What every
leader needs to know about organizational management
Leaders
of organizations should beware chasing the next shiny object and instead focus
on practical, time-tested topics that have proved to bring success.
There’s so much lore around management and
organizational leadership that it can seem nearly impossible to decide what
tactics, advice, or best practices to follow. In this episode of the McKinsey
Podcast, McKinsey senior partners Scott Keller and Mary Meaney speak with McKinsey’s
Simon London about the ten timeless—and thoroughly researched—topics in
management that they have found to be the keys to leading organizations to
success.
Podcast transcript
Simon London: Hello, and welcome to
the McKinsey Podcast. I’m Simon London with McKinsey Publishing.
Today, we’re going to be talking about what a wise man once called the human
side of the enterprise; specifically, we’re going to be talking to the authors
of a new book, one that aspires to cut through management fads and fashions to
get at what really works on topics such as talent, teams, decision making,
organizational culture, and change.
Joining me today to
discuss all this and more are Mary Meaney, a McKinsey senior partner based in
Paris, and Scott Keller, a senior partner based in Los Angeles. Together,
they’re the coauthors of the book Leading Organizations: Ten Timeless Truths (Bloomsbury Publishing, April
2017). Mary and Scott, thanks so much for being here today.
Mary Meaney: You’re welcome, Simon.
Scott Keller: Thank you for having us.
Simon London: I’m going to start with a
rather cheeky question that comes to mind whenever I talk to business-book
authors. There are many thousands of business books published every year, so
the obvious question is why write another one?
Scott Keller: We would agree with you that
there is not a need for just another business book. However, in a world where we
do have such a proliferation of business books, articles, blogs, and everything else management related, we believe there’s a need for this business book.
The reason for that is
because, in a world of such a free flow of information, in order to stick out,
what we’ve noticed and observed, and probably our listeners have observed, too,
is that you see an increasing polarization of views and a kind of a Ping-Pong
back and forth. So one day, and these are headlines that we’ve read, one day
you’ll see, “Focus on your strengths. That’s the right thing to do as a
leader.” A week later, you’ll see the counterbalanced article of, “Don’t focus
on your strengths.” So the leader in the midst of this advice is thinking, “OK,
well, what am I supposed to do? Do I focus on them, or do I not? Did I just
lose the last week of my life focusing on my strengths? Was that a bad thing to
do?”
In this increasingly
polarized, free-flowing information-based world, what Mary and I did is that we
stepped back, and we said, “These are all interesting ideas around topics that
we learned about back in our MBA days, that we’ve helped clients with for quite
a long time, and that there are proven tools, techniques, frameworks, et
cetera, that help leaders in these areas, that are no longer being talked about
amid the hype.”
So our goal was to say,
on behalf of leaders who are looking to cut through all the noise that’s out
there, “Well, what really works? What’s actually proved to work
quantitatively?” But it’s not obvious. These are things that most leaders
wouldn’t already be putting into practice.
Mary Meaney: I’d also add that these ten
topics weren’t chosen at random. It’s not a coincidence why we picked these. We
took a bit of analysis, a bit of science, and a bit of data to try to home in
on what are those timeless topics that are most important and most relevant for
leaders.
We looked, for example,
at all the projects that McKinsey has done since World War II. And we looked at
the most critical topics that came up over and over again. We looked at the
questions that our consultants asked our knowledge managers, and what questions
kept coming up. And we looked at what was being published in the external
world.
What we found was that
there were certainly moments in time when there were spikes on particular
topics. We’d call those fads. What we were interested in were the timeless
topics. The topics that over the last 20, 40 years have stood the test of time
and that are at the core of what it means to be a great leader and great manager.
“When we look at what it takes to
succeed and thrive, what it takes to make change happen, to create a sense of
meaning and purpose, there’s a lot more commonality than you would expect
across different cultures.”
Simon London: Great. So we’re not going to
have time today to go through all ten topics in detail, but Scott, maybe you
could give us the high-level overview of the terrain. How can you characterize
these ten?
Scott Keller: So what these topics are is
they’re topics around three big areas. First is talent and teams. Second is
organization design and decision making. And the third is managing culture and
change. Now, within each of those big buckets, there are very specific
questions that we answer.
For example, in talent
and teams, the first question is, How do I attract and retain the talent I need
to be successful with our business strategy? The second question is about
talent development. The third question is about performance management. The
fourth question is about high-performing teams. And together, that creates the
section around talent and teams—and you get both the “How do I get the right
players on the court?,” so to speak, and, if I use the Michael Jordan quote,
“Talent wins games, but teamwork […] wins championships”—we also get to how
they work together.
Then in the section on
design and decision making, there are three specific topics we address. First
is how do I get higher-quality and higher-speed decision making to happen in my
organization? Second is how do we reorganize ourselves to capture maximum
value? And the third is how do we reduce overhead costs sustainably? This is
the topic of bureaucracy and complexity and costs building up over time. It’s
something that not only plagues organizations but also civilizations. There are
a lot of writers and thinkers who would go back to the fall of great empires
and say it was less about a new invading army and more about the weight of the
bureaucracy collapsing in upon itself.
Then we get to our last
section, which has the topics of culture and change management. In that arena,
we talk very specifically about how you make your company’s culture a
competitive advantage. How do you make change happen at scale? We call that a
performance transformation. But at an enterprise level, how do you really move
an enterprise to go from what we would say is becoming a bigger, fatter
caterpillar, so to speak, to going truly caterpillar to butterfly?
The last topic is more
personal: How do I successfully transition into a new executive role? There
are, by some estimates, 8,000 executive transitions at
the CEO, CEO-minus-one, or CEO-minus-two level every year in Fortune 500
companies. This is a big deal. By the way, 40 percent are considered not
successful by the people who placed those in the positions.
These are, again, the
ten timeless topics that we feel we’ve given practical, proved, but
not-in-practice things for leaders to know will be successful, and not to chase
the next shiny object in these spaces.
Simon London: The obvious pushback here
is—the questions may indeed be timeless, I get that—but surely the answers to
these questions are highly context dependent. Not just across history, but
across cultures as well. What works in the German Mittelstand1may not work for a big
US financial institution. So, Mary, how do you think about that?
Mary Meaney: Yes, we do see some
differences. One of the tools that we use, for example, is something called
the Organizational Health Index, which gives a bit of an MRI or an X-ray, an incredibly
detailed scan of where an organization is and how healthy it is. We do see
differences across cultures. So, on average, Americans will tend to be a little
bit more positive than, say, the French.
Having said that, when
we look at some of what it takes to really succeed and thrive, what it takes to
make change happen, what it takes to create a sense of meaning and purpose,
there’s a lot more commonality than you would expect across the different
cultures. To give one example, one of the things we dived in on is to look at
how to create a sense of meaning and purpose.
People go to work for a
number of different reasons. It can be because of a real sense of mission in
society, that would be one. A second would be a desire to make their company,
their organization the leader in their industry, and see their company succeed
and thrive. A third one would be about customers and trying to satisfy and
delight them. A fourth sense of purpose or meaning might be working with
high-performing teams, the people that you work with on a day-to-day basis.
A fifth would be
yourself. Your personal career development, financial rewards, recognition.
What we find across cultures is that, by and large, populations split into,
broadly, those five different sources of meaning. And it’s not to say that
one’s right and another’s wrong, but rather some of the things that we have
found are more universal truths because of who we are as human beings.
One of the insights
that we wrote about is, a lot of times, CEOs, senior executives, and leaders
will talk about the what and the how. All too often they forget the why. So
bringing in that sense of meaning and purpose—and acknowledging the fact that
we’re all different. Therefore it’s not just about telling one story; it’s also
about appealing to all five of the different sources of meaning. This is one
way of creating something powerful that gets employees to go to that
extraordinary effort.
“When we changed the storytelling
to be around five sources of meaning rather than just one source of meaning, we
both saw the run-rate impact of the cost program increase.”
Scott Keller: We were working with a
mortgage company in the United States. It was a classic business-turnaround
situation, where revenues are going flat and costs are going up, these two
lines are going to cross, and the company’s going to be in trouble. So what do
they do? They create a cost-reduction program. And this cost-reduction program
they created was pretty robust in terms of the things they needed to do. They
needed to centralize, they needed to standardize—they needed a whole set of
things, overhead cost reduction, et cetera.
Now, what happened with
the CEO was he put in place this program and didn’t see any results. So costs
kept creeping up. The revenue line stayed where it was. They were closer to the
end, essentially. That’s when we got involved, and we used this particular
situation as an opportunity to test what Mary was talking about.
What we did is we went
in, and we looked at the communications. The communications were very much, as
Mary put it, the company story. It’s, “Hey, our costs are rising at too great a
rate versus our revenues.” We said, “Let’s talk about the other four sources of
meaning.” At the same time, it is a cost-reduction program, but why are we doing it?
Well, first of all, if
you think about the society mission part of the world, we’re a mortgage
company—we put people into homes. If we do this, we’re going to be able to put
more people into homes, make more people’s dreams come true. We’re going to be
able to bring families together because where do families meet other than the
home? There’s a bigger story here in terms of the impact we can have on the
world. Let’s look at the impact on the customer.
What is great cost
reduction, if not making things simpler? If not reducing errors? If not
streamlining things? We’re going to be able to do things faster on behalf of
the customer, with fewer errors, in a way that’s going to delight our customers
if we get this right. Similarly, with the team idea, and I won’t go through all
the detail here, but the idea of people coming together, working together for one
plus one equals three, was part of it.
Then at the individual
level, wow, what a unique opportunity as a leader to learn an entire new
turnaround skill set. That whether you’re in this company or not is going to be
setting you up to have more success, more impact in the world. So when we
changed the storytelling to be around five sources of meaning rather than just
one source of meaning, we both saw the run-rate impact of the cost program
increase. They had a monthly culture, or morale, survey. They also saw a big
uptick in the morale survey.
We’ve since done that
in multiple geographies, and it’s a human thing—it’s not “Am I Chinese? Am I in
Australia? Am I in the UK? Am I in France?”—it’s a human thing when it comes
down to this.
“What are the most critical roles
that really create that value? They’re not always the most senior.”
Simon London: Let’s talk a little bit about
talent. In many ways, it begins with bringing in and developing the right
talent in any organization. What’s the timeless truth there?
Scott Keller: In each of the chapters that
we talk about, we talk about three particular timeless truths. The first truth,
I’ll—just in the spirit of time—focus on, is the notion of focusing on the 5
percent that create 95 percent of the value. Now, this is different than
saying, “We want to attract and retain talent, and therefore we’re going to fix
our talent-recruiting process. And we’re going to fix our employee value
proposition.”
Let me go to Hollywood
for an example. Because the idea of focusing on the 5 percent that add 95
percent of the value—a great analogy is, for those who have seen the
movie, The Blind Side with Sandra Bullock. And obviously, many
of our listeners around the world won’t have seen that, so a quick synopsis is,
it’s a movie that talks about American football. The reason it’s called The
Blind Side is based in how American football players are paid, and
beneath that there’s a reason for why they’re paid that way, which accounts for
it.
But when you ask most
people, and most people know enough about American football to answer this
question, if you ask them, “Who’s the highest paid player on the field?,” most
people will say, “The quarterback.” And they will be right. The quarterback is
the one who touches the ball, makes most of the plays, and is always involved
in managing the team down the field to score points.
If you ask people who
is the second highest-paid player on the team, most people will choose another
player who is someone who touches the ball often and helps move it down the
field, whether it’s the running back or the wide receiver—and they’d be wrong.
They’d be wrong because it turns out the second highest-paid player is what’s
called the left tackle, especially with a right-handed quarterback, or it could
be the right tackle, with a left-handed quarterback.
The reason for that is,
the role of the left tackle is to block the person who’s coming and trying to
tackle your quarterback, who very easily could cause an injury, because that
person is coming to the quarterback’s blind side, as it is. So this is a very
important position that most people would say, “That’s not obvious to me, that
we need to recruit a great left tackle, and we’re going to pay them the second
most on the team.”
What we found is when
organizations talk about, “Who are our quarterbacks? Who are the people who
play the roles on our team that create the most value?,” they often get it
wrong. And they often get it wrong because they forget to take into account
those roles and positions that protect the value, so to speak.
So if I give an
example, in the US Navy, and you’ve got a nuclear submarine, you’re going to
want to have a great commander of that submarine. No doubt. That’s the
quarterback. You also are going to want to have a great shipbound IT manager to
manage IT outages. Because if you have a technology failure on a nuclear sub,
that’s a big problem. So this is a really important position that may otherwise
be missed when we think about where are we sourcing our best talent.
If you go to big retailers,
it’s not necessarily the people running the big-box stores; it’s the people who
are the omnichannel merchants who are ensuring the product that’s available in
the stores, and online, is such that you can work across channels as a customer
and have a seamless experience. If you’re a logistics company, it’s your
logistics engineers, it’s not just the people who are handling the packages and
making sure they get from A to B.
Mary Meaney: One of the things that we’re
doing, to try to bring some of these insights to life, is work with companies
to get a handle on their critical roles and the talent in those critical roles.
What we’re trying to do is put in a lot more rigor, structure, analysis, and
evidence. So, starting from the overall strategy, where value is created or
needs to be protected, and translating that value agenda into what the set of
critical roles is. It could be 40 or 50, it could be a bit more than that. But
it’s unlikely to be thousands.
What are the most
critical roles that really create that value? They’re not always the most
senior, hierarchically. Sometimes they are, but they can easily be one, two,
three, or four levels down in the organization. Understanding what those roles
are, and then putting a lot more rigor into them—what’s the work that has to
get done, what do we need these people to actually do in order to create that
value—and then looking at whether you’ve got a good match.
So let me give you an
example of one of the Scandinavian companies I’m working with. Fundamental to
its strategy is growing its business in China. A lot of that is based on
mergers and acquisitions and new business development. One of the critical
roles, about a billion associated with it, is its head of China. A second
critical role is its CFO in China.
What’s interesting,
though, is when we looked at who they had in that specific role, it was someone
who’s really good at cost cutting but had no business-development or M&A
experience. So there was a clear disconnect. Having those kinds of conversations
to make sure that you are very clear on, “What is that 5 percent of roles that
disproportionately create value? And do you have the people with the knowledge,
the skills, the aptitude, the experience to deliver that?” This is one of the
things that we’re seeing sets companies up for success.
Simon London: OK, you got your talent in
the organization. You’re focusing on the top roles. How do you manage
performance? As you said a little earlier, Scott, this is something that
generates a lot of noise around things like stack ranking systems, or forced
ranking systems, and so on. What are the timeless truths here around
performance management? What works?
Mary Meaney: As you said, Simon, this is
definitely a hot topic. Over the last few years, we’ve seen lots of headlines
with high-profile companies announcing that they were abandoning their performance-management system, or eliminating ratings entirely.
We looked and did a
careful research effort at this specifically, to try to understand what we
believe: What do we think is the right answer? How do you manage and optimize
performance across your broader employee base? There were a couple things that
came through. One thing that was interesting was many of those companies that
had publicly abandoned their systems were coming back to them, or introducing
shadow ratings. Because at some fundamental level, employees want to know where
they stand, and they want to know how they’re doing.
Where we came out is
you still want to keep ratings, but you probably want to simplify them, so you
want to make sure that you don’t have the 41-point scale that one of our
high-tech companies has, or the 46-point scale that a UK public institution
has. You probably want to be somewhere in the zone of three to five.
The second thing that
we found was the importance of decoupling, because, all too often,
organizations tend to mix everything up. They’ll tell people once a year how
they’re doing, what their rating is, how much money they’re going to get, and
their strengths and development needs.
Unfortunately, for most
employees, what they tend to overindex on is, “What’s the number? What’s my
rating? What’s my bonus? How much am I going to get paid?” They often don’t
integrate and understand all the feedback around how they’re doing, how they
can develop, and how they can achieve their full potential.
What we strongly
recommend is to decouple those conversations, decouple them in time. So, yes,
you still have an administrative process to tell people how they’re appraised,
whether they’re getting promoted, and how much they’re going to get paid. But
importantly, what you want to do is really invest in the ongoing developmental
conversations. Giving people feedback, giving them coaching, and making sure
that they understand the strengths they have—that they should be leveraging and
developing to their full potential.
Simon London: Whenever I hear people talk
about organization design, the thing that comes to mind are the lines and the
boxes of the reporting. I suspect it’s a similar lesson, isn’t it? That
fixating on those things is only part of the story.
Scott Keller: That’s exactly right. I would
use the analogy of lower back pain. I’m someone who suffers lower back pain, so
I’ve known this well in my life. But I’m not alone. One in ten people in the
world suffers from lower back pain. It causes more disability in the workplace
than 300 other conditions that they catalogued. This is a big deal. The
interesting thing is, when you say, “Well, what’s the cause?”—it’s pretty
nebulous. It’s pretty unclear to those who have lower back pain, when they go
to a doctor to get a clear-cut diagnosis.
Some people get a
structural diagnosis: you have spinal stenosis, abnormal facet joints, or
whatever it might be. Other doctors will give more of a soft-tissue diagnosis:
it’s a herniated disc, strained lumbar muscle, pinched sciatic nerve,
tendonalgia, or whatever it might be. There’s still a whole other body of
thinking that was popularized by a gentleman named Dr. Sarno, which talks about
the mind-body link, and it’s a psychological thing that’s happening with our
lower backs, that it’s us trying to draw our attention away from unexpressed
anger, and so it’s got an emotional core.
So what’s really the
answer? Well, we don’t really know, but we know it’s not just one of these. We
also know that it’s not just the structural ones. In fact, the data say that
surgery to address structural issues for lower back pain is successful about 26
percent of the time, whereas the physiotherapy and psychological interventions
are successful about 76 percent of the time.
That analogy for us
works well for organization design, because there are a lot of things
structurally that can be changed, that can be noted as, “Hey, that’s what’s
holding us back. That’s what’s making us slow, bureaucratic, hierarchical, et
cetera.” It’s lines and boxes. It’s roles and responsibilities. It’s governance.
It’s the boundaries we draw, the location of our corporate center, et cetera.
That’s important stuff. But most people, when they think of org design, just go
after that.
We advocate that any
org design work that’s done focuses across three big categories of things:
structural things, process things, and the people or culture things. Those who
do have upward of an 80 percent chance of success. Those who focus just on
structural issues have about a 23 percent success rate.
Mary Meaney: One of the leading pharmaceutical
companies created a new strategy. It knew that it had to redesign its
organization in order to achieve the full potential from that strategy. It also
knew that, if it was going to be successful, it had to look at it holistically.
So, yes, it was going to redesign the structure, and it created new structural
units, new roles. But importantly, it didn’t just stop at structure. It also
looked at some of the critical processes, how it needed to change its strategic
planning and its budgeting processes.
It changed its
performance-management processes. It changed all the incentives, to create
strong incentives for everyone in the organization to help grow these new
businesses, regardless of current position.
Then of course it
looked at the people. The company looked at the capabilities that it needed to
either acquire for the market or that it needed to build internally. The
combination of all three of those things proved incredibly powerful in helping
it achieve a different organization that supported and enabled the strategy.
“In order to get organizations to
change, you have to get individuals to change.”
Simon London: That’s great. One of the
things that strikes me here is a lot of what we’re talking about, whether it’s
organization redesign or performance management, bringing in new systems and so
on, a lot of this is change. Organizations are always having to change. What is
the timeless truth around change management?
Mary Meaney: One of the pieces of research
that I personally found fascinating was not changing organizations but changing
individuals. Because organizations don’t change, people change. It’s when you get a
critical mass of people who are willing to change their behaviors that you
start to see those organizational transformations.
So we asked ourselves,
what makes individuals change their behaviors? Especially deeply rooted, deeply
anchored behaviors. We found a fascinating piece of research that was done in
the US, on the West Coast, that was exactly at the heart of the problem. How to
get heart patients to change their behaviors.
The context was a group
of researchers, where the heart patients had one or more of five serious
behavioral issues: they ate too much, drank too much, smoked too much, had too
much stress in their lives, or didn’t exercise enough. Hopefully nothing that
anyone recognizes. But as a direct consequence of those behaviors, they had
serious heart disease, which led to a major coronary bypass operation.
Statistically, in the next five years, if they didn’t change their behaviors,
they would die. The statistics, the research, was overwhelming.
The doctors told the
patients, “Change or die.” This is the ultimate burning platform. This
isn’t like life or death; this genuinely is life
or death. But what was horrifying, was that even faced with that ultimate
burning platform, only 10 percent of those heart patients were able to change
their behaviors in a sustainable way. So that’s the bad news.
The good news is that
the researchers said, “We’ve got to do something different. We have to find
some other approaches. We have to figure out how we can change the odds.” So
they developed an integrative, comprehensive program that pulls on the four
levers that we believe are most critical to get sustainable, successful
behavioral change.
The first thing they
did was to have a compelling story. They worked on creating understanding and
conviction, and not just the what and the how, but the why. It wasn’t just a
burning platform; they also created a positive vision of the future. So if you
change your behavior, you’ll be able to walk your daughter down the aisle when
she gets married, you’ll see your son graduate from college. They created a
positive change story, as well as being honest with people, that “If you don’t
change, then you will die.”
The second thing that
they did was they created reinforcing mechanisms. They had people meet
regularly. They set targets. They monitored and measured those targets.
The third thing is that
they taught them skills. Many of these people didn’t know how to quit smoking.
They didn’t know how to cook in a healthier or different way. They needed to be
taught meditation techniques, and exercises that they could do that were
compatible with their heart condition. There was a whole element around
creating the skills and capabilities that they needed in order to change their
behavior.
The fourth was role
modeling. They brought in people from the previous group, from the 10 percent
who had successfully changed. People just like them, who came back and shared
their experiences and gave them hope and confidence. What we find in our work
across organizations is that, in order to get organizations to change, you have
to get individuals to change. In order to get individuals to change, you need
all four of these elements.
Simon London: So sadly, we’re out of time
for today. But Mary Meaney and Scott Keller, thanks once for coming in. And
thanks for the fun discussion. Thanks..
November 2017
https://www.mckinsey.com/business-functions/organization/our-insights/what-every-leader-needs-to-know-about-organizational-management?cid=podcast-eml-alt-mip-mck-oth-1711
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