuousimprovement
4
Achievement 5
Profit 6
Results orientation
7
Community involvement
8
Shareholder value
9
Customer satisfaction
10
Year 4
1Cost reduction1
CustomerfocusShareholder value
3
Accountability4
Continuousimprovement
5
Profit6
Results orientation
7
Achievement8
Community involvement
9
Customer satisfaction
10
Year 3
2
Year 2
1 Cost reduction
Shareholdervalue
2
Accountability3
Customer focusProfit5
Results orientation
6
Continuous improvement
7
Achievement8
Bureaucracy9
Being the best10
4
Year 0
Cost reduction
Customer focus
1
Shareholder value
2
Results orientation
3
Profit4
Goals orientation
5
Bureaucracy6
Hierarchical7
Short-term focus
8
Control9
Risk averse10
28
Year 1
Cost reduction1
Profit2
Shareholder value
3
Results orientation
4
5
Continuous improvement
6
CustomerfocusBureaucracy8
Achievement9
Goals orientation
10
7
Hierarchical
Mindsets in an organisation really can be shifted …
1 2 4 53
9. Do we have the structure, processes, systems, and people to
drive continuous improvement in performance and health?10. Do we have committed leaders who can lead transformation
and sustain high performance from a core of self-mastery?
7. Do we have a well-defined scale-up model for each of the
initiatives in our portfolio?8. Do we have a method to ensure that energy for change is
continually infused/unleashed during the change process?
5. Do we have a concrete, balanced set of performance
improvement initiatives to deliver our change vision?6. Do we have a clear plan for how to reshape our work
environment to influence healthy mindsets?
3. Do we have a solid assessment of our organisation’s capability
to deliver our change vision?
4. Do we have insight into the root-cause mindsets that inhibit or
enhance our organisation’s health?
1. Do we have a compelling, understood, and jointly owned
vision of change, plus performance targets?
2. Do we have a robust baseline and shared aspirations for the
health of our organisation?
Where do we want to go?
How ready are we to get there?
Deliverymodel
How will we keep moving forward?
Continuousimprovementinfrastructure
Where are you in your own transformation journey?
Healthessentials
Changeengine
Centredleadership
Strategicobjectives
Capabilityplatform
Discoveryprocess
What do we need to do?
Portfolio ofinitiatives
Influencemodel
How will we manage for success?
Gary Hamel
Harvard Business Review
2003
“A turnaround is a transformation
tragically delayed”
For updates on organisational health, please join me at my ‘Linked in’ profile
Thank you
Colin PriceDirector, McKinsey