Beyond Performance

Colin Price

June 2011
1 Four realities are shaping organisations today
First reality

The nature of competition has shifted from

scale and stability to innovation and change
Scale is no longer the key driver of company value

Net income Net income

per employee per employee

1984 2004

Number of employees in the company Number of employees in the company

Second reality

The gales of creative destruction are still raging

The recent downturn has been disastrous for many

Share price
55

CAGR
-54%
0
2004 2009
Third reality

Most corporate transformations end in failure

Transformations tend to fail for the same reasons

1995 2000 2005 2010

70% 70% 70% 70%

Fourth reality

However, some companies do re-invent themselves

A small number consistently out-perform the market

15,000 15,000
10,000 10,000
5,000 5,000
0 0
1979 Q1 2009 Q3 1979 Q1 2009 Q3

15,000 15,000
10,000 10,000
5,000 5,000
0 0
1979 Q1 2009 Q3 1979 Q1 2009 Q3
2 McKinsey investigates organisations and change
Our journey of discovery described in numbers

Survey Research Analysis

600,000 Survey respondents 900 Academic journal 2 Books were published

from over 500 articles and books one internally,
organizations reviewed one externally
participated in our
Organizational 30 CEOs and chairpersons 1 Unified theory
Health Index did face-to-face of change
research interviews with us

6,800 CEOs and senior 4 Leading academics

executives reviewed, challenged,
completed further and augmented our
surveys regarding findings
transformational
change 3 Years were dedicated to
developing and refining
our understanding of
organization and change
Performance alone cant explain corporate success
Market value $b, Jun 2007
Market value $b, Jan 2009
Market value $b, Jan 2011

BNP
Morgan RBS Deutsche Credit Socit Paribas Unicredit UBS
Stanley 120
Bank Agricole Gnrale Barclays 111 126
88 91 85 93
75 76 86
67 60 69
54 46 45
44 34

14 6 13 21 18 9 28 25 30

Citigroup
HSBC
254 215
JP Morgan
200
176
165
Credit Goldman Santander
142
Suisse Sachs 116
94
99
87 88
53

23 27 55 15 68 82
A theory of change: balancing performance + health

Performance Health

What an organisation delivers The ability of an organisation to

to stakeholders in financial align, execute and renew itself
and operational terms better than the competition
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
I believe we have lacked accountability and
leadership to align and direct the company
through these disruptive times
Stephen Elop
Chief Executive
Nokia
3 The nine vital signs of organisational health
Organisational health comprises nine characteristics

Direction

Account- Coordination
ability and control

External Innovation and

orientation Leadership learning

Capabilities Motivation

Culture and
climate
One cluster relates to strategic internal alignment

Direction

Account- Coordination
ability and control

External Innovation and

orientation Leadership learning

Capabilities Motivation

Culture and
climate
Another cluster is about your quality of execution

Direction

Account- Coordination
ability and control

External Innovation and

orientation Leadership learning

Capabilities Motivation

Culture and
climate
A third cluster concerns your capacity for renewal

Direction

Account- Coordination
ability and control

External Innovation and

orientation Leadership learning

Capabilities Motivation

Culture and
climate
Leadership is at the core of all these characteristics

Direction

Account- Coordination
ability and control

External Innovation and

orientation Leadership learning

Capabilities Motivation

Culture and
climate
Strong health profiles correlate to high performance

EBITDA margin Growth in value Growth in net income

68%
62%
58%
52% 53%
48%
38%
31% 31%

Weak Medium Strong Weak Medium Strong Weak Medium Strong

Health profile Health profile Health profile
Health matters, from refineries in an oil company
Performance

R2 = 0.54

Health
 to hospitals across a national healthcare system
Performance

R2 = 0.50

Health
4 How to be rigorous about organisational health
Five ways to create balanced performance + health
Performance Health

Where do we Strategic Set the overall Health Define your organisational

want to go? objectives performance goals essentials aspirations

Determine gaps across

How ready are Capability Discovery Understand the mindset shifts
platform technical, managerial and process
we to get there? needed within the organisation
behavioural systems

Develop a portfolio of Architect the implementation

What do we Portfolio of Influence
initiatives to improve along the levers that drive
need to do? initiatives model
performance people to change

How will we Design the approach to Build broad ownership, take

Delivery Change
manage for model rolling out initiatives engine a structured approach and
success? across the organisation measure impact

How will we Continuous Set up mechanisms to drive Centred Develop leaders to enable
keep moving improvement leadership
infrastructure continuous improvement them to drive change
forward?
Where do we want to go?
Strategic objectives Performance

Is your strategy:
Market beating or just playing along?
Based on sources of advantage or based on misdiagnoses?
Granular about where to compete or conventionally defined?
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?
Convertible to real action and resources or just a vague statement of intent?
Health essentials Health
Set the right health aspirations Health

Leaders are the glue and the engine Building a strong, innovative
that drive performance brand and shaping market trends

Discipline, sound execution, and Our most important asset is our

managing the bottom line collective knowledge and talent base
Perceptions depend upon seniority Health

Elite
Able
Ailing

Mean

Executive team 93 97 60 87 73 84 100 69 75 82

Senior manager 82 89 53 81 69 71 86 71 77 75

Manager 75 77 57 72 49 73 84 65 72
69

Officer 54 73 40 60 42 71 58 57 73 59

Admin staff 48 72 39 62 40 63 49 49 67 54
How ready are we to get there?
Capability platform Performance

Technical
system

Management Behavioral
system system

True tests of corporate capabilities

Scarce within the industry
Superior to substitutes
Difficult to imitate
Discovery process Health
 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.

Sir Roger Bannister

Focus on the vital few Health

From transactional to relational

I am responsible for quickly I bring the best of my company
and efficiently meeting the to clients and address their needs
needs that my clients express whether articulated or not

From silos to collaboration

I know whats right for I can learn from others and
my area and no one else there is great value in mining
can achieve what I can the seams together

From blame to accountability

I show up at each I trust others to do
meeting so I can what they are supposed
watch my back to do, in a fair manner
Whats working, as well as what isnt Health
What do we need to do?
Portfolio of initiatives Performance

A balanced portfolio

Familiar Lack of focus

Unfamiliar Risky future

Uncertain Poor innovation

Short Medium Long

(1-2 years) (2-3 years) (3-5 years)
Influence model Health
Create the right context Health

Role modelling Compelling story

I see my leaders, ... I understand what
colleagues, and staff is being asked of me
behaving differently. and it makes sense.

I will change
my mindset and
behaviour if

Skills needed for change Reinforcing mechanisms

I have the skills and I see the structures,
opportunities to behave processes and systems
in the new way. to support the changes.
Build health into performance Health

Role modelling Compelling story

Executive sponsors ask, Day in the life of a

What is the impact on customer vignettes created
the customer of that to understand customers
recommendation? experience more fully
EXAMPLE initiative
Customer intimacy
For each issue, customer handoffs Customer feedback and loyalty
across silos are mapped to pro- scores represent the ultimate
cesses to gain more understanding measure of initiative success;
of the customer experience these are tracked regularly

Skills needed for change Reinforcing mechanisms

How will we manage for success?
Delivery model Performance

Linear: Sequential interventions with

stable resource requirement

Geometric: Successive waves of interventions

with increasing resource requirement

Big bang: Concurrent interventions with

intensive but punctual resource requirement

Organic: Light a forest fire and then

stand back
Change engine Health

10 teams, each with

10 members, were asked for their collective
10 priorities

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
Take a structured approach Health

Level 1: Transformation Level 2: Performance and Level 3: Specific initiatives

headline health themes

To become a highly Health themes Health themes

competitive integrated

Cross-business

Story cascade
company, recognized as one

Talent review
Data sharing
of the top five energy

Customer focus

overhaul
Accountability

councils
producers worldwide and as

Collaboration
the employer of choice in

Alignment
our industry

Performance themes
Performance themes

Expanding production Pricing

Integrating value chain Learning

Vendor
Maximising downstream consolidation

More efficiency/safety Lean

Build broad ownership Health

Manage the transformation like a military campaign ... and like a marketing campaign
How will we keep moving forward?
Continuous improvement Performance

Western roll Fosbury flop

236 cm
1980
218 cm 224 cm
1968

Top-down structural change Continuous improvement

Top management driven First-line-manager driven
A few big levers Thousands of small levers
Project-based change Changing the way we work
One-off improvements Continuously improve across all functions
Centred leadership

The purpose of an organization is to enable

common men to do uncommon things.
Peter Drucker
1954
Its not easy being a business leader Health

Which professions do people respect most? With whom are you happiest (rating 1-5)?

Doctors 65% Friends 3.3

Police 63% Parents/relatives 3.0

Clergy 50% Spouse 2.8

Journalists 23% My children 2.7

Bankers 19% Co-workers 2.6

Lawyers 13% Parents/relatives 2.4

Business excs 12% Alone 2.2

Car salesmen 6% Boss 2.0

Gallup 2009; Julian Birkinshaw, London Business Richard Layard 2009; Julian Birkinshaw, London Business
School Reinventing Management, November 2010 School Reinventing Management, November 2010
Building a leadership-rich organisation Health

Company effectiveness (% responses)

70

60
Special projects Job
structuring
50
Speedy
job rotation
40 Role models
Performance 360 Feed-
evaluation feedback back Informal
30 External training coaching

Individual Mentoring
In-house training learning Job rotation
20
External Non-traditional Development
assessment training plans
10

0
0 10 20 30 40 50 60 70 80
Importance to my development (% responses)
Roles/assignments
Coaching/mentoring/performance dialogue
Formal training
5 How well do you balance performance + health?
Where are you in your own transformation journey?
1 2 3 4 5
Where do we want to go?
1. Do we have a compelling, understood, and jointly owned
Strategic Health vision of change, plus performance targets?
objectives essentials
2. Do we have a robust baseline and shared aspirations for the
health of our organisation?
How ready are we to get there?
3. Do we have a solid assessment of our organisations
Capability Discovery
capability to deliver our change vision?
platform process
4. Do we have insight into the root-cause mindsets that inhibit
or enhance our organisations health?
What do we need to do?
5. Do we have a concrete, balanced set of performance
Portfolio of Influence improvement initiatives to deliver our change vision?
initiatives model
6. Do we have a clear plan for how to reshape our work
environment to influence healthy mindsets?

How will we manage for success?

7. Do we have a well-defined scale-up model for each of the
initiatives in our portfolio?
Delivery Change
model engine 8. Do we have a method to ensure that energy for change is
continually infused/unleashed during the change process?
How will we keep moving forward?
9. Do we have the structure, processes, systems, and people to
Continuous drive continuous improvement in performance and health?
improvement Centred
infrastructure leadership 10. Do we have committed leaders who can lead transformation
and sustain high performance from a core of self-mastery?
Mindsets in an organisation really can be shifted
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 2 Profit 2 Shareholder 2 Customer 2 Cost reduction
value value focus
3 Results 3 Shareholder 3 Accountability 3 Shareholder 3 Accountability
orientation value value
4 Profit 4 Results 4 Customer 4 Accountability 4 Continuous
orientation focus improvement
5 Goals 5 Hierarchical 5 Profit 5 Continuous 5 Achievement
orientation improvement
6 Bureaucracy 6 Continuous 6 Results 6 Profit 6 Profit
improvement orientation
7 Hierarchical 7 Customer 7 Continuous 7 Results 7 Results
focus improvement orientation orientation
8 Short-term 8 Bureaucracy 8 Achievement 8 Achievement 8 Community
focus involvement
9 Control 9 Achievement 9 Bureaucracy 9 Community 9 Shareholder
involvement value
10 Risk averse 10 Goals 10 Being the best 10 Customer 10 Customer
orientation satisfaction satisfaction

28 Customer
focus
A turnaround is a transformation
tragically delayed
Gary Hamel
Harvard Business Review
2003