The Five Frames – A Guide to Transformational Change
Transcription
The Five Frames – A Guide to Transformational Change
The Five Frames – A Guide to Transformational Change CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited Performance AND health matter “You need to create organisational DNA for long-term success. And that’s what enables you to perform in the short term” Narayana Murthy, former Chairman of Infosys Technologies ▪ Organisations attain excellence only when leaders manage both performance and health with equal rigour ▪ “Health” can be defined as an organisation’s ability to align, execute and renew itself faster than the competition ▪ Managing health is not something you do in the future; it is about the actions you take today to deliver performance tomorrow ▪ Organisational excellence can be achieved through a five-stage process: aspire, assess, architect, act and advance SOURCE: Interview by Gautam Kumra and Jim Wendler, ‘The creative art of influence: Making change personal’, Voices on Transformation 1, McKinsey & Company, 2005. McKinsey & Company | 1 Contents Health today drives performance tomorrow The Five Frames of successful transformation Where are you in your journey to health? McKinsey & Company | 2 Competitiveness naturally declines over time Total return to shareholder of new entrants relative to industry average Estimated life span of S&P 500 companies based on company exits Percent Half of all companies in the S&P 500 in 2008 are likely to be gone by 2015 90 15 Attackers 10 Survivors 5 45 0 26 19 -5 14 -10 1 5 10 15 20 25 1935 1955 1975 1995 2008 Years There seems to be a “survivors’ curse” whereby beyond a 20-year life cycle, organisations will struggle to remain competitive and effective SOURCE: McKinsey, ‘Creative Destruction’ McKinsey & Company | 3 Companies that succeed over time build and maintain organisational health - failure to do so can be an organisation’s downfall Share price of IBM US$ Share Price of General Motors US$ 150 60 140 50 130 120 CAGR 4.26% 110 40 100 CAGR - 54.38% 30 90 80 20 70 10 60 50 Sep-09 Sep-08 Jan-09 May-09 Sep-07 Jan-08 May-08 Jan-07 May-07 Jan-06 May-06 Sep-06 Sep-04 Jan-05 May-05 Sep-05 Jan-04 May-04 “Despite its size, IBM has remained nimble and has kept its feet moving by changing with technology trends. Without question, IBM is distinguishing itself as one of the best-run companies in the world.” – Business Week (21/07/2009) Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 0 40 “GM's core problem is its corporate and workplace culture the unquantifiable but essential attitudes, mindsets and relationships passed down, year after year.” – New York Times (06//2009) SOURCE: Datastream; Web Search; Press search McKinsey & Company | 4 Both performance AND health must be managed Performance Health What an enterprise delivers to stakeholders in financial and operational terms (e.g., net operating profit, ROACE, TRS, net operating costs, stock turn) The ability of an organisation to align, execute and renew itself to sustain exceptional performance over time “The narrow pursuit of shareholder value was the dumbest idea in the world” – Jack Welch Former Chairman and CEO of GE Financial Times, August 2009 “We have not achieved our tremen-dous increase in shareholder value by making shareholder value the only purpose of our business” – John Mackey Founder and CEO of Whole Foods Reason Magazine, October 2005 SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 5 There are nine vital signs of organisational health Direction Accountability External orientation Coordination and control Leadership Capability Innovation and learning Motivation Culture and climate Direction A clear sense of where the organisation is heading and how it will get there Leadership The extent to which leaders inspire others to act Culture and climate The shared beliefs and quality of interactions across the organisation The extent to which individuals understand Accountability what is expected, have appropriate authority, and take responsibility for results Coordination The ability to evaluate organisational performance and risk, and to address issues and control and opportunities Capability Motivation External orientation Innovation and learning The presence of the institutional skills required to execute strategy and create competitive advantage The presence of enthusiasm that drives employees to put in extraordinary effort to deliver results The quality of engagement with customers, suppliers, partners and other external stakeholders The quality and flow of new ideas, and the ability to adapt and shape the organisation SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 6 Healthy organisations are more profitable Likelihood that organisations with ‘top’ results in health profile have above-median financial performance, % EBITDA margin 31 Bottom 68 48 Mid¹ 2.2x “Barclays has survived and prospered only by making tough decisions. This has required leaders to make the right judgements in their time - right for the business of the day, respectful of history and mindful of setting the right path for a healthy business in the future" Top Growth in enterprise value/book value 52 62 2.0x 31 Bottom Mid¹ Top Growth in net income/sales 38 Bottom 53 58 Mid¹ Top 1.5x John Varley CEO Barclays, Financial Times 4 June 2009 1 Comprised of 2nd and 3rd quartiles SOURCE: McKinsey Organisational Health Index data mining effort McKinsey & Company | 7 Organisations typically encounter similar pitfalls in their transformational journey to achieving performance AND health 1. The urgent drives the important out of sight 2. Pressure for progress inhibits discovery 3. Change programmes emphasise”doing different things” rather than “doing things differently” 4. Initiatives are created independently, complementarily 5. Standardisation results in insensitivity to context 6. Planning takes the place of piloting and experimentation 7. Apparent consensus fades when challenged 8. Continuity is marginalised in the midst of change McKinsey & Company | 8 We have invested in years of learning to uncover the key to successful transformation 311,000 3,000 900 20 Respondents from over 400 organisations completed our organisational health survey providing the inputs for McKinsey’s Organisational Health Index (OHI) database CEOs and senior executives completed surveys regarding their experience with transformational change Academic journal articles and books reviewed CEOs and chairpersons shared their personal experience with change in face-to-face interviews 4 Leading academics reviewed, challenged and augmented our findings 3 Years dedicated to developing and refining our understanding of healthy organisations McKinsey & Company | 9 Winning organisations focus on the Five Frames of performance and health to drive sustainable transformational change Performance 1. Aspire 2. Assess 3. Architect 4. Act 5. Advance Where do we want to be? Where are we today? What do we need to do? How should we manage the journey? How do we sustain and improve? Strategic Objectives Capability Platform Portfolio of Initiatives Delivery Model Continuous Improvement Health Essentials Discovery Process Influence Model Change Engine Centred Leadership Health Five Frames of… Transformation stages McKinsey & Company | 10 Contents Health today drives performance tomorrow The Five Frames of successful transformation Where are you in your journey to health? McKinsey & Company | 11 Frame one – Where do we want to be? Successful transformations stretch aspirations with a clear and inspiring view of the future state Health Essentials Discovery Process Influence Model Change Engine Centred Leadership Which of the following statements best describes the targets your company set to define success for the transformation? %, N = 2, 694 Relative success Relative failure The targets were well defined and represented a genuine new level of performance The targets were well defined but did not stretch the company significantly The targets were not well defined 56 44 73 88 27 12 “Of course, we want to grow and produce a great bottom line. But in doing so, we want to be seen as a truly innovative company breaking new ground and going into unchartered territories successfully. We want to make India proud.” Ravi Kant, Vice Chairman, Tata Motors Source: McKinsey analysis; CEO interviews McKinsey & Company | 12 A powerful aspiration clearly states which organisational qualities are needed to deliver on strategic performance ambitions CLIENT EXAMPLE Our strategy Meeting customers’ needs and improving margins through new revenue streams Sustaining and building on our leadership position in our hub 5 4 1 To be the leading global premium player in our industry by… Being the provider of choice for premium customers 2 Delivering differentiated service for all customers at key touch points 3 Growing our presence in key locations Our health aspiration Elite Direction Able To become a high-performing market-focused organisation – Characterised by a pervasive external focus Coordination and control Accountability External orientation Leadership Ailing Innovation Providing the conditions that facilitate innovation Capabilities Motivation Internally cohesive and disciplined Work environment McKinsey & Company | 13 Measure organisational health Use rigour to measure health Organisation’s health profile n = 260 Distinctive, 85% + Superior, 70%-84% Direction 52% External orientation 59% Coordination & control 51% Motivation 54% 49% 53% 61% 50 75 37% 54% 46% Administration n = 43 52% 49% 46% 58% 60% Identify perception of 70% 57% 56% health at71%specific 58% business lines or 40% management levels 45% 57% 62% 51% 49% 31% 34% 43% 37% 25 52% 50% Capabilities 61% View results for each Culture and climatedimension of health 0 48% 34% 26% Sales and logistics n = 23 47% 47% 44% 43% 43% Innovation & learning 43% Leadership 47% Pulp and energy n = 44 47% Common, 50%-69% Not effective, <50% Accountability 53% Paper n = 85 100 No or weak spike Direction Emerging spike Prevalent spike Leadership Culture & climate Leadership driven Accountability Market focus Coord & control Performance edge Capabilities Knowledge core Motivation Innovation & learning External Orient Not Effective Benchmark your organisation against a Common Superior Distinctive 400 database of over companies 0 View organisational fit 5 8 10 relative to four health Similarity Index archetypes SOURCE: Don Beck, Mark Loch, Patricia Oaklief, Raj Ratnakar, Bill Schaninger, Salah Zalatimo, ‘The organisational health index: Improving and sustaining performance’, McKinsey & Company, 2009 McKinsey & Company | 14 Frame two – Where are we today? Successful transformations go beyond the surface to identify and shift deep-seated mindsets Health Essentials Discovery Process Influence Model Change Engine Centred Leadership Performance impact post transformation % difference in improvement Transformations focused on systems and process re-engineering only Transformations incorporating mindset and capability-building interventions Retailer (Sales-tolabour ratio) +67 15 “If the pace of change is slow, it is because mindsets have not changed. So that’s the leader’s biggest challenge.” 25 +126 Mining (Productivity increase) 19 43 Narayana Murthy, Chairman and Chief Mentor of Infosys Technologies +50 TELCO (Churn reduction) 34 51 Source: McKinsey analysis; CEO interviews McKinsey & Company | 15 Dig deep to identify limiting mindsets The discovery process deep dives into an organisation’s inner workings Current state Where are we, and what do we want to achieve? What changes in practices do we need to achieve the desired outcomes? What changes in behaviour do we need to breathe life into desired practices? What changes in mindsets do we need to make in order to achieve sustainable changes in behaviours? Desired state Outcomes (e.g. accountability) Outcomes (e.g. blame) Practices (e.g. no clear performance contracts) Behaviours (e.g. minimal performance dialogue) Mindsets (e.g. “Keep my head down, watch my back”) Practices (e.g. clear performance contracts) Behaviours (e.g. ongoing performance dialogue) Mindsets (e.g. “If it is to be, it is up to me”) SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 16 Dig deep to identify limiting mindsets Mindsets underpin performance What we see and attempt to address Individual behaviours Mindsets and beliefs What we don’t see and don’t know how to address Performance = Potential – Interference “There is always an inner game being played in your mind…How aware you are of this game can make the difference between success and failure” Values Hamel and Prahalad’s thought experiment about monkeys’ learnedNeeds behaviour (met unmet) illustrates their point that pastorexperiences can create mindsets that limit current performance Timothy Gallwey’s ground-breaking investigation into how people develop excellence in sporting and working contexts highlights the potential negative impact mindsets can have on performance SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 17 Systematic data gathering can help to identify the shifts that are required Value drivers % of value Behaviour % Utilization Calls per day To … Low call resolution with high level of transfer to other internal area (back-office) I filter and transfer calls “I can’t actually resolve client issues” Service times met but customer satisfaction scores and quality falling Cost at the expense of quality “You can’t cut costs and improve service quality and time together” We can deliver the AND Over 40% of agents do not reach the minimum standards of required performance I am an individual contributor “Its not worth making an effort, I can’t make a difference” I am a vital part of a highperforming team I facilitate solving client’s issue 10 Service quality 15 Wait time CALL CENTRE EXAMPLE 10 Call resolution 25 Cost per call Underlying mindsets uncovered … 10 20 Avg handle time 10 McKinsey & Company | 18 Frame three – What do we need to do? Successful transformations support strategic and operational shifts with targeted behavioural shifts Health Essentials Discovery Process Influence Model Change Engine Centred Leadership Transformation success rate and reasons for failure Success Failure due to behavioural reasons Failure due to other reasons Employee resistance Program achieves objectives 30% 10% Other obstacles 10% Insufficient resources/ budget 27% “I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game.” 23% Senior management behaviour does not support change Lou Gerstner, Former Chairman IBM Source: McKinsey analysis; CEO interviews McKinsey & Company | 19 Shift employees’ context using the influence model The four levers in the influence model Role modelling A compelling story “…I see my leaders, colleagues, and staff behaving differently.” “... I understand what is being asked of me and it makes sense.” “I will change my mindset and behaviour if . . .” “…I have the skills and opportunities to behave in the new way.” Skills required for change “…I see that our structures, processes, and systems support the changes I am being asked to make.” Reinforcement mechanisms SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 20 Expect and leverage irrationality Expect the unexpected A compelling story Role modelling ! What motivates you, does not motivate (most of) your employees – tell ‘5 stories at once’ ! It takes both “+” and “-” to create real energy – call out both what is working and what is not ! Your leaders believe they already ‘are the change’ – ensure they are changing as well ! Influence leaders are not that influential – don’t over-rely on them ! Employees are what they think – address the underlying mindsets as well as the technical skills ! Create space for employees to practise new skills back in the workplace Money is the most expensive way to motivate people – small, unexpected gestures can have a disproportionate effect ! Pay careful attention to achieving fairness in processes and outcomes ! Skills required for change Reinforcement mechanisms SOURCE: Carolyn Aiken, Scott Keller, ‘The irrational side of change management’, McKinsey Quarterly Article, 2009 McKinsey & Company | 21 Frame four – How should we manage the journey? Successful transformations are designed in a collaborative effort to build ownership and energy Health Essentials Discovery Process Influence Model Change Engine Centred Leadership How was your company’s transformation designed and planned? %, N = 2, 694 Relative success Relative failure The transformation was designed and planned through a large-scale collaborative effort across the organisation 47 53 A small cross-functional team formed especially for the purpose did most of the work 66 34 The CEO and top team did most of the work themselves 68 32 “It's really very simple. When people feel they are doing something extraordinary, their motivation increases. Our people loved the work they did during the transformation.” Filippo Passerini, CIO Procter & Gamble Source: McKinsey analysis; CEO interviews McKinsey & Company | 22 Developing a ‘change engine’ consisting of structure, ownership and evaluation is essential to success Structure - The transformation was organised into a clear structure with readily understandable sections %, n = 2,041 %, n = 2,057 Entirely true 27 Very true Somewhat true Not at all true Ownership - Roles and responsibilities were clear, so people felt accountable for delivering results 47 73 52 25 75 12 %, n = 2,044 Entirely true 74 26 Very true 53 47 Somewhat true Not at all true 88 Evaluation - Clear, unambiguous metrics and milestones were in place to ensure that progress and impact were rigorously tracked 78 23 11 72 28 Very true 54 47 Somewhat true Not at all true 89 x 6.1 Entirely true 27 73 91 9 x 6.4 x 7.3 SOURCE: McKinsey Quarterly Transformational Change survey, January 2010 McKinsey & Company | 23 A powerful change structure brings order, clarity and coherence to the transformation activities “The desired transformation story” “The chapters of the transformation story” “The key initiatives to deliver the transformation story” Health themes Level 1 The bold aspiration De-bureaucratising People systems Collaboration Growing production Value chain integration Maximising downstream Efficiency and Safety Level 2 The big change themes Performance themes Performance themes To become a highly competitive integrated company, recognised as one of the top 5 energy producers worldwide and seen as the employer of choice in our industry Corp. citizenship Health themes Level 3 Initiatives across three horizons McKinsey & Company | 24 Build ownership for change Build ownership by combining military and marketing tactics Manage the transformation like a military campaign… Role clarity Governance rigour Project discipline Role descriptions, accountabilities, performance contracts, decisionmaking authorities Direction-setting, decision-making and sign-off processes, funding, risk mitigation, performance management Problem-solving approach, project management, cross-initiative integration, best practice sharing, tracking and adjusting …as well as a marketing campaign Viral tactics to unleash largely self-directed change, mobilised by cause beyond individual gains ▪ ▪ ▪ ▪ ▪ ▪ ▪ Activists Core team plus voluntary connectors Simple rules, opportunistic, go with energy Big aim, open approach Celebrations, change campaigns Empowered Based on wisdom SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 25 Gathering evidence of change on multiple levels is key to coursecorrection along the journey and reinvigorating celebration of success Description 4. 3. 2. 1. Monitor enterprise value or shareholder value as the ultimate outcome Measure performance to ensure improvement where expected. Key metrics are business outcomes like increased revenue, decreased cost, cash flow and reduced risk Monitor key health indicators to ensure initiatives are having impact. These will be behavioural outcomes assessed through surveys, check-ins, customer forums and the like Track progress of initiatives to ensure they are delivered on time, on budget and to quality. Invest in developing an effective programme dashboard Enterprise value ▪ There is most value in measuring the highest level of the system but this is also where cause-andeffect linkages are hardest to establish ▪ Measure both performance and health to provide powerful evidence of change - layers one, two and three should be rigorously tracked at a minimum ▪ Identify the high-impact interventions and correlate between health and performance Performance Health Initiatives McKinsey & Company | 26 Evaluate consistently over time to see results Year 0 Year 1 Year 2 Year 3 Year 4 1 Cost reduction 1 Cost reduction 1 Cost reduction 1 Cost reduction 1 Customer focus 2 Shareholder value 2 Profit 2 Shareholder value 2 Customer focus 2 Cost reduction 3 Results orientation 3 Shareholder value 3 Accountability 3 Shareholder value 3 Accountability 4 Profit 4 Results orientation 4 Customer focus 4 Accountability 4 Continuous improvement 5 Goals orientation 5 Hierarchical 5 Profit 5 Continuous improvement 5 Achievement 6 Bureaucracy 6 Continuous improvement 6 Results orientation 6 Profit 6 Profit 7 Hierarchical 7 Customer focus 7 Continuous improvement 7 Results orientation 7 Results orientation 8 Short-term focus 8 Bureaucracy 8 Achievement 8 Achievement 8 Community involvement 9 Control 9 Achievement 9 Bureaucracy 9 Community involvement 9 Shareholder value 10 Risk averse 10 Goals orientation 10 Being the best 10 Customer satisfaction 10 Customer satisfaction 28 Customer focus McKinsey & Company | 27 Frame five – How do we sustain and improve? Successful transformations develop the leaders needed to continuously change and improve Health Essentials Discovery Process Influence Model Change Engine Centred Leadership How strongly involved was the leader in the transformation? % of respondents, N = 2, 694 Relative success Relative failure Very strongly (e.g., took an active interest in key initiatives, reviewed progress regularly, pushed for impact) Fairly strongly Not very strongly (e.g., most transformation responsibilities were delegated to others) Source: McKinsey analysis; CEO interviews 51 72 80 49 28 20 “Challenges of today call for new ways to lead change. The key is to help my most competent leaders develop selfreflection capacity so they can transform their own behaviours and set a new tone” Gary Loveman, Chief Executive Officer and President Harrah's Entertainment McKinsey & Company | 28 Build skills in individual, team and organisational leadership Centred Leadership begins with self-mastery, enabling individuals to lead others and the organisation Leading self ▪ ▪ ▪ ▪ ▪ Use personal vision to self motivate Take accountability to regulate one’s own mindsets and behaviours to create desired change Manage energy and attention to maintain productivity Develop a strong support network Leave one’s comfort zone and commit to opportunities SOURCE: McKinsey & Company Leading others ▪ ▪ ▪ ▪ ▪ Motivate others to action Turn difficult conversations into learning opportunities Build relationships based on trust and emotional mastery Engage system support for teams Sustain and renew via coaching and sponsorship Leading the organisation ▪ ▪ ▪ Communicate inspiring vision and change stories Recognise and shift system dynamics for greater accountability Engage multiple stakeholders through appreciative inquiry McKinsey & Company | 29 Develop a programme leveraging adult learning principles The journey to centred leadership Characteristics of centred leadership programmes Image Example programme structure Diagnose & Design Link directly to performance improvement Forum 1: Lead Self & Others Take place over time in a “field and forum” approach Span leadership of self, of others, and of organisational change Accommodate different learning styles Are led from the top Allow for self-discovery Coaching Are grounded in a quantifiable baseline Fieldwork Forum 2: Lead Teams & Org Fieldwork Embedding Monitor and measure SOURCE: Joanna Barsh and Susie Cranston, ‘How remarkable women lead’ Crown publishing, New York, 2009 McKinsey & Company | 30 Contents Health today drives performance tomorrow The Five Frames of successful transformation Where are you in your journey to health? McKinsey & Company | 31 The ten tests of organisational excellence 1 Strategic objectives Capability platform Portfolio of initiatives Delivery model Continuous improvement Health essentials Discovery process Influence model Change engine Centred leadership 1. Do we have a compelling, widely understood, and jointly owned vision of change and set of performance targets for our organisation? 2. Do we have a robust baseline and shared aspirations for the health of our organisation? 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? 5. Do we have a concrete, balanced set of performance improvement initiatives defined to deliver our change vision? 6. Do we have a clear plan for how to reshape our work environment to influence healthy mindsets? 7. Do we have a well-defined scale-up model for each of the initiatives in our portfolio? 8. Do we have a reliable method to ensure that energy for change is continually infused and unleashed during the change process? 9. Do we have the structure, processes, systems, and people to drive continuous improvement in performance and health? 2 3 4 10. Do we have a group of committed leaders who can lead transformation and sustain high performance from a core of selfmastery? SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming your organisation’, 2010. McKinsey & Company | 32 5