Organization:

Overview of Core Frameworks

Local Training Module For First-year Associates

Associate Handbook
FOREWORD AND OBJECTIVE

This Organization Practice(OP) document provides an overview for use in local training
sessions for first-year associates. It is part of a “series on functional areas.” The objective of
the series is to introduce McKinsey practitioners to the basics in each of our functional areas of
expertise. All the documents in the series are comprehensive in nature and describe the current
tools and frameworks in that functional area

At the end of this document, you can find a section describing a selection of the core
documents and handbooks that can give you further details on some of the frameworks
descried here. All of these documents are now on PDNet; and hard copies of them can be
requested from PDNet Express, which will deliver them in 24 hours

The contents of this document have been adapted for local training sessions through
“Switching Tracks” — OP’s first-year module videotape, which communicates the basic
concepts in a concise and visual way using an actual client — The Scandinavian Railroad
Company. It is 40 minutes long and should be presented in 3 short segments. Between these
segments, the faculty member runs the attached exercises, adds any commentary he/she
considers necessary to clarify the concepts, and provides personal experience on selected
topics. A copy of the videotape and moderator’s guide with exercises can be requested from
the Firm
This document seeks to answer 4 questions

SECTION 1 Why do associates need to consider organizational issues in every engagement?

SECTION 2 What frameworks do we use to help our clients improve organizational
performance?
SECTION 3 What role does an associate play in organization work?
SECTION 4 Where can an associate find out more?
McKinsey’s mission is to have lasting and substantial impact on our clients.

To succeed, we need to work all three of the critical elements: choose the best strategy,
develop world-class operations, align the organization.

These three elements both reinforce and constrain each other. The best strategy is only relevant
if it is operationally and organizationally feasible. The optimal organizational design depends
upon the strategic requirement and the operational methods of the client.

This document focuses on one vertex of this triangular relationship. It would be wrong,
however, to believe that you can achieve the impact we seek by focusing on one vertex. We
need to consider all three in every study.
CRITICAL ELEMENTS FOR IMPACT

Successful
strategy

Efficient Effective
operations organization
We only achieve impact when the organizations we serve are successful in implementing the
strategies and operational methods we propose.

However, a recent survey of engagements in which clients failed to implement proposed

strategies found, in three cases out of four, that the client organization was not change-ready or
even capable of implementing the strategy we proposed.

To ensure that we have impact, we need to consider organizational issues as we devise

strategies. We must choose strategies the clients are ready and able to implement or
complement our strategy work with investment in building the organization’s skills so that the
organization can step up to the challenge the superior strategy poses..
3 OUT OF 4 STRATEGIES THAT FAIL DO SO BECAUSE OF THE
ORGANIZATION’S INABILITY TO EXECUTE
Percent

100%=340 responses

Other
McKinsey
recommendations
flawed Organization lacked
the capabilities to
execute strategy

Client not
change-ready or
committed
The demand for organizational work is increasing.

Trends in the marketplace and the evolving nature of our clients largely explain this increase in
demand.

The pace of change in the marketplace is accelerating . A strategic choice or an operational

innovation evokes a rapid reaction from competitor. Rarely can a durable competitive
advantage be found in these choices. Rather it is the development of a unique organizational
capability with the inherent flexibility and commitment to sustain world-class performance that
provides durable competitive advantage in these times of rapid change.

The clients we serve are changing as well. They have increasingly hired in-house strategic
capabilities. Most have built strategy shops close to the CEO. Few, however, have the in-house
capability and objectivity to do the organizational work required to make change happen.
ORGANIZATIONAL WORK GROWING IN IMPORTANCE

McKinsey’s engagement mix

Percent of time

Evolving marketplace
• Quickening pace of
strategic adaptation Increasing
• Durable competitive demand for
Crafting the
advantage often rooted in answer help with
unique organizational organization
capabilities
issues and
Evolving players
change
• Many businesses acquiring management
Helping
in-house strategic capability implement
• Making change happen change
remains the “neglected art”
10 years Today
ago
Source: Survey of 23 MGMs across the Firm
The recent evolution in our clients has not been missed by our competitors. Each of our
competitors has recently introduced a branded organizational element to their portfolio. Their
organizational expertise figures prominently in their marketing campaigns.
COMPETITORS HAVE BRANDED ORGANIZATION TOOLS

Consulting firm Product Client example

BCG Time –based competition GE

General Systems Process redesign UPRR

Booz Allen Continuous improvement Exxon

United Research Process redesign and facilitation Mobil

Delta Point Transformational change SmithKline Beecham

McKinsey’s consulting approach must evolve as our clients evolve. These changes provoke a
shift in the nature of our work and an evolution of the role of the associate on engagements.

The increased demand for organizational work impacts associates directly. Associates are
drawn into leadership roles on larger teams at an earlier point in their careers. This places
greater emphasis on the need for associates to develop quite soon after joining McKinsey-
superb team leadership skills.
EVOLUTION IN McKINSEY’S APPROACH

From… To…
• “The answer” • Solving for the “answer” and the change
process
• Managing client teams • Building client capabilities

• Small, analytically focused teams • Multiple, highly leveraged McKinsey/client

––average client team of 3* teams
—Average client team of 10*

• CEO counseling by senior people • Coaching and feedback at all levels

*Survey of 23 MGMs across the Firm

Before we dive into the organization materials, we should announce one critical caveat: the
frameworks you are about to see are only as good as the judgment and insight used to fill them
out. The frameworks are often mere checklists, useful tools to ensure you do not overlook a
key dimension. The OP can provide interview guides and questionnaires that you can use to
flesh out the frameworks, as well as applied examples in a range of settings. However, almost
all organizational issues are “situation dependent”, and almost all client settings are unique.
Your judgment, insight, creativity, and organizational acumen will determine whether you add
value in the client setting .
A CRITICAL CAVEAT

CONCEPTUAL

Garbage Organizational Garbage

practice frameworks

•Checklists

•Surveys, questionnaires

•Applied examples
Good judgment, keen
insight, creativity, Client impact
organizational acumen

“Garbage in, garbage out”

A series of frameworks are available to help clients identify and address organizational limits
on effectiveness or obstacles to change. They also point toward solutions.
These frameworks help teams answer two fundamental questions:
¶ What change is needed?
¶ How should the client implement the change?
The OP has derived a set of six attributes that characterize high-performing
organizations(HPO). By assessing whether your client organization exhibits these six
attributes, you can diagnose whether an organizational performance gap exists as well.
Additionally, the 7-Ss will help you identify strengths and deficiencies in the organization. The
7-Ss focus teams on aligning structure, staff, systems, and style to promote behavioral change
and build skills in pivotal jobholders. By contrasting the required skill set (at both the
organization and the pivotal jobholder level) with the current skill set, you can often clarify the
organizational gap that exists.
You complete the diagnostic by filling out the change board. That exercise helps teams
understand the organizational skill deficits or resistance to change so they can deliberately plan
to build the necessary skills and willingness to change in the organization.
Once the gaps have been identified, the team needs to lay out a change program to close the
gaps. The transformation triangle highlights the three critical dimensions of any effective
change program-top down, bottom up, cross-functional. The proper balance among these
dimensions depends on the gap, the client setting, and the competitive context.
Every change program contains some mix of six fundamental energizing elements. Each must
be considered as we design change programs.
This section of the handbook will discuss each framework in turn.
 CORE FRAMEWORKS

What change is needed? How should the client make change happen?

What gaps in organizational What organizational What initiatives comprise How do we create energy
performance exist? challenges exist? the change program? for the change program?

① High-performing ② 7-S framework ④ Transformation ⑤ Energizing

organization attributes triangle elements
CEO Perfor- Winning formula Pivotal jobs Design levers
Vision
led mance Performance
Organizationa Agend management
communication
Strategy Skills l structure
a/
VISION
Staff platfor Vision and Organizational
leadership infrastructure
Shared
m
Simple Skills People values Management
systems Problem People
•Direction setting solving process development
Leadership
•Structuring
style
•Bottom-up energizing
③ Change board
The OP undertook a study of 10 high-performing companies, true industry leaders, that we
knew very well. The companies had sustained pace-setting performance in their respective
industries over 2 decades.
These 10 HPOs shared six management attributes, each of which focuses on performance. By
comparing your client organization to these HPOs, you may identify opportunities to improve
your client organization.
①“HIGH-PERFORMANCE COMPANY” ATTRIBUTES

What change is needed? How should the client

make change happen?

Gaps in Organizational Initiatives Energizing

performance challenges elements

Driven by leaders Built by relentless Energized by an

pursuit of before- extraordinarily
the-fact intense,
strategies/vision performance-driven
environment

Aligned by simple Based on world- Rejuvenated by

structures and core class skills well-developed
processes people systems
The first three of the six common management attributes:

¶ Driven by leaders. The leaders of these companies had very high performance
aspirations. For these leaders there was no such notion as “good enough”. At the
center of these leadership groups, we consistently found demanding, unreasonable
CEOs.

¶ Built by relentless before-the-fact strategies/visions. HPOs spend their time

looking forward, not back. Their strategies drive relentlessly for both profitability
and growth.

¶ Energized by an extraordinarily intense, performance-driven environment.

HPOs have a demanding, occasionally punishing, work pace. There is real
accountability, especially at the top. HPOs, while being very good places to work,
are not always nice places to work.
ATTRIBUTES OF AN HPO

Driven by leader Built by relentless pursuit Energized by an extraordi-

of before-the-fact narily intense, performance
strategies/vision driven environment
• Very high performance • Highly motivating, if not • Demanding, occasionally
aspirations held by all key inspiring, “end” state punishing, work pace; on call
leaders • Frequently oriented toward all the time
• Demanding, “unreasonable” industry leadership • Real follow-through on
CEOs • Consistently striving for both accountability – especially at
• Effective working group at profitability and growth the top
top • Passionate defenders of core • Aggressive learning from
• Ability to penetrate to micro- businesses things that do not work
level of their businesses • Understanding of how • “good” places to work but
• Single-minded adherence to industry(s) works, what not always “nice”
simple, clear success customers want, and what • Performance shortfalls
measures-not just financial competitors can do- and how change careers
• Productive “fear of failure” these might change • Members feel rewarded by
being part of winning
institution
The last three common management attributes focus on structure, skills, and systems:

¶ Aligned by simple structures and core processes. HPOs align authority, accountability,
and performance challenges. Lines of communication and approval are simple and are
mirrored from one division to the next.

¶ Based on world-class skills. HPOs are world class in at least one critical skill of their
industry, e.g., product development in high technology, risk management in wholesale
banking, direct-to-store delivery in consumer goods, best-cost manufacturing. Additionally,
HPOs exhibit superior process management skills that in and of themselves become a source
of competitive advantage.

¶ Rejuvenated by well-developed people systems. The CEO in these companies is the Chief
Personnel Officer. The CEO interacts regularly with the entire leadership group, understands
the individual development needs and goals, and leads staffing reviews.
ATTRIBUTES OF AN HPO (CONTINUED)

Aligned by simple Based on world-class Rejuvenated by well-

structures and core company skills developed people systems
processes
• Straightforward alignment of • Do many things well, but at • CEO is Chief Personnel
authority, accountability, and least 1 functional skill at Officer
performance challenges world-class competence level • Clear focus on performance
• Uncomplicated lines of underpins strategy and motivation – successful
communication and approval • Also focus on building long-term wealth-building
– line to line corporate skill in the way programs seem key
• Similar internal structural they run the place • Management processes
units and key management • Company key management ensure leaders have
processes across the processes viewed as real “informed” view of key
company competitive advantage contributors 2-3 levels down
• Minimal critical staff reviews • CEO leads annual “staffing
• Regular calendar of key review” – best people/teams
management processes and in most critical/demanding
communication jobs
• “Bench strength” is a top
priority
The HPO research found something else common to the HPOs: all 10 were experimenting with
self-governance. Self-governance in these HPOs means empowerment with accountability.
The HPOs share the common characteristic of involving “a wide range of “or “broad cross-
section of” employees in driving for improved performance. Their goal is to imbue every
employee with an owner’s mind-set.

Self –governance in these HPOs is different from that practiced in other “engaged and
empowered” companies. In HPOs the single-minded objective of empowerment is
performance.

In the matrix below, the HPOs we studied were all in the top half of the matrix (high
performance); many were reaching, in addition, for the right-hand side of the matrix(engaged
and empowered).
PERFORMANCE AND EMPOWERMENT AT HPOs

Performance High

Performance- Performance-
focused, top- driven, empowered,
down-driven and accountable
organizations organizations

HPOs
Average

Hierarchical, Activity-driven,
command- and “engaged and
control-oriented, empowered”
“entitled” organizations
organizations

Low
Command and control Engage and empower

Management approach
Most large companies start out in the lower left-hand corner of the matrix (low performance
and command-and-control management approach). We discovered that HPOs that have
successfully transitioned to the upper right-hand corner have first achieved high performance
and then experimented with and adopted empowerment. Empowerment without first
establishing a true performance ethic in the company tends to result in continued low
performance.

If your client falls in the lower left-hand corner of this matrix, it needs to concentrate first on
building a true performance ethic. Empowerment, alone, is unlikely to yield performance
improvement.
TRANSFORMATION PATH
Path followed by high-
performance companies

Path experienced by companies

that fail to instill performance
ethic first
Performance High • 3M
• Emerson
• Pepsico • GE
• Sonoco • Hallmark
• Sun Trust • Johnson&Johnson
• VF • Many high perfor-
mers” on the journey”

Average

• Most companies • BP
• FP&L
• Wallace

Low
Command and control Engage and empower
Management approach
As discussed above, the first phase of the organization diagnostic identifies performance gaps.
The second phase focuses on identifying organizational issues and impediments to change.
The framework most commonly used to identify organizational issues includes seven buckets
that start with “S”.
¶ Strategy. An integrated set of actions that deliver a superior value to a set of customers with
a cost structure allowing excellent continuing returns.
¶ Institutional skills. End-result activities the company must be really good at in order to
deliver the value proposition.
¶ Shared values. Simple, agreed-upon principles that say what is important around here.
Taken together, the first 3-Ss define the company’s vision: an overriding goal that people in
the organization strive to achieve; that is challenging, valuable, and exciting to them; and
valuable and differentiated to the intended customer. To achieve the vision, the company must
design and align levers to guide the behavior of those holding pivotal jobs close to the front
line – i.e., those who directly affect delivery of value to the customer.
¶ Organizational structure. An orderly and predictable system to determine who reports to
whom and how tasks are divided up and integrated.
¶ Staff. The people in the organization considered in terms of their capabilities, experience,
and potential.
¶ Management systems. The processes and procedures through which things get done day-to-
day.
¶ Leadership style. The way leaders focus their time and attention and the personal tone they
set.
 ② 7-S FRAMEWORK What change is needed? How should the client
make change happen?
Gaps in Organizational
Organizational
initiatives Energizing
performance challenges
challenges
elements

Winning formula Pivotal jobs Design levers

Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style
At the heart of we mean by organizational performance is a “winning formula” creating a
combination of strategy, skills, and shared values to carry out an organizational purpose.

What links these elements together (the “overlap”) is the organization’s vision:
¶ The vision is the overriding goal of the organization – the place where strategy, skills, and
shared values intersect. It is the single, noble purpose that guides organizational priorities
and gives meaning to the day-to-day activity of the staff.

¶ For example, McDonald’s has a vision-driven “winning formula,” as described below.

McDONALD’S WINNING FORMULA

Vision :
to become the leading
restaurant chain in the
world

• Convenient • Quality control over all

• Good quality aspects of business
• Consistent • Superior site selection
• Family-oriented Strategy Skills • Continuous new product
environment development
• Fair value • Strong promotion of
products and
McDonald’s image
Shared
values

• Quality
• Service
• Cleanliness
• price
Organizations usually change in response to discontinuities – either external shocks (such as
deregulation ) or internal changes (such as new leadership) that make it clear that the old ,
“grooved” way of doing things is no longer winning. The successful ones will create a new
winning formula that is based on changes in strategy, newer or stronger skills, and/or shared
values.
Contrasting the new winning formula to the old formula identifies and gauges the change that
the organization is considering and defines the vision for the change program.
A change vision is a creed that summarizes what an organization is trying to become and why.
As such, it guides organizational priorities by redefining and recombining business objectives,
required institutional skills ,and corporate values about what is important around here.
A change vision is at the heart of top management’s role in improving performance and is
often the first step. It provides the vital bridge between the initial dissatisfaction with the status
quo and the first practical steps taken in a change program – the articulation of a clear target
that represents something better that is both logically sound and emotionally appealing.
 IMPROVING ORGANIZATIONAL PERFORMANCE

Grooved Unfrozen Redirected

Discontinuities

External shocks New or

New
• New competitors, strategy stronger
Strategy Skills skills
economics
VISION • New technologies CHANGE VISION
• Deregulation
Shared Shared
values Internal changes values

• New aspirations
• New leader

Major change through people

Certain key people in the organization hold positions that determine success or failure in
instituting a new strategy, skill, or shared value. These people fill what we call pivotal jobs.
We will only succeed in implementing the change vision if we succeed in changing the
behavior of pivotal jobholders.
At McDonald’s, for example, pivotal jobs include the centralized purchasers of all raw
materials for all stores, the store managers, and the hourly employees who take and assemble
orders.
PIVOTAL JOBS
What people must do

What are they ?

• Positions that have direct impact on
delivery of value to the customer.
Typically they
-Design the product
-Make the product
-Sell the product
• Positions that must capably master
new skills
Where are they?
• Close to the front line
In a recent study at a chain store retailer, the change vision included a significant improvement
in in-store convenience. Two positions were identified as pivotal jobs – the store manager and
the area operations manager.
This study employed a contrast analysis in two forms. The first considered each element of
behavior and defined how the new behavior would need to differ from current practices.
A behavior contrast analysis often proves helpful in defining precisely how the pivotal job-
holders need to change.
CONTRAST ANALYSIS
Pivotal jobs: store manager, chain retailer

Elements Old behavior New behavior

Use of time • Spend majority of time on daily • Devote much more attention to
routine tasks – unloading trucks, training/coaching,
stocking shelves, etc. evaluating/experimenting with
pricing, staffing, merchandising
Job objective • Ensure that day-to day store • Manage store profitability and
operations run smoothly implementation of new
convenience strategy
Critical skills • Conscientious, responsible • Old skills, plus…
• Basic math and writing skills –Good instincts about how to
affect profits
–Leadership qualities
Criteria • Task completion • Old criteria plus added emphasis
• Financial performance on…
–Customer service
–Inventory management
–Store appearance
The second analysis contrasted the percentage of time spent on critical tasks under current
practices and envisioned in the future.
 CONTRAST ANALYSIS BY PERCENTAGE OF TIME SPENT
Pivotal job: area operations manager

100%

Short vendor contacts • • Tailor products, services, pricing, and

Merchant/
promotion to segments
Recruiting SM and • owner •Search for new business
pharmacist •Evaluate business and customer service
Disciplining • performance
Coach
Balancing inventory • • Expand one-on-one time with SM and
Follow-up on telephone • associates
messages • Train and motivate face-to-face for
Inventories • customer service, inventory
Paperwork • management…
Putting out fires • Player •Encourage SM to innovate

Monitoring compliance • •Clerical support should eliminate tasks

–Policies
–Planograms
Answering surveys • Admini-
Filling out appraisals • •Clerical support should eliminate tasks
straor
District reports •

Current Proposed
The 3-S winning formula sets the standards, goals, and mission of the organization. How do
you get people (particularly pivotal jobholders) to actually follow those goals?

While you can dictate what skills and shared values you want , the organization must
provide guidance, motivation, and monitoring to see that the right decisions are made.
This is provided through the other Ss – structure, systems, staff, and style. Collectively known
as the “design levers”, each of these four should be set by considering the specific skills and
shared values you want to instill in the organization’s people – and balancing them with other
designs that might be suggested by other specific skills and shared values needed.

¶ Structure. Who reports to whom and how tasks are both divided up and integrated.

¶ Systems. The processes and procedures through which things get done from day to day,
including hiring, compensation, performance evaluation, promotions policy, and training.

¶ Staff. The people in the organization considered in terms of their capabilities, experience,
and potential.

¶ Style. The way managers collectively behave with respect to use of time, attention, and
symbolic actions.
 ORGANIZATIONAL DESIGN LEVERS AT McDONALD’S

Winning formula Pivotal jobs Design levers

• Centralized buying to control fat
Organizational content
structure
• Hamburger University degree
required
• Promotion from within to build
Strategy Skills Staff experience

VISION • Regular inspections

• Franchise expansion based on high
Shared Management grades on prior inspections
values systems • Many procedural mechanisms
aimed at building employee
enthusiasm and loyalty
Leadership • Hard-nosed, rigid attitude on how
style to run the business
The skills and shared values must be used to determine needed changes in organizational design. For
example, McDonald’s specific skill of quality control drives many organizational design decisions.
Structure 1. Centralized buying provides more than economics of purchasing. It also helps ensure that
fat content is between 17.0 and 20.5 percent and ensures that burgers are 100 percent beef.

Staff 1. Owner –operators have more say on quality of operations than absentee investor-owners.
2. Training at Hamburger University ensures that managers really know how to make the
food right. It is a $40 million facility, with 750-student capacity per 2-week session, and
translation booths for foreign managers. It is the only school in the fast-food industry
accredited by the American Council of Education.
3. Promotion from within builds experience in meeting company standards and reinforces
shared values.
Systems 1. Operating systems, including job descriptions and performance appraisals, ensure that
quality of operations meets standards..
2. All franchises are inspected on a regular basis, including grades( A through F) on QSC.
3. Unlike other franchises that give rights to territories, McDonald’s franchises cannot expand
unless they show a history of high quality in operations.
4. McDonald’s Personnel Action Manual provides mangers with a wide array of programs to
keep crew members motivated and committed.

Style 1. Little tolerance for variance from operations standards, except as well-thought-out
improvements. No shortcuts allowed.
2. Kroc’s inspections. Before entering a franchisee’s office, Kroc would often pick up all the
trash within a two-block radius of a McDonald’s restaurant and then dump it on the
franchisee’s desk to show a need for greater cleanliness in McDonald’s vicinity.
 ORGANIZATIONAL DESIGN LEVERS AT McDONALD’S

Winning formula Pivotal jobs Design levers

• Centralized buying to control fat
Organizational content
structure
• Hamburger University degree
required
• Promotion from within to build
Strategy Skills Staff experience

VISION • Regular inspections

• Franchise expansion based on high
Shared Management grades on prior inspections
values systems • Many procedural mechanisms
aimed at building employee
enthusiasm and loyalty
Leadership • Hard-nosed, rigid attitude on how
style to run the business
The design lever clients exercise the most is probably structure. Too often we hope that by
tinkering with boxes in organizational charts, we can solve organizational problems. Structure
is really about how to arrange people and jobs for optimum performance.
A few assertions about structure:
¶ There is no one best structure for any company. Structure choices for a client may change
over a few years, depending on external environment, leaders’ strengths, and internal
capabilities.
¶ Structural choice should be based on the desired behaviors for the organization, which are
based on strategic direction.
STRUCTURAL OPTIONS

Strategic direction Desired behavior Structural options

1. Greater uniformity • Centralization

across the • Small span of control; many layers
organization • Functional structure
2. Rapid adaptation to • Decentralization
quickly changing or • Fewer corporate staff
complex • Flat structures
environment, or • Business unit structure to match
greater response to strategic direction
market (geographic/product/market segment)
• Temporary teams across products or
functions
3. Rapid technological • Centralized technical staff for
innovation economies of knowledge
• Decentralized task force for focus,
Initiative
4. Cost reduction • Concentrating staff only at level where
integration is most crucial
• Flatter structures; broad span of control
The change board framework can be useful for understanding the commitment and ability to
undertake major change. For each management layer and pivotal job, it asks:

¶ Who among the important players is able to perform is his/her part in providing the new
skill?

¶ What do they have or lack:

• Conviction that the new skill is important?

• Courage - the “guy” willingness to do what ever it takes to develop new skills?

• Individual ability – that is, personal skills or talents?

• Organization supports – such as the necessary system support?

Investing time in a change board analysis has helped a number of leadership teams
understand the nature of the current gap and gain insight into the most effective skill-
building program
③ CHANGE BOARD What change is needed? How should the client
make change happen?
Gaps in Organizational
Organizational
initiatives Energizing
performance challenges
challenges
elements

Capability to leverage
Commitment
Skill to the commitment
be built Individual Organization
Conviction Courage
ability supports/obstacle

Chief executive
(or equivalent)

Leadership group of
area to be changed

Down-the-line
staff affected*

External
Constituencies**

* Modified as appropriate for company

** E.g., customers, suppliers, trade unions
Specific questions can guide you as you fill out the change board.

¶ Will people have to

• Learn new skills?
• Learn new behaviors?
• Reestablish priorities?
• Delegate/assume decision making responsibility?
• Build new working relationships?
• Compromise other agendas?

¶ Do people have the capacity to make all these changes?

¶ Have people had positive or negative experiences with past change efforts?

¶ Is the change consistent with existing cultural norms?

• Beliefs /values
• Behaviors

A retail chain provided this example of a completed change board.

 CHANGE BOARD – CHAIN RETAILER EXAMPLE Diagnosis

Delivering Commitment Capability

in-store
convenience Individual Organization
Conviction Courage
ability supports/obstacle
Intellectually Fair to strong Strong, except Little support
Top convinced, but • COO lacks field • No performance measures
management (6) • Distant from experience on in-store
field realities • HR position • History of top-down
• LBO pressures vacant “customer service programs
Lip service Weak Fair to strong Few support
Other • “Make the field Moderate Fair • “Segmentalist” rivalry
Officers/“owners” • do its job”
“H.O. does not
among functions
• Inadequate operating
Home office (15) understand what systems
Field (8) it is asking for” • “Can do” style (do not
admit weakness)
Area operations Suspicious, but Strong Fair to weak Overloaded: span of
Managers (125) eager to believe control=60-80
Store managers Cynical (“yet Fair: ready to Fair: most trained “Horizontal priorities”
another program”) follow clear as “task masters” (unrealistic number of tasks
and orders from assigned)
assistants (3,200) above
Associates Mixed , but many ? Surprisingly Turnover increasing; too few
(30,000) natural supporters strong, on average labor hours for full service
A completed change board often suggests the actions that may be necessary to build the
commitment and capability required to implement change within your client’s organization. In
the chain retailer case, actions included:
1. Lock – in support
• COO as “champion”
• Full –time change leader (facilitator)
• Line accountability
• 3-year commitment
2. Create shared responsibility for progress
• Three “skill teams,” each headed by a field “baron”
• District entrepreneurship: each district manager to experiment with two to three
initiatives and then share lessons
3. Build a success model from below
• Focus on one pilot area (14 stores )
• Use full-time task force of high-potential area managers (eight managers, 3-to 9-
month tours )
• “Trained “area managers return to home districts to lead pilot area process there
4. Force awareness of realities
• Quarterly workshops to assess progress on skills
• Close observation of pilot area (“ If we can’t make it work in one area, there’s no
point in talking about company wide programs” )
5. Restructure field organization
• Store staffing standards
• AOM span of control, supports
• New recruiting/selection
• Link to pharmacy strategy/skill gaps
 CHANGE BOARD – CHAIN RETAILER EXAMPLE Strategy

Delivering Capability to achieve change

Commitment
in-store objectives
convenience Individual Organization
Conviction Courage
ability supports/obstacle

Top 1.Lock in
management (6) support
4. Force
awareness
of realities
Other 2.Create shared
Officers/“owners”
Home office (15) responsibility
Field (8) for progress

Area operations
5. Restructure
Managers (125)
field
Store managers organizatio
and assistants 3. Build a success
(3,200) n
model from below
Associates
(30,000)
To answer the question, “How should change happen?” , the OP developed the “organizational
transformation triangle” that summarizes the three basic management tasks when dealing with
change. Their relative emphasis may vary, but all three of them have to be managed to achieve
fundamental behavioral change.
 What change is needed? How should the client
④TRANSFORMATION TRIANGLE make change happen?
Gaps in Organizational Energizing
initiatives Energizing
performance challenges elements
elements

3. Cross-functional initiatives
Top Link activities and information
1. Top-down direction setting management
④ in new ways for break-through
Process design, target, performance
communications, etc.
Staffs

Operations

2. Front-line performance improvement

Unit-by-unit, team-oriented, problem solving
The well-known GE “workout!” change program included elements from each dimension of
the transformation triangle.
 GE “WORKOUT!”

1. Top-down direction 3. Core process redesign

setting/culture shaping
• Project teams to identify cross-
• No.1 or No.2 in every functional issues
business
• Process mapping
• “speed, simplicity, self-
confidence”
• Delayering
• Best practices workshops

2. Bottom-up performance improvement

• Town meetings: 2- to 5- day interactive sessions
• “Brand name” quality processes
• Operations: unit-by-unit redesign
The client should seek an appropriate balance across all three dimensions of the transformation
triangle. Overreliance on any dimension will impede change.
BALANCE ON 3 DIMENSIONS IS KEY

Requirements Dimension Potential risk from overreliance

• Energizing vision • Lack of commitment
• Customer/shareholder/ • Confusion
employee triad • Cynicism
• Clear performance targets

• Performance wins • Unfocused efforts

• Relevant knowledge and • Ignored or undermined by
skill building management
• Expansion expectation • Cross-functional opportunities
missed

• Discontinuities addressed • Overly complex

• Clearly understood process • Beyond existing skill and
installed capabilities
• Old systems/structure/
processes eliminated
The OP has defined a wide array of change approaches. Each change approach strikes a unique
balance among the dimensions of the transformation triangle. Your challenge is finding the
change approach that strikes the balance appropriate for your client situation.
OVERVIEW OF 5 PERFORMANCE CHANGE APPROACHES

A B C D E
Description Structured Empowered Values-driven Cross- Top-down,
process-Driven opportunity- adaptive functional skill-driven
problem driven improvement process building/
solving innovation redesign improvement
(compliance)
Transforma-
tion emphasis
Example TOP/AVA Breakthrough TQM CPR Corporate
skill teams
When Step change Change-ready, Approaching Cross- New basis for
appropriate needed quickly flexible theoretical limits; functional competitive
Entitled culture organization performance ethic redesign advantage
and capability in needed needed
place
Typical goals 40% of Up to each Continuous Quicker, Lasting
compressible team; improvement cheaper, competitive
costs typically, better advantage
(imposed) stretch targets
in quality, cost,
etc.
No matter what change program is selected, the following six energizing elements should be
addressed. By addressing each one, the client builds the energy required to make organizations
change.
 ⑤ ENERGIZING ELEMENTS
What change is needed? How should the client
make change happen?
Gaps in Organizational Energizing
performance challenges initiatives elements

• Ambitious, • Build commitment

measurable objectives
Performance • Establish 2-way flow
Communications
• Reinforcing feedback measurement • Manage expectations
• Consequences • Inspire action

Vision and Organizational

leadership infrastructure

• Winning formula • Systems and process

• Winning leadership • Structure
Problem
group People development • Roles
solving process

• Doer-driven • New mind-set

• Fact-based • New skills, behavior
• People-intensive
The OP has a wealth of experience and research to support the design of each element of a
change program.
 POSSIBLE ACTIVITIES/TOOLS

• World benchmarks • Communications coordination

• Project performance indicators framework team-job specifications
• Performance maps • Communications channels audit
• Performance contracts pro forma • Stakeholder analysis
• Best practice examples • Communications plan
Performance • Communications workshop
Communications
measurement • Best practice examples

Vision and Organizational

leadership infrastructure
• Leading for success • Core process redesign
• CEO time-leverage • Example role description
manual Problem
People development • “7-S” checklist
solving process
• Analytical tool kit framework • Framework for designing skill-building programs
• Analytical problem solving workshop • Discrete training modules — management skills (MFS),
• “data to chart” video and workbooks leadership skills(LFS), building high-performing teams, project
• Client advocacy videos management guide, designing ongoing improvement
• Skill/will/diagnostic • Discrete tools — RJDs, time-usage logs, change-readiness
• Continuous improvement principles surveys, signaling change tool kit, how to run a training
workshop workshop
• Best practice examples • Beliefs/behavior-prompt sheet — staff activity survey
• Best practice examples
A packaging company applied these energizing elements as they built the skill they called
value-based systems selling (VBSS):
¶ With a clear vision and leadership settled, the company decided on a problem solving
process that involved six multinational skill teams, each with a credible leader.
¶ Their performance measures were narrowed to two aspects: in terms of input, they
measured account plans created and number of plans created and number of people
trained; in terms of output, they measured price and market share.
¶ To communicate the message, the president embarked on a “road show” to manufacturing
and sales locations; the senior managers attended workshops; and a newsletter/bulletin
about VBSS was begun.
¶ The organizational infrastructure was modified to establish account teams, global
account managers, and an account planning function.
¶ On the people development front, an “ action learning” program was begun to teach
people more about account planning.
All these tools and activities were focused on achieving a new level of excellence in the core
skill of VBSS that the company knew was critical to its strategy.
VBSS

•Input • Awareness building – President’s

–Account plans road show
–People trained • Skill building through workshops
•Outputs • Reinforcement through VBSS
–Price network bulletins
–Share

Performance
Communications
measurement

Vision and Organizational

leadership infrastructure
• The leader skill • Account teams
for becoming $1 Problem • Global account
billion People development managers
solving process
• President as • Account planning
sponsor • Multinational skill • Account-based
teams with 6 credible “action learning”
champions program
• Pilot effort with
leadership to get buy-
in and advice
Associates will often step up to manager roles on engagements that address organization issues
and/or implement change. These engagements often involve multiple client teams. Associates
assume responsibility for managing one or more of these client teams. These engagements also
seek the active support of a broader set of client managers. Associates assume responsibility
for developing influential relationships with critical client managers. Engagements which
focus on organization issues therefore provide exceptional opportunities for associates.
 ASSOCIATES ASSUME MANAGER ROLES IN
ORGANIZATION ENGAGEMENTS

Traditional view of team roles Team roles on organization engagements

Client
manager Client
team

ED/DCS Associate Associate

ED/DCS Client
Client team
manager
EM
Client Associate EM
Client
manager Client
Sr. team
Client
client
team Associate
exec.
Client
Client team
manager
The effective associate manager serves three functions:

1. The associate manager builds and sustains effective client teams that define, plan, and
implement the change .

2. The associate manager leads problem solving on multiple client teams.

3. The associate manager forges a consensus of support for the change vision among
critical client managers and ensures that managers maintain the energy level required
to effect the change.

All three functions are critical to success. However, in engagements that address organization
issues and /or implement change, building and sustaining an effective team is often the
necessary precondition to success in the other functions. The client team provides the critical
insight, knowledge, and skills required to solve the organizational problem. The associate /
manager needs to build an effective team environment to tap into the essential client input. The
client team should hold the confidence of the critical client managers. Once the associate
manager has earned the endorsement of the client team, the support of the client manager is
much more likely.
MANAGERIAL ROLES

Client Problem Chief engineer

involvement solving • Focuser
Consensus • Structurer
builder • Quality controller
Team • Devil’s advocate
dynamics

Coach and team

developer
Since effective teams are so fundamental to success in organization work, the OP has invested considerable effort in
understanding how to build high-performance teams. Follow these principles to build high-performance teams.
PRINCIPLES OF TEAM BASICS
Dimension Definition
Meaningful The team purpose must
purpose • Inspire the individual team members
• Justify the investment of Firm and client resources, as well as the personal investment of each
individual
For an engagement team, the purpose must include reference to substantive and sustainable client
impact
Clear The best teams translate the purpose into a well-defined set of tangible and measurable goals.
performance The goals encompass
goals • What will be achieved for the client in terms of performance
• What will be achieved for the team and its individual members
• Nearer-term goals, as well as “completion-related” goals
Well-defined The best teams decide up front and throughout the effort how to work together day-by-day, and how
working individual team members will apply and develop their skills as they produce collective results above
approach and beyond what members working as individuals could produce. Their working approach allows
substantive time for “unstructured” creative team thinking/brainstorming
Complementary The best teams are composed of individuals who provide or are expected to develop the full range and
skills depth of skill needed to fulfill the purpose. Skill development is seen as a key reward for team
participation. This applies particularly to functional skills, but also to problem solving skills and
interpersonal skills
Mutual In the best teams, all team members feel mutually accountable for accomplishing the team’s purpose
accountability and performance goals. Individuals do not succeed or fail – the team does
Small numbers Superior team performance can only be achieved by a small number of people who can spend
substantial time working together as a team. A group of more than approximately 15 people has little
chance of becoming a superior team
The principles are described much more thoroughly in The Wisdom of teams, authored by Jon Katzenbach.
PRINCIPLES OF TEAM BASICS Coach and team
developer

Meaningful
purpose
Small Clear
numbers performance
goals
TEAM
BASICS
Mutual Well-defined
accountability Working
approach
Complementary
skills

Source: The Wisdom of Teams

A team’s potential is defined by the quality of its membership. The associate manager should,
whenever possible, participate actively in the selection of team members. Recent research by
the OP has found that most successful change programs were driven by a few impassioned
leaders. These “real change leaders” exhibit a common set of characteristics. Look for these
attributes as you consider which client people to include on the team.
REAL CHANGE LEADERS

“People with a reputation for improving performance through people – and for exceeding
expectations along the way” *
• Commitment to a better way
• Courage to challenge existing power bases
• Personal initiative to go beyond defined boundaries
• Motivation of themselves and others
• Caring about how people are treated and enabled to perform
• Staying under cover
• A sense of humor about themselves and their situations

* Real Change Leaders

.

Once the associate manager has assembled the right team and built an effective team
environment, solving the problem should be easier. The principles of good problem solving do
not change for engagements that address organization issues and/or implement change. The
way the associate participates does change, however. Here are a few recurrent themes taken
from interviews with associates after their first organization engagement

¶ Let the team solve the problem. You won’t have time to solve the problem yourself when
you have multiple teams to manage. More importantly, the team will feel more
ownership for the solution if you let them solve the problem.

¶ Teams should be productive. Focus the team on action and work. Define specific end
products.

¶ If you have assembled the right team, every member has an important part of the answer.
Engage the entire team in solving the problem. Every team member should have a
challenge piece of the problem.

¶ Meetings are necessary evil for effective teams. Keep them to a minimum. Prepare
meetings carefully so that they are a constructive use of team time.

¶ Listen. Especially on organization problems, the client often knows the answer but needs
help recognizing it.
SOLVING THE PROBLEM

• Structure the problem, then let the team solve it

• Focus the team on action and work – not process, talk, and
Chief engineer
review
• Focuser
• Keep the entire team engaged • Structurer
• Quality controller
• Prepare brief, high – impact meetings
• Devil’s advocate
• Listen
If you have the consensus of the team, it should be easier to sustain the support of critical
client managers. A few basic principles merit emphasis:
¶ You need to begin building credibility with client managers early in the study. Talk to them
early and often. Engage then in defining the issues and prioritizing the work. This ensures
that their issues will be addressed.
¶ Managers have specific interests and motivations; these interests explain much of their
behavior. You will be more effective at influencing managers if you spend a few moments
trying to understand their interests. Before each discussion, consider how your
recommendations impact the client manager’s interests.
¶ When issues or concerns become apparent, address them squarely. There is little value in
avoiding and issue; it will come out eventually. Many issues evaporate when explicitly
discussed. Many others can be resolved by specific analysis. Issues that persist need to be
factored into the team’s thinking.
¶ Whenever appropriate, include key team members in important discussions with critical
client managers. Then client manager will get to know the team members better and place
more trust in their advice. When you include team members, the client manager can sense
first-hand the strength of the team consensus. As an added benefit, team members appreciate
the opportunity to interact with managers, and they can help you interpret the client
manager’s feedback.
¶ Good written materials are always useful in client manager discussions. Preparing them
forces the team to explicitly agree on the content. After presentation they serve as a solid
record of what was said.
The opportunity to interact with client managers in one of the more attractive elements of
organization work. Associates can use this interaction to develop client relationship skills that
will be vital in the years ahead.
BUILDING CONSENSUS

• Talk to critical managers early and often

• Understand the motivations of the critical managers
Consensus
• Address issues and concerns directly builder
• Include key team members in important discussions
• Prepare clear, concise written materials
We hope that you take away four major points from this session:

¶ Performance is the point of our consulting work, which involves an integration of strategy
and organization.
¶ Inevitably, at the heart of all our work is change. And at the heart of change is a respect for
and understanding of people.
¶ To understand organization performance and bring about lasting change, it is as important to
problem solve for how ( the engagement process ) as what ( the engagement issues).
¶ Organization work provides associates an opportunity to stretch their people-management
skills early.
WHAT WE HOPE YOU TAKE FROM THIS DOCUMENT

1. Winning performance is based on the integration of strategy and organization

2. Respect for and understanding of people is at the heart of all change
3. Problem solving for process is as important as problem solving for issues
4. Associates have a significant and rewarding role to play in organization work
WHERE CAN AN ASSOCIATE FIND OUT MORE
Selected core documents and handbooks
The overview of core of frameworks in Sections 1 and 2 of this document describes the basics
and provides a template to better understand client organization issues, which should prove
helpful in almost any engagement because no matter what the focus of an engagement is, a
basic understanding of the process of change is necessary to focus on the priorities of the client

Once you are assigned to an engagement of this kind, you may need to read more about some
of these frameworks or gather handbooks about the topic. As you may know, PDNet contains a
large array of documents that may be useful to you. You can get hard copies of such
documents in 24 hours using “PDNet Express” through your local library

However, there are thousands of documents in the Firm’s databases; therefore, the key for
efficient data gathering and “getting smart fast” will be to access only a limited and targeted
selection of documents when you need them. This section provides you with some hints on
key, core documents of the organization practice and related disciplines
Appendix

This appendix contains:

1. HPO bulletins
2. Glossary of 7-S framework
3. Organization transformation triangle
4. Energizing elements
 GLOSSARY OF 7-S FRAMEWORK

Winning formula Pivotal jobs Design levers

• Centralized buying to control fat
Organizational content
structure
• Hamburger University degree
required
• Promotion from within to build
Strategy Skills Staff experience

VISION • Regular inspections

• Franchise expansion based on high
Shared Management grades on prior inspections
values systems • Many procedural mechanisms
aimed at building employee
enthusiasm and loyalty
Leadership • Hard-nosed, rigid attitude on how
style to run the business
 Winning formula Pivotal jobs Design levers

STRATEGY Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? An integrated set of actions to deliver a superior value to a set of customers
with a cost structure allowing continuing excellent returns

What is it • Gives direction and purpose to organization activities

important? • Strongly influences what skills the organization needs, what values are
stressed, and how it should be designed
• Provides benchmark for measuring organization’s success and redirecting
its activities

What must I • Balance between strategic thinking and capability to execute often
know about it? unmanaged
• Strategy formulation must consider the complexities of external
environment (e.g., discontinuities gaining ) balanced with internal history
and capabilities
• Increasingly, superb performers frequently win not by “inventing it first”,
but by doing it best
• In highly uncertain environments, institutional skills may help dictate
strategy
 Winning formula Pivotal jobs Design levers

INSTITUTIONAL SKILLS Organizational

structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What they are? End – result activities the company must be really good at in order to
deliver the value proposition

Why are they • To help people focus on the 2-4 skills critical to delivery of the value
important? proposition
• They drive organization design – other organization elements must be
designed to build needed skills

What must I • Institutional skills are organization capabilities, not just abilities of
know about managers or other staff
them? • Strategy work is incomplete without explicit consideration of the
institutional skills required to execute the strategy
• Institutional skills increasingly are the primary basis for achieving
sustainable competitive advantage
 Winning formula Pivotal jobs Design levers

SHARED VALUES Organizational

structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What they are? Simple terms that say, “ What is important around here? “

Why are they • Provide means to achieve value proposition through

important? –Aspirations, pride, emotion, and energy
–Focus, guidance, and learning orientation
–Solution space/ tie breakers

What must I • Shared values are probably the hardest S to influence

know about • But ignore at your peril. Any strategy consistent with deeply grooved
them? shared values will never be implemented
• The leadership team must articulate, believe in , and be credible on
shared values
• Shared values are shaped by obsessive, persistent communication from
leaders
 Winning formula Pivotal jobs Design levers

VISION Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? An overriding goal that people in the organization strive to achieve; that is challenging,
valuable, and exciting to them; and valuable and differentiated to the intended customer
Why is it • “Strategy and tactics are for the battlefield, but the battle must be fought for a purpose of
important? value to society” Genichi Kawakami, Yamaha Corporation
• Provides meaning, motivation, and source of pride to attract and retain customers and
able employees
• Helps drive long-term strategy formulation and development of needed skills and values
• Supplies courage in the face of the unknown by providing sense of stability and enduring
themes
• Guides and inspires daily behavior, reducing need for bureaucratic rules and systems
What must • Leader must set and live by vision for it to permeate institution
I know • Best visions are simple, easy-to-understand, and demand nothing short of long-term
about it? excellence
• Financial goals (e.g., increase SOM, increase shareholder wealth ) are not visions; they do
not excite the organization’s people or provide enough competitive differentiation to
serve as standard for behavior
• Vision is extremely difficult to change significantly without creating discontent, reduced
effectiveness, and even abandonment of institution by its best people and customers
• However, visions can and must be constantly challenged and changed at the margin to
adjust for the institution’s changing environment
 Winning formula Pivotal jobs Design levers

PIVOTAL JOBS Organizational

structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? Positions, close to the front line, that have direct impact on delivery of
value to the customer (e.g., those who design the product, make the
product, and sell the product )
Why is it • Successful implementation of any change hinges upon the pivotal
important? jobholders acquiring new skills
• Thinking about the new skills these pivotal jobholders must acquire
pushes the depth and rigor of our thinking

What must I • Relationship between microskills of pivotal jobs and macroskills of the
know about it? organization
• Contrast analysis compares microskills required after a major change
program to those currently required in the organization
• Reverse-engineer the organizational design – start with the results you
expect; identify the behavioral change needed to achieve those results;
then shape the “other Ss” to influence pivotal jobholders to perform as
required
 Winning formula Pivotal jobs Design levers

STRUCTURE Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? An orderly and predictable system to determine who reports to whom and
how tasks are divided up and integrated

Why is it • Facilitates coordination and integration

important? • Symbolizes priorities
• Focuses organization attention

What must I • Design should support needed skills and shared values
know about it? • Structure is most powerful tool for energizing change
• Structuring is not simple
• Key structural issues include
–Types of structure
–Span of control
–Centralization vs. decentralization
 Winning formula Pivotal jobs Design levers

STAFF Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? The people in the organization considered in terms of their capabilities,
experience, and potential

Why is it • Staff composition and productivity are important determinants of current

important? and future strategic success
• The people who make and sell the product/service collectively
determine if the client delivers superior value

What must I • Front-line positions require detailed attention to specific skills and
know about it? shared values
• Key issues can include who to hire, how to train and coach them, how
to motivate and reward them, and what information to give them
• Support positions must reflect the needs of the front-line people
 Winning formula Pivotal jobs Design levers

SYSTEMS Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? The processes and procedures through which things get done from day to
day

Why is it Most important tool for

important? • Commanding attention
• Influencing behavior
• Indicating how things really work here

What must I • Best companies employ relatively few and simple systems
know about it? • They should be shaped on a regular basis
• Important types include
– Management information systems (MIS)
– Incentive systems
– Planning
• Systems to get right information in the hands of the right people are
increasingly important
 Winning formula Pivotal jobs Design levers

STYLE Organizational
structure

Strategy Skills Staff

VISION

Shared Management
values systems

Leadership
style

What is it? The way people focus their time and attention. There are tow types
• Personal tone (e.g., supportiveness, argumentativeness )
• How people spend time, what questions they ask, settings they appear in

Why is it The key lever in shaping values and reinforcing strategy

important?

What must I • What people do means more than what they say
know about it? • The best leaders use style to emphasize a few simple values
• While personal tone is hard to change, managers can more easily adapt
how they spend time, questions they ask, and settings they appear in