A New Kind of Organizational Science: Learnings, trends and emerging principles

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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?

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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

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1. Get off the re-org pendulum

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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

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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

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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

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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

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2. Pick your recipe

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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

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What is it that companies with the best cultures do?

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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?

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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

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…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

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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

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3. Be the leader your company needs you to be

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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

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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

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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

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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

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• 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

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4. Trust data and analytics to inform your instincts

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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

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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”

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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

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…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

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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

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5. Remember you live in a 3D world

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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?

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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

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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

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