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Beyond Performance

• Performance is what an enterprise delivers to its shareholders in the here and now, evaluated through such measures as net operating profit, return on capital employed, total returns to share- holders, net operating costs, and stock turn.
• Health is the ability of the organization to align, execute, and renew itself faster than its competition, allowing it to sustain exceptional performance year in, year out

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Beyond Performance

  1. 1. Some Impressionistic Take away from the Book of Scott Keller & Colin Price Beyond Performance ( How Great Organizations build ultimate competitive Advantage) Ramki ramaddster@gmail.com
  2. 2.  Scott Keller is a director in the Southern California office of McKinsey & Co., and leads its transformational change practice in the Americas. He has published several articles on change management & organizational behavior, as well as a book for colleagues and clients. Outside McKinsey, Keller is a co-founder of Digital Divide Data, an award-winning social enterprise that benefits some of the world’s most disadvantaged people. About the Authors  Colin Price is a director in McKinsey’s London office, and leads its organization practice worldwide. He has advised many of the world’s largest corporations, several national governments and a number of charitable institutions. His books include Mergers and Vertical Take-Off
  3. 3.  In an ever-changing world where only a third of excellent organizations stay that way over the long term, and where even fewer are able to implement successful change programs, leaders are in need of big ideas and new tools to thrive. In Beyond Performance, McKinsey & Company's Scott Keller and Colin Price give you everything you need to build an organization that can execute in the short run and has the vitality to prosper over the long term.  Drawing on the most exhaustive research effort of its kind on organizational effectiveness and change management, Keller and Price put hard science behind their big idea: that the health of an organization is equally as important as its performance. In the book's foreword, management guru Gary Hamel refers to this notion as "a new manifesto for thinking about organizations."  The authors illustrate why copying management best practices from other companies is more dangerous than helpful. Prelude
  4. 4.  Clearly explains how to determine the mutually reinforcing combination of management practices that best fits your organization's context  Provides practical tools to achieve superior levels of performance and health through a staged change process: aspire, assess, architect, act, and advance. Among these are new techniques for dealing with those aspects of human behavior that are seemingly irrational (and therefore confound even the smartest leaders), yet entirely predictable  Ultimately, building a healthy organization is an intangible asset that competitors copy at their peril and that enables you to skillfully adapt to and shape your environment faster than others—giving you the ultimate competitive advantage. Prelude
  5. 5. Why Performance is not Enough
  6. 6.  Perhaps surprisingly, we have found that leaders of successful and enduring companies make substantial investments not just in near-term performance-related initiatives, but in things that have no clear immediate benefit, nor any cast-iron guarantee that they will pay off at a later date.  At IT and consultancy services company Infosys Technologies, for instance, Chairman & Chief mentor N.R. Narayana Murthy talks of the need to “make people confident about the future of the organization” and “create organizational DNA for long-term success.”  So why is it that focusing on performance is not enough — and can even be counterproductive?  To find out, let’s first look at what we mean by performance and health. Why Performance is not Enough
  7. 7.  Performance is what an enterprise delivers to its stakeholders in financial and operational terms, evaluated through such measures as net operating profit, return on capital employed, total returns to shareholders, net operating costs and stock turn.  Health is the ability of an organization to align, execute and renew itself faster than the competition so that it can sustain exceptional performance over time.  For companies to achieve sustainable excellence, they must be healthy. This means they must actively manage both their performance and their health.  The 2010 survey of companies undergoing transformations revealed that organizations that focused on performance and health simultaneously were nearly twice as successful as those that focused on health alone and nearly three times as successful as those that focused on performance alone. Why Performance is not Enough
  8. 8.  Sometimes, a firm’s profitability, financial productivity and business performance harm its rivals.  In 2005, Toyota was performing so well that it hoped to supplant General Motors (GM) as the world’s leading automaker.  Due mostly to robust US sales, Toyota produced a 39% jump in net profits in 2006.  Toyota enjoyed a sterling reputation for production expertise, quality automobiles and harmonious relationships with its many suppliers.  However, Toyota’s plan to outdo GM meant expanding dramatically.  Maintaining its strong supply-chain operations would be very difficult. The firm would need to develop new working relationships quickly with numerous non-Japanese suppliers.  Toyota lacked sufficient senior engineers to monitor new suppliers around the globe or to teach them how to adapt their operations to the “Toyota Way.” Such potentially disruptive problems all became painfully real. Toyota – A Cautionary Tale
  9. 9.  As a result, Toyota proved unable to maintain its production and quality standards, and it suffered a medium-term drop in performance.  By 2010, its manufacturing base had become so fraught with problems that Toyota had to recall certain models due to safety issues.  Congress summoned Toyota’s president, Akio Toyoda, to explain his cars’ many defects.  Toyota’s ambitious attempt to increase its sales and profits over the short term wrecked its long-term organizational health. Toyota – A Cautionary Tale
  10. 10.  Organizational health is “the ability of an organization to align, execute and renew itself faster than the competition so that it can sustain exceptional performance over time.”  Executing your financial goals is vital, but sustaining that success requires always being mindful of organizational health.  Firms that pay as much attention to their organization’s health as to its functionality are almost three times more successful than firms that focus only on performance.  To do well in the future, companies must keep evolving in the face of new challenges even as they pursue top results in the present.  The strongest, most viable firms work to become competitive and to stay competitive. They excel in the short term and the long term. The Big idea : Performance & Health
  11. 11.  Organizations attain excellence only when leaders manage both performance and health with equal rigor  “Health” can be defined as an organization'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  Organizational excellence can be achieved through a five-stage process: aspire, assess, architect, act and advance “You need to create organizational DNA for long-term success. And that’s what enables you to perform in the short term” Narayan a Murthy, Former Chairman of Infosys Technologies Performance & Health matters
  12. 12. Both Performance & Health must be managed
  13. 13.  The ability to adjust to new market dynamics is vital. Companies that cannot handle change today will be extinct tomorrow.  In 1955, the average firm on the S&P 500 index remained on the list for 45 years; by 2009, S&P 500 longevity had dropped to only 17 years.  Two thirds of firms thriving today will fail in the long run. Generally, the newest firms set the pace in most business sectors and create most of the wealth.  The market outpaces established firms that can’t keep up with the newcomers.  Evolution, agility, adaptability and flexibility are critical attributes of healthy organizations The Big idea : Performance & Health
  14. 14.  In a management world “rife with opinion and conjecture,” the authors base their conclusions and recommendations on a broad base of research, including:  Organizational Health Index (OHI) surveys on the drivers of organizational performance and health from more than 600,000 respondents in more than 500 organizations across the globe.  McKinsey Quarterly survey panels asking more than 6,800 CEOs and senior executives about their experience of transformational change from.  Data from more than 100 clients served by McKinsey& Company on specific performance and health engagements.  Reviews of more than 900 books and academic articles.  In-depth personal interviews with 30 CEOs & other senior leaders who shared their personal experiences of leading change and driving performance. The Science: Hard facts behind the Soft stuff
  15. 15.  In the exhaustive research underpinning the authors’ definition of organizational health and the OHI tool that they have developed, they believe they have been able to get closer than ever before to “counting what counts” in creating effective organizations.  In this process, they identified nine elements of organizational health that grouped into three clusters, with leadership appearing in each cluster: 1. Internal alignment, comprised of direction, leadership, and culture and climate. 2. Quality of execution, comprised of accountability, coordination and control, capabilities, motivation, and leadership. 3. Capacity for renewal, comprised of external orientation, innovation and learning, and leadership. The Science: Hard facts behind the Soft stuff
  16. 16. Direction A clear sense of where the organization is heading and how it will get there that is meaningful to all employees Leadership The extent to which leaders inspire actions by others Culture and climate The shared beliefs and quality of interactions in and among organizational units Accountability The extent to which individuals understand what is expected of them, have authority, and take responsibility for delivering results Coordination and control The ability to evaluate organizational performance and risk, and to address issues and opportunities when they arise Capabilities The presence of the institutional skills and talent required to execute strategy and create competitive advantage Motivation The presence of enthusiasm that drives employees to put in extraordinary effort to deliver results External orientation The quality of engagement with customers, suppliers, partners, and other external stakeholders to drive value Innovation and learning The quality and flow of new ideas and ability to adapt and shape the organization as needed Nine vital signs of organizational health Direction Account- ability Coordination & control External orientation Leadership Innovation & learning Capabilities Motivation Culture & climate
  17. 17. The Five Frames
  18. 18.  Bringing about significant & mutually reinforcing improvements on both the performance and health fronts is easier when the task is broken into smaller parts.  Keller and Price describe the process for achieving organizational excellence in terms of five basic questions that need to be answered in order to make change happen:  Aspire: Where Do We Want to Go?  Assess: How Ready Are We to Go There?  Architect: What Do We Need to Do to Get There?  Act: How Do We Manage the Journey?  Advance: How Do We Keep Moving Forward? The 5 Frames Each of these “Five Frames of Performance and Health” presents a different challenge depending on whether it is asked in the performance realm or health realm. The authors give more emphasis to the health realm in light of evidence that 70 percent of change program failures are driven by poor organizational health factors.
  19. 19. The 5 Frames
  20. 20. Frame One-Where we want to be ?
  21. 21. A runner, a boxer, and a swimmer are all healthy, but in quite different ways What kind of health aspirations are right for your organization? Measure organizational health Set the right health aspirations Involve a broad leadership coalition Aspire – Where do we want to go? On the health side, this means setting the right organization aspirations
  22. 22.  A broad coalition of leaders should be personally involved in setting the aspirations.  Which aspirations they choose for their organizations depend to a great extent on where the organization is at the start of the change process and vary by industry or sector.  There are, however, three lessons that almost any organization can apply when setting its performance targets: 1. Focus on the medium-term future. 2. Strike a balance between facts and intuition. 3. Set tough but achievable goals.  The immediacy of medium-term goals—planning two or three years ahead—allows managers to choose relevant goals and identify specific initiatives to reach them. Having a long-term vision at the start is helpful, but not enough, and a lack of long-term vision at the start is not a reason to delay starting. Aspire-Where we want to go ?
  23. 23.  Clearly, hard facts have a role to play in determining the organization’s performance aspirations.  Obtaining a robust fact base requires companies to ask themselves lots of questions, such as:  What competitive pressures and opportunities do we face?  What do our customers demand?  How does our performance stack up against benchmarks?  However, data alone is not enough.  The key is to balance fact with intuition.  It is important to guard against the kind of fact-based logic that led the CEO of Digital Equipment Corporation to say in 1977 that he saw “no reason for any individual to have a computer in his home.” While it might seem that intuition has had its day in an era when information is so freely available, the authors think that its role in decision making will only increase. Aspire-Where we want to go ?
  24. 24.  Setting tough but achievable performance goals is also crucial.  Targets that are easy or incremental fail to create momentum to push the limits of what is possible.  Targets seen as impossible are disillusioning and cause people to give up.  As to health aspirations, the McKinsey survey found that change programs with clearly defined aspirations for both performance and health were 4.4 times as likely to be extremely successful compared to programs with clear aspirations for performance alone.  Moreover, the authors’ research indicates that there are four basic “archetypes,” or patterns of practices, into which organizations tend to fall: Aspire-Where we want to go ?
  25. 25.  Leadership driven—The organization believes in leaders as the catalysts for performance.  Execution edge—The organization believes in discipline, sound execution, and continuous improvements.  Market focus—The organization believes in shaping market  trends and building a portfolio of strong and innovative brands.  Knowledge core—The organization believes its pool of talent and knowledge represents its most important asset.  It is harder to change an organization’s archetype than it is to improve that organization’s health within its existing archetype. Aspire-Where we want to go ?
  26. 26. Career opportunities Business partnerships Knowledge sharing Talent acquisition Open and trusting Customer focus Creative and entrepreneurial Role clarity Performance contracts Competitive insights Employee involvement Consequence management Inspirational leaders Government and community relations Talent development Financial incentives Strategic clarity Financial management Internally competitive Personal ownership 6 People performance review Capturing external ideas Personal ownership People performance review 7 Operational management Process-based capabilities Bottom-up innovation Career opportunities 8 Operationally disciplined Shared vision Top-down innovation Performance contracts Consultative leadership Outsourced expertise Meaningful values Professional standards Consequence management Strategic clarity Consequence management Financial management Aspire – Where do we want to go? There are 4 archetypical combinations for healthy organizations 1 2 3 4 5 6 7 8 9 10 Leadership driven Market focus Execution edge Knowledge core
  27. 27. Frame Two-Where are we today ?
  28. 28. Identify liberating and limiting mindsets Focus on the vital few Assess both what is working and what isn’t -+ Assess – how ready are we to get there? On the health side, this means understanding the few critical mindset shifts that are needed Understanding the key limiting mindsets in your organization
  29. 29.  The assess stage is hard for both leaders and their organizations, but the failure to address it in this stage will result in addressing it after the transformation has stalled, and high hopes have given way to cynicism and disengagement.  Performance is assessed in two steps: 1. Determine the capabilities that are strategically important to the organization’s performance—which capabilities are scarce, superior to substitutes, and difficult to imitate. 2. Evaluate the current state of those capabilities in the organization. Objectivity is vital; overestimating strategic abilities can undo even the best laid transformation plan. Assess-How ready are we to go there ?
  30. 30.  On the health side, assessment must look at underlying mindsets.  Mindsets drive behaviors, and behaviors support (or obstruct) the management practices that lead to good (or bad) organizational health.  Bringing these to the surface and explicitly working on them is the only way to make sustainable change happen.  The process is intended to identify both mindsets that need to be changed and mindsets that should be reinforced.  In this context, “mindset” means a fixed mental attitude or outlook that predetermines how people interpret situations and respond to them.  In companies with long history and employees of long tenure, it may help to encourage people to think in terms of eras, to emphasize that ways of thinking that worked well in the past may not work so well in the future. Assess-How ready are we to go there ?
  31. 31.  The basic tools for uncovering the organizations mindsets include an interview technique known as “laddering,” focus groups employing such techniques as collages and card sorting, and analysis of word patterns used in texts created by or talking about the organization.  Outsiders with specific skills and objectivity are helpful, but Keller and Price recommend that the leadership team also take part to gain firsthand knowledge.  Shifting mindsets is a gradual process, and organizations should not take on too many at one time; tackling three to five over a period of a year to 18 months is a reasonable target.  The trick is to start with those mindset shifts that will make the biggest difference. Assess-How ready are we to go there ?
  32. 32. The discovery process deep dives into an organization's inner workings Dig deep to identify limiting mindsets
  33. 33. Mindsets underpin Performance
  34. 34. Frame Three-What do we need to get there ?
  35. 35. Create the right context Use performance initiatives to influence mindset and behavioral change Expect and leverage irrationality! Architect – what do we need to do to get there? On the health side, this means architecting the implementation using the key levers that drive people to change Understanding how to make change happen at an individual level
  36. 36.  The architect stage determines how to bridge the gap between the organization’s current capabilities and mindsets, and the ones needed to achieve the performance and health aspirations identified earlier.  A series of strategic choices produces a concrete plan for both performance and health.  On the performance side, the organization constructs a portfolio of clearly defined performance improvement initiatives that are well balanced in terms of timing and familiarity.  Keller and Price think that the most valuable aspect of a portfolio of initiatives approach is that it makes choices explicit.  Organizations are forced to have robust discussions about what they will focus on—and, equally important, what they will not. Architect-What do we need to do to get there ?
  37. 37.  On the health side, a coherent set of actions is identified to bring about the desired shifts in mindsets and behaviors.  These actions draw on the “four levers” leaders can use to influence their organizations:  Telling a compelling story.  Establishing reinforcement mechanisms.  Building the skills required for change.  Setting a strong example through role modeling.  So that employees experience the efforts to improve performance and health as a single unified program, the actions taken to address mindsets should be integrated as much as possible into execution of the portfolio of performance initiatives. Architect-What do we need to do to get there ?
  38. 38. Frame Four-How do we manage the Journey ?
  39. 39. Act – how do we manage the journey? On the health side, it means taking a structured approach, building broad ownership, and measuring impact Take a structured approach Measure and evaluate Ten teams, each with ten members were asked for their collective ten priorities Heaven = 100 Hell = 1,000 Answer: 922 Build broad ownership for change
  40. 40.  The “act” stage usually lasts for years. Leaders need to unleash energy in the organization repeatedly during this time when employees are both performing the day-to-day tasks and fundamentally rethinking those tasks.  At this stage, however, the distinction between improving performance and improving health starts to blur.  The authors recommend a three-phase approach to implementing initiatives: test, learn, and scale-up. In practice, this means that a prototype initiative is tested out in a pilot location, the leaders learn from that experience, a second pilot is performed to confirm the broader feasibility, and the refined initiative is rolled out.  The actual rollout or “scale-up” may follow a variety of approaches, such as: Act-How do we manage the Journey?
  41. 41.  Linear, in which the feasibility pilot is tried in one location after another.  Geometric, in which the feasibility pilot is rolled out in waves, each wider than the last.  “Big bang,” in which the feasibility pilot is implemented across all relevant areas at once.  Keller and Price have developed a tool they call “the change engine,” that consists of three linked elements and applies equally to performance and health initiatives:  A structured approach to bring order, clarity, and coherence to transformation activities.  Building ownership of the transformation among employees and, to the extent possible, among external stakeholders.  Evaluation and measurement, by regularly collecting data on progress, allows course correction & celebrates achievements. Act-How do we manage the Journey?
  42. 42. Frame Five-How do we keep moving forward ?
  43. 43. Develop centered leaders to drive continuous learning and improvement Build skills in individual, team and organizational leadership Apply adult learning principles Advance – how do we keep moving forward? No organization can depend on genius; the supply is always scarce and unreliable. It is the test of an organization to make ordinary human beings perform better than they seem capable of … The purpose of an organization is to enable common men to do uncommon things – Peter Drucker, 1954 On the health side, this means developing leaders to drive the change
  44. 44.  The “advance” stage is never over because the job of continuously improving its performance and health is continuous.  That means putting in place a robust continuous improvement infrastructure with knowledge sharing, improvement processes, learning methods, and dedicated expertise.  It also means building centered leadership qualities that drive continuous performance improvement in a way that energizes the organization, rather than exhausts it.  The Centered Leadership model is comprised of 5 elements. When combined, they give leaders the resilience and emotional capacity to continuously improve themselves as they continuously improve their organization: Advance-How do we keep moving forward ?
  45. 45.  Meaning. Finding and communicating personal meaning in work, and enabling others to tap into their own sources of motivation and purpose.  Framing. Viewing even the most difficult problems in a way that opens up constructive and creative solutions.  Connecting. Taking active steps to build internal and external relationships.  Engaging. Generating the confidence to step up & act, involving themselves and others in the face of uncertainty and risk.  Energizing. Investing systematically in physical, mental, and emotional energy and creating the practices and norms needed to energize others Advance-How do we keep moving forward ?
  46. 46. The Centered Leadership Model Looking at problems in new ways to find better solutions Actively shaping networks to heighten one’s sense of belonging, ability to influence change, and personal growth Taking personal accountability for one’s life experience and setting aside fears to step up to opportunities Actively managing experiences to achieve maximum “flow” in the work day Finding an inspiring purpose that is built on strengths and using it to generate hope and action Framing ▪Self-awareness ▪Learned optimism ▪Moving on ▪Adaptability Meaning ▪Happiness ▪Core strengths ▪Purpose Engaging ▪Voice, taking action ▪Ownership ▪Risks and fears Connecting ▪Inclusiveness ▪Reciprocity ▪Network design ▪Sponsorship Energizing ▪ Sources and uses ▪ Recovery ▪ Flow Personal and professional context Advance – how do we keep moving forward?
  47. 47. Putting it all Together
  48. 48.  “Senior leader” refers to the individual in charge of an organization, no matter their title or the nature of the organization.  The senior leader’s role is unique. The person at the top of the pyramid provides cues for everyone else in the organization as to what really matters.  The authors’ 2010 survey found that transformations were 2.6 times more likely to succeed if they had strong involvement from the top of the organization.  Successful senior leaders play four roles in transformation efforts:  Making the transformation meaningful.  Role modeling desired mindsets and behavior.  Building a strong and committed top team.  Relentlessly pursuing impact. Role of Senior Leaders
  49. 49.  If the senior leader is not on board, another member of the organization can either attempt to influence the senior leader to adopt the transformation program, at least if the senior leader is not actively opposed to it.  Short of that, program advocates can adopt as much of the program as possible and act to maximize the likelihood of success of both performance and health Role of Senior Leaders
  50. 50.  It is important not to jump from one stage to the next until the organization is ready for the move.  Accordingly, although transformations do not tend to occur in a linear fashion in the real world, the authors offer a structured analysis for deciding when to move ahead.  It consists of two questions—one for performance, the other for health—under each of the 5As.  If the organization can answer yes to both questions on a specific stage in the transformation, it is ready to move to the next stage.  If the transformation program gets stuck along the way, the reason is typically that it has not paid sufficient attention to some aspect of health or performance at an earlier stage of the transformation Moving Stage to Stage
  51. 51.  Most often it is health rather than performance fac- tors that have been neglected.  The authors emphasize that the right time to correct that is always right now with the caveat that “if your organization is already so unhealthy that it’s fighting for its life, the first order of business will be to stem the bleeding.”  The way that organizations apply these ideas will vary but the authors reiterate that there are three principles behind everything in their program:  Performance and health are equally important and can be measured and managed with equal rigor.  Performance and health are both things that should be managed today.  Nothing changes unless behavior does. Moving Stage to Stage
  52. 52. The Ten tests of Organizational Excellence
  53. 53.  Some leaders mistakenly focus on short-term performance goals and ignore their company’s long-term well-being.  Organizational health is just as important as financial performance.  Up to 80% of the market value of an organization’s shares rests on public expectation of long-term profitability.  Organizational health is “the ability of an organization to align, execute and renew itself faster than the competition so that it can sustain exceptional performance over time.”  Companies with good organizational health are three times more successful.  Your organizational health goals should be as explicit as your performance goals. Key Take Aways
  54. 54.  Make sure your firm has the “strategic capabilities” to achieve its performance goals.  Planning and implementing long-term organizational well- being require strong leadership and constant adaptation to new market dynamics.  Create an enduring culture with the “five frames of performance and health.”  This list of five “A’s” covers: “Aspire” to a vision, “assess” your progress, design your path like an “architect,” “act” to manage the journey and steadily “advance” forward. Key Take Aways
  55. 55. Mail your comments to ramaddster@gmail.com

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