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Organization:Overview of Core FrameworksLocal Training Module For First-year Associates Associate HandbookFOREWORD 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 areaAt 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 hoursThe contents of this document have been adapted for local training sessions through“Switching Tracks”OPs 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 moderators guide with exercises can be requested from the FirmThis 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?McKinseys 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 IMPACTSuccessful strategyEfficient operations Effective 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 organizations 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 ORGANIZATIONS INABILITY TO EXECUTE100%=340 responsesPercentMcKinsey recommendations flawedClient not change-ready or committedOrganization lacked the capabilities to execute strategyOtherThe 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 IMPORTANCEEvolving marketplaceQuickening pace of strategic adaptationDurable competitive advantage often rooted in unique organizational capabilitiesEvolving playersMany businesses acquiring in-house strategic capabilityMaking change happen remains the“neglected art”McKinseys engagement mix Percent of timeIncreasing demand for help with organization issues and change management Crafting the answerHelping implement change10 years agoTodaySource:Survey of 23 MGMs across the FirmThe 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 TOOLSConsulting firm ProductClient exampleBCGTime based competitionGEGeneral SystemsProcess redesign UPRRBooz Allen Continuous improvementExxonUnited ResearchProcess redesign and facilitationMobilDelta PointTransformational changeSmithKline BeechamMcKinseys 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 McKINSEYS APPROACH*Survey of 23 MGMs across the FirmFrom To“The answer”Solving for the“answer”and the change processManaging client teamsBuilding client capabilitiesSmall,analytically focused teams average client team of 3*Multiple,highly leveraged McKinsey/client teams Average client team of 10*CEO counseling by senior people Coaching and feedback at all levels 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“Garbage in,garbage out”Organizational practice frameworksChecklistsSurveys,questionnairesApplied examplesGarbageGood judgment,keen insight,creativity,organizational acumenGarbageClient impactCONCEPTUALA 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 FRAMEWORKSHigh-performing organization attributesVisionPerfor-manceCEO ledPeople Skills Simple 7-S frameworkWinning formulaPivotal jobsDesign leversOrganizational structureWhat change is needed?How should the client make change happen?What gaps in organizational performance exist?What organizational challenges exist?What initiatives comprise the change program?How do we create energy for the change program?StrategySkillsShared valuesVISIONStaff Management systemsLeadership styleChange boardAgenda/platformDirection settingStructuringBottom-up energizingTransformation trianglePerformance managementVision and leadershipcommunicationOrganizational infrastructurePeople developmentProblem solving processEnergizing elementsThe 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.“HIGH-PERFORMANCE COMPANY”ATTRIBUTESDriven by leadersAligned by simple structures and core processesBased on world-class skillsRejuvenated by well-developed people systemsBuilt by relentless pursuit of before-the-fact strategies/vision Energized by an extraordinarily intense,performance-driven environmentWhat change is needed?How should the client make change happen?Organizational challengesInitiativesEnergizing elementsGaps in performanceThe 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 HPODriven by leaderVery high performance aspirations held by all key leadersDemanding,“unreasonable”CEOsEffective working group at topAbility to penetrate to micro-level of their businesses Single-minded adherence to simple,clear success measures-not just financialProductive“fear of failure”Built by relentless pursuit of before-the-fact strategies/visionHighly motivating,if not inspiring,“end”stateFrequently oriented toward industry leadershipConsistently striving for both profitability and growthPassionate defenders of core businessesUnderstanding of how industry(s)works,what customers want,and what competitors can do-and how these might changeEnergized by an extraordi-narily intense,performance driven environmentDemanding,occasionally punishing,work pace;on call all the timeReal follow-through on accountability especially at the topAggressive learning from things that do not work“good”places to work but not always“nice”Performance shortfalls change careersMembers feel rewarded by being part of winning institutionThe 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 structures and core processesStraightforward alignment of authority,accountability,and performance challengesUncomplicated lines of communication and approval line to line Similar internal structural units and key management processes across the companyMinimal critical staff reviewsRegular calendar of key management processes and communicationBased on world-class company skillsDo many things well,but at least 1 functional skill at world-class competence level underpins strategyAlso focus on building corporate skill in the way they run the placeCompany key management processes viewed as real competitive advantageRejuvenated by well-developed people systemsCEO is Chief Personnel Officer Clear focus on performance and motivation successful long-term wealth-building programs seem keyManagement processes ensure leaders have“informed”view of key contributors 2-3 levels downCEO leads annual“staffing review”best people/teams in most critical/demanding jobs“Bench strength”is a top priorityThe 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 owners 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 HPOsH