Rich Data and Managing by the Evidence
Bill Lewis in the McKinsey Quarterly for 2004 (number 2) asserts the importance of rich data sets rather than broad generalizations; he goes on to proclaim the importance of competition as opposed to many other factors once thought to be important in delivering economic growth (and still considered so by many). Lewis’s conclusions about the relative impact of competition may be contentious but his analogy with astronomy and cosmology ” that more has been gained by studies of individual atomic particles and their behaviour than by studying the images of telescopes is a good one. (Whether Lewis’ assertion about cosmology is entirely true is another matter!) Lewis asserts that “in economics it is necessary to understand why individual companies operate as they do, since they are the ultimate sources of growth and job creation. Most economists can’t afford the time and resources needed to look, in detail, at the way an entire country’s economy works. They rely instead on broad national data sets and complex econometric tools that yield qualified answers at best.” That statement is extremely valid! (One can even question whether the prognostications of the “economists” we hear from every day, especially in respect of “market trends” are based on any data at all! Perhaps this is another example of the truth of the aphorism, “any statement strongly delivered carries”.)
Celsus Library, Ephesus, Turkey (More)
We are fond of making broad generalisations. Even if they conform to the laws of logic they are often have less than minimal utility because they conceal a great deal of variation. It is those individual and concealed differences which often hold the key to understanding. As Lewis says, what we need are rich data sets, not broad generalisations.
One area where such obfuscation flows from aggregate data is the nature of organizational change and leadership. Since much of the progress of organisations involves coping with changing environments, leadership which does not cope with change is not likely to have much value. Thus leadership amounts to adaptation. A common adaptation to change in organisations has been to restructure, which often also means downsizing, reducing staff numbers and cutting expenditure on operations. Making the organization more lean inevitably produces adaptations in the direction of greater efficiency. Such approaches in the 1990’s were sometimes even termed rightsizing and, even more bizarre, a search for quality. Numerous studies showed just wrong such approaches often turned out to be. But does anyone take any notice? What use is evidence after all?
(Another example of a recent approach is outsourcing and public private partnerships. Both are often fraught, ending up costing more and producing poorer outcomes than if the agency or enterprise acquired and retained the relevant skills and capacity or, in the case of public private partnerships, provided the funds from borrowings as the sole debtor, the money being derived form government bonds, low interest but guaranteed! (Kenneth Davidson in a recent editorial in “Dissent” has pointed out that private sector financial institutions which have considerable influence over governments gain a great deal from these projects and therefore promote them as the best approach to gaining large-scale community infrastructure.)
Successful Organizational Transformation
McKinsey has been conducting studies all over the world for years. Its data set is huge. In July 2006 the McKinsey Quarterly contained a report of a global survey for successful change management.
Here is a summary and some extracts:
“The most successful transformations of business performance occur when executives mobilize and sustain energy within their organizations and communicate their objectives clearly and creatively, according to a new online survey conducted by The McKinsey Quarterly. Executives further improve their chances for success if they significantly raise employee expectations, actively change people’s behavior, and engage the attention of individuals at all levels of the organization, from top management to the front line.
These and other insights into the change-management process emerge from the survey, in which executives were invited to assess and characterize one transformation they had been involved in during the previous five years. For this purpose, we defined a transformation as a coordinated program, in companies or business units that typically involves fundamental changes to the organization’s strategy, structures, operating systems, capabilities, and culture.”
Transformations come in various shapes. Cost cutting, not surprisingly, is a consistent theme, with more than half of the respondents agreeing that it was a major goal. Half say their company’s main objective was moving from good performance to great performance; a little over a quarter said they were involved with turning around a crisis situation”perhaps the best-known and most headline-grabbing context for change
Transformation takes energy
When the responses of the 38 percent who characterize their company’s transformation as “completely” or “mostly” successful (the top performers) are compared with the entire sample, there is a striking difference. Around 30 percent of all surveyed executives say that their organization was “completely” or “mostly” successful at mobilizing energy. But, when the responses of only the top performers are included, more than 55 percent characterize the transformation as completely or mostly successful. Fifty-seven percent of top performers, compared with 28 percent overall, say that their organization was “completely” or “mostly” successful.
Clear, comprehensive, and compelling communication mobilizes and sustains energy. A little under half say that their company offered an inspiring view of a better long-term future. Again, the top performers are markedly more enthusiastic about some of the factors that underpin these themes. Three in four say that the setting of clear goals was a part of their program and two-thirds say that their company integrated the goals of the transformation program into processes such as budgeting, performance management, and recruiting. Nearly three in five of them say that successes were acknowledged regularly and publicly.
The ingredients of success
Respondents with the most successful transformations reckon that their company was conspicuously more effective than the others at raising expectations about future performance, addressing short-term performance, engaging people at all levels of the organization, including a clear and coordinated program design, and making the change visible”through, say, new IT tools or physical surroundings.
What transformation feels like
More than 80 percent of the executives agree that it changed the way they work, though 36 percent of that group say that it did so in ways that differ from the original intentions of the change program. Those affiliated with top-performing organizations are significantly more likely to say they changed in ways that line up with the program’s original goals.
Emotions play a leading role in a performance transformation. Overall, the respondents report negative and positive moods in roughly equal proportions, with anxiety (mentioned by 46 percent of all respondents) as the most common negative feeling, well ahead of confusion, frustration, fatigue, and resistance. Among the positives, a sense of focus, enthusiasm, and feelings of momentum occur roughly equally.
Managing your organization by the evidence
A second article in the same issue, by Keith Leslie, Mark A. Loch, and William Schaninger (all variously involved with McKinsey) asserts, “When it comes to simple remedies, few are more seductive than those claiming to help companies create a healthy organization. One-dimensional messages about how to achieve sustainable organizational excellence remain in circulation even though most CEOs and other senior executives instinctively know that any large company’s people, processes, teams, and control systems require artful handling.”
The article continues, “Without hard data, bold claims are hard to resist. But new McKinsey analysis of more than 230 businesses around the world provides evidence for a much more subtle picture. This research, aggregating results from the past four years, shows that strong organizational performance is really fueled not by isolated interventions but by a combination of three or four carefully selected complementary ones”what we call management “practices.”
Most striking is this statement. “Most executives rely on their experience and personal knowledge of, at most, two or three companies to shape their mantras and determine which organizational levers to pull. Our analysis provides a much wider base of knowledge for decision making. Three main conclusions stand out from our data. The first is that executives should eschew simplistic organizational solutions: when applied in isolation by the companies in our database, popular techniques such as management incentives and key performance indicators (KPIs) were strikingly ineffective. Second, high-performing companies must have a basic proficiency in all of the available practices; a conspicuous weakness in any of them drags down the overall result.”
“The third finding”and our main contention”is that managers should concentrate most of their energy on a small number of practices that, introduced together, typically produces the best results, according to our 115,000-plus respondents. Doing more doesn’t add much value and involves disproportionate, not to mention wasted, effort.”
Leslie and colleagues consider that advice from the people traditionally thought of as experts on organizational performance often falls into the trap of advocating one big, visible intervention they regard as more effective than a combination of smaller initiatives. “Unfortunately, a single practice is generally inspired and implemented in isolation.”
Studying the impact of specific practices on specific organizational outcomes – using well over one hundred thousand questionnaires to track the practices that a company can use to improve its performance ” Leslie and colleagues believe that several popular remedies do not live up to their reputations.
* The carrots and sticks of incentives appear to be the least effective of the four options commonly used to motivate and encourage employees to perform well and stay with a company.
* Applied in isolation, KPIs and similar control mechanisms (such as performance contracts) are among the least satisfactory options for improving accountability.
* Relying on a detailed strategy and plan is far from the most fruitful way to set a company’s direction.
* Command-and-control leadership”the still-popular art of telling people what to do and then checking up on them to see that they did it”is among the least effective ways to direct the efforts of an organization’s people.
“Organizations don’t need superior abilities in all of these practices”far from it”but a failure to achieve competence in any one of them drags down the performance of the whole.”
“One combination of practices increases the overall effectiveness of organizations more than others do. Indeed, it proved more effective for over half of the companies in our database, so we regard it as the “base case” (that is, the default solution) for any organization seeking to become more healthy… no other combination of practices has as clear a record of success as the base case”
“The McKinsey research unambiguously identifies the best practices for achieving these outcomes. Senior executives must provide for clear roles within a structure matched to the needs of the business (accountability), articulate a compelling vision of the future (direction), and develop an environment that encourages openness, trust, and challenge (culture). Each of these practices, the data tell us, works best in relation to a specific outcome, but applied in combination they produce much more dramatic results, for they have a mutually reinforcing dynamic. Increasing the amount of effort behind any one practice increases the likelihood of achieving not only its target outcome but also the other target outcomes, thus making organizations more effective overall.”
Leslie and colleagues assert, “Employees perform well when they are working toward a future that attracts them, know when they can operate freely, and are encouraged to improve constantly.” And “improved organizational performance correlates to improved financial performance.”
Many executives struggle to design structures, create reporting relationships, and develop evaluation systems that make people accountable”in other words, that require them to take responsibility for the results of the business. However “companies seeking to improve in this area are much more likely to succeed if they concentrate on giving individuals clear roles rather than resorting to other options, such as consequence management.”
“… executives who set broad, stretching aspirations that are meaningful to their employees have a better chance of achieving the outcome they want than do executives who resort to conventional, dominant, or detailed top-down leadership… the best way to promote high-performance behavior in organizations is to emphasize openness and trust among employees.”
“There is no correlation … between successful organizational designs and contextual differences among industries or the workers they employ. The base case is equally successful in, for instance, manufacturing industries, dominated by equipment and labor; financial services, dominated by capital and systems; and pharmaceutical companies, dominated by knowledge and innovation.
Here we have two more reports on what makes for great success, studies which do not support much of current practice in museums, arts organizations and other nonprofits as well as government agencies and many businesses, at least the ones we often hear about.
The longitudinal studies by the late Sumantra Ghoshal and Christopher Bartlett in the 1990’s (published in a number of journals and in “The Individualized Corporation” (HarperBusiness, 1997) of twenty transnational companies world-wide concluded that successful leaders in effective companies focus on aligning people with the company’s objectives (referred to as “˜discipline’), supporting people to achieve their potential (“˜stretch’), trusting those with whom one works and being open to challenge and tolerating failure (“˜support’). They concluded that the central task of general managers is to shape the organisational context.
Jim Collins and Gerry Porras, in their pairwise analaysis of successful and less successful enterprises in various industries dealt with in “Built to Last”, emphasized the importance of a strong culture and Collins’ later study of leadership in the best companies (“Level 5 Leadership” and “Good to Great”) found a focus on “getting the right people on the bus”, leadership which was a paradoxical combination of personal humility and professional will, to be features of the best.
The transformational leadership studies reveal successful leaders as people who emphasise purpose and trust and generate loyalty, stimulate discussion of new ways of doing things. Such leaders deal with staff as individuals and consider their needs and aspirations; they act as “coach and cheerleader”, as “In Search of Excellence” authors Tom Peters and Bob Waterman put it. Nitin Nohria and colleagues’ five-year study of best performing firms found empowering employees and managers to make independent decisions and to find ways to improve operations including their own are vital ingredients.
The study with Morrie Abraham found the same things!
Why are museum directors and boards still spending their time reorganising, focusing on budgets and in many cases doing their best to comply with government directives which are not consistent with the effective and efficient pursuit of the goals and objectives?