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A New Kind of Organizational Science: Learnings, trends and emerging principles
CONFIDENTIAL AND PROPRIETARY
Any use of this material w ithout specif ic permission of McKinsey & Company is strictly prohibited
1
Why we are here today: organizations evolve
Organizations have been around for a long time…
…they have led to some of our greatest innovations
Yet the questions on how to design, manage, and lead
them continue, and the answers continue to evolve
2
Why we are here today: Traditional guidance needs an
update
Technological
Advances
Teal
OrganizationsGlobalizationHolacracy
What’s the right structure for my organization’s
strategic objectives?
How do I build the culture I need to meet
performance goals?
How do I ensure my organization attracts, develops, and retains the best people?
What makes a good leader?
3
We’ll share some powerful lessons from the frontline
Cross-industry experience
Culture
Design
People
Diverse organization topics
2m+ employees surveyed
1000+companies served
Many data points Application to a suite of proprietary solutions
TTE
Snowball
4
Emerging principles from the organizational frontlines
1. Get off the re-org pendulumDesign for an agile organization
2. Pick your recipeLearn from the (at least) 4 successful cultures we have found
5. Remember you live in a 3D worldStep away from your laptop to get a new perspective
3. Be the leader your company needs you to beEffective leaders adapt to fit their organization’s need
4. Trust data and analytics to inform your instincts Where possible inform your ‘gut’ instinct with data-driven fact base
6
We can’t keep re-inventing ourselves
60%of companies have re-organized in the past 2 years
<1 in 4 redesigns are successful
1-2 years
for the organization to stabilize
7
Organic FrameMachine Frame
Your organization is not a machine
“We’ve reorganized so many times we are now one of our own subsidiaries”
• People work together based on strict
rules, skill sets and values
• “Form follows function”
• 1 way of working; reinvention is arduous
• A clear, simple backbone structure
• Has the ability to be deployed to many
different purposes without the
backbone being affected
8
Balance a stable backbone with dynamic capability to
become an Agile organization
Fleet Agile
Trapped Stalwart
Weak Strong
Stable
backbone
Weak
Strong
Dynamic
capability
9
Balance a stable backbone with dynamic capability to
become an Agile organization
Fleet Agile
Trapped Stalwart
Weak Strong
Stable
backbone
Weak
Strong
Dynamic
capability
How it feels …
• Uncoordinated
• Stuck
• Shadow functions
• Fire-fighting
• Local recipes
• Finger pointing
• Under attack
• Ineffective
How it feels …
• Start-up
• Empowered
to act
• Visionary
• Chaotic
• Re-inventing
the wheel
• Innovative
• Constantly
shifting focusHow it feels …
• Standard ways of working
• Secure and reliable
• Efficiency
• Silos
• Ambiguous decision
making
• Decision escalation
• Risk adverse
• Bureaucracy
How it feels …
• Quick to mobilize
• Collaboration for
performance
• Free flow of information
• Quick decision making
• Problem solving
• Distributed authority
• Freedom to fail
10
Revenue, USD billions
46.0
29.3
21.8
Future2012
?
102008
SOURCE: “How Google works“ (book); HBR; Google; press releases; interviews; McKinsey
Stable backbone Dynamic capability
Process
Structure
People• Recruiting process
involves all employees to ensure best talent and cultural fit
• Standardized
onboarding (3-week-rule)
• Organizing around
the people whose impact is the greatest (e.g., open job market)
• People move fluidly
through the org and across hierarchy levels
• Living with ambiguity
Agility
• Functional primary
axis
• P&L responsibility in
“virtual”, cross-functional product-
oriented BUs
• 7 is the max span
• Quickly forming and
dissolving of cross-functional product lines (BUs)
• Collaboration and
innovation across BUs and functions
Example: How Google achieves agility
+ =• Differentiated
performance management system
• Top team provides quick directionand
inputs on resourcing
• Free flow of info
• Reprioritizing of budget
and resources every 90 days
• Push new projects by balancing engineering
time 70/20/10
• Data based
12
We’ve been measuring culture for 10 years and
we found a way to predict performance
through management best practices
2m+Employees surveyed
1000+companies
98 questions
20 minutes
overall score
outcomes
behaviors
1
9
37
The OHI predicts an organization's capacity to perform in the long-term and equips leaders with both facts and proven health programs for success
14
What is it that companies with the best cultures do?
Is the answer in any of these books?
Is there ONE right answer?
Do you have to do ALL of these things?
15
We’ve identified four recipes of high-performing
organizational cultures…
RECIPE B
RECIPE C
RECIPE D RECIPE A
Illustrative cluster map showing organizations based on the similarity of their practice
“finger prints”
5X
Companies with very strong alignment to a recipe are
more likely to sustain an organization in top-quartile
health
Companies in top-quartile
health see
3Xshareholder return compared
to bottom-quartile companies
65%Of companies align to recipe C
16
…and interestingly, popular literature reflects these
4 cultural paths
“Intellectual capital
resides in employees
at all levels of the
firm, but it takes
strong leadership to
fully develop and
enable it.”
“Market-leading
companies anticipate
the future by
understanding the
trends and
undercurrents at the
root of change…”
“In the modern world,
[a] networked and
knowledge-based
business environment
[and] intangible
assets created by
talented people…
generate the highest
value.”
recipe Brecipe A
“No company can
deliver on its
commitments or adapt
well to change unless
all leaders practice the
discipline of execution.
It is the missing link
between aspirations
and results.”
recipe Drecipe C
17
Shaping market
trends and building
a portfolio of solid,
innovative brands
keeps us ahead of
the competition
We leverage our
people and know-how
at all levels of the
organization to out-
perform competitors
via superior execution
and continuous
improvement
Leaders are the
performance catalyst;
they set high
expectations and
help the organization
achieve them
Our collective talent
and knowledge is
our most important
asset; our success
depends on
developing talent
effectively
The four recipes reflect different core beliefs that permeate
every aspect of how a company operates
Knowledge
SharingCustomer focus
Career
opportunities
Rewards &
recognition
Employee
Involvement
Competitive
Insights
Inspirational
LeadersTalent Acquisition
Creative &
EntrepreneurialBusiness PartnersOpen and Trusting Financial Incentives
Key cultural focal points
recipe A
Leadership factory
recipe B
Market Shaper
recipe C
Continuous
Improvement Engine
recipe D
Talent/
Knowledge Core
19
McKinsey Leadership
Development
Organizational Health
Index (OHI)
2013 Joint Venture – “Could we do better?”
▪ Jointly developed an experimental add-on module
▪ 39 total questions, with existing OHI questions and additional newly created ones
▪ Piloted with 165 surveys and 375,000+ respondents
Our standard
McKinsey
Solution for
measuring culture
and behaviors
Broader
framework of
leadership, tied
into varied
academic views
and informed by
real work
experience
We conducted a joint venture to discover how leaders can
drive culture changes
20
We identified 4 leadership styles
1 2
3 4
Consultative
leadership
Leaders involve
and empower
employees through
communication,
consultation
and delegation
Challenging
leadership
Leaders encourage
employees to take
on tough challenges
and do more than
they thought was
possible
Authoritative
leadership
Leaders
emphasize
hierarchy and
managerial
pressure to
get things done
Supportive
leadership
Leaders build
a positive
environment
characterized
by team harmony,
support, and caring
for employees’ welfare
21
We identified 21 leadership behaviors
Make decisions objectively
Clarify objectives, rewards,
and consequences
Operate with strong
results orientation
Differentiate among followers
Give praise
Support people and teams
Motivate and bring out best in others
Develop others
Remain composed and confident in uncertainty
Recover positively from failures
Champion desired change
Role model organizational values
Be fast and agile
5
6
7
8
9
10
11
12
Develop and share collective mission Facilitate group collaboration1 13
Offer a critical perspective Keep group organized and on task2 14
Seek different perspectives Foster mutual respect3 15
Effectively problem solve Communicate prolifically and enthusiastically4 16
17
18
19
20
21
22
We identified a set of hygiene (baseline) behaviors to
follow, no matter what situation are you in
• Facilitate group collaboration
• Supportive leadership
• Champion desired change
• Offer a critical perspective
23
Going from Good to Great Motivating through aspirations
Getting over the Hump (Bad to Good) Providing structure when most needed
What you do depends on where you are now
on the health arc
Dig out from Under (Broken to Bad)Maintaining the center of calm
24
• Motivate and bring out best
in others
• Role model organizational values
Progressing to the next stage requires specific leadership
actions
From Good to Great
From Broken to Bad• Make decisions objectively
• Problem solve effectively
• Recover positively from failures
Method note: Practice/behavior differentiation w as assessed on practice means that w ere standardized and then ranked w ithin quartile.
Rank order differences of 8 or more positions and > .50 SD qualif ied.
Differentiating leadership actionsStage
• Keep group on task
• Be fast and agile
• Have strong results orientation
• Seek different perspectives
• Clarify objectives and consequences
From Bad to Good
26
Machine learning,
predictive analytics
and modeling
Databases and
benchmarks
Simple office data
analysis
Data and analytics can’t replace human thoughtfulness,
but they can inform your ‘gut’ instinct with a fact base
27
The People Analytics revolution has hit Talent
Management like customer analytics did for M&S
decades ago
28
We use machine learning for predictive advanced
analytics
1 Based on retention case study; Gini improved from 53% to 80% (GINI is a measure of prediction accuracy. A GINI of 40-60% is considered strong)
2 machine learning
Machine
learning
Advantages
▪ High accuracy
▪ Complex pattern
recognition
Output
▪ Individual level
predictions
Famous
applications
▪ Amazon’s “you
may also
like…”; weather
forecast
G53%
Regression prediction accuracy1
▪ Classic statistics fits
a predetermined line on data
80%
ML2 prediction accuracy1
▪ Machine learning builds detailed
model that accommodates “pockets”
29
Organizations typically ask a few critical Talent
Management questions…
Training and
capability building
Retain-
ing the right people
Grow-
ing and developing leaders
Evaluating
and recognizingperformance
Creating a
talent culture Recruiting
and on-boarding
1
6
27
3
4
5
How do I select candidates for training programs?6
How do I strategically plan my workforce? 1
How do retain the right people?2
What are the most important characteristics of
a good leader?5
How do I hire the best talent?3
How do I motivate and engage my workforce?7
Who are my future high performers?
How do I optimize compensation?4
30
…Those answers are dramatically improved using predictive
analytics techniquesCritical Talent Questions Predictive Analytics techniques / products
Individual “training journey” based on return
on training
How do I select candidates for training
programs?6
“Data driven workforce planning” based on
predictive factors such as employee attrition,
future top performers
How do I strategically plan my
workforce? 1
“Retention algorithm” that predicts individual
“flight” risk and indicative factors
How do retain the right people?2
“Leadership characteristics identifier”What are the most important
characteristics of a good leader?5
“Automated resume screening algorithm”
based on probability of future success
How do I hire the best talent?3
“Employee motivation factors” that identifies
true drivers of motivation (eg values and not comp)
How do I motivate and engage my
workforce 7
“Performance predictor” that predicts future
top talents; “Compensation optimizer”
Who are my future high performers?
How do I optimize comp.?4
31
Trust data & analytics: success stories from the front-line
Company Application Impact
American insurance co
tackles talent retention$20M retention bonus
found to have zero impact
50% reduction in attrition
Machine learning
predictive analytics
Global pharma co finds
hidden cost savings 26-40% managerial cost savings across functions
3000+human data entry errors corrected
Spans & layers
benchmarks
Scenario modeling & real-
time collaboration tools 10 wks to redesign the entire organization
150,000 Employees (not 280,000!)
European bank
discovers its true size
and completes a redesign
33
Our tools are great, but they can only take us so far
• A constrained space
• A flat perspective
• Facilitates remote
interactions
• Siloed data and information
systems
What if we stepped away from our
laptops and return back to our
environment?
34
A people focused “War Room” is a 3D environment that
inspires new perspectives and illuminates hidden patterns
Benefits
• Expands your visual space
• Enables integration of different types of information
• Increases energy levels and face-to-face engagement
• Combines tech-enabled and hands-on interfaces
A success story:
A talent draft for a chemicals manufacturer
35
Our recommendations to you
2. Pick your recipe• Culture needs to be measured and managed. Figure out the type of
culture you want/need to achieve your goals• Determine the priority behaviors you need to get there
1. Get off the re-org pendulum• Work happens outside of boxes and lines. Keep the structural
backbone simple to enable agility.
3. Be the leader your company needs you to be• Assess where your company is right now, and modify your leadership
behaviors accordingly
4. Trust data and analytics to inform your instincts• Build capabilities so you and your team can make the most of
advances in data and analytics
5. Remember you live in a 3D world• Step away from your laptop to understand your organization from a
fresh perspective