and take responsibility for results
Coordination and control
The ability to evaluate organisational performance and risk, and to address issues and opportunities
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
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”
– New York Times (06//2009)
McKinsey & Company | 4
Both performance AND health must be managed
Performance
Health
What an enterprise delivers to stakeholders
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
“Despite its size, IBM has remained nimble and has kept its
1955
1975
1995
2008
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
Healthy organisations are more profitable
Likelihood that organisations with ‘top’ results in health profile have above-median financial performance, %
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.
Capability
Motivation
Culture and climate
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,
45 26 19 14
-10
1
5
Years
10
15
20
25
1935
There seems to be a “survivors’ curse” whereby beyond a 20-year life cycle, organisations will struggle to remain competitive and effective
The quality of engagement with customers, suppliers, partners and other external stakeholders
Innovation
The quality and flow of new ideas, and the
and learning ability to adapt and shape the organisation
SOURCE: Datastream; Web Search; Press search
“GM's core problem is its corporate and workplace culture the unquantifiable but essential attitudes, mindsets and relationships passed down, year after year.”
McKinsey & Company | 1
Contents
Health today drives performance tomorrow The Five Frames of successful transformation Where are you in your journey to health?
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)
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
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
Capability
The presence of the institutional skills required to execute strategy and create competitive advantage
Motivation
External orientation
The presence of enthusiasm that drives employees to put in extraordinary effort to deliver results
Attackers
5
0
-5
Survivors
Estimated life span of S&P 500 companies based on company exits
Half of all companies in the S&P 500 in 2008 are likely to be gone by 2015 90
McKinsey & Company | 2
Competitiveness naturally declines over time
Total return to shareholder of new entrants relative to inห้องสมุดไป่ตู้ustry average
Percent
15
10
▪ 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
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
Direction
Leadership
The extent to which leaders inspire others to act
Accountability
Coordination and control