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 head of one North American auto manufacturer, for example, asserted in a recent edition of the Financial Times that a new culture allowing employees to speak out “boldly” would drive the company’s future success. In the same edition, a major investor in a fast-food business insisted that direct equity compensation for senior managers was the missing key to organizational efficiency.
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.” Executives can use a wide range of them to improve the organizational performance of a company—in other words, its ability to unite around common goals, to execute efficiently, and to renew itself over the longer term by, for example, refreshing product lines, replacing people, and upgrading capabilities.
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 (see sidebar “The Data Behind the Findings”). Doing more doesn’t add much value and involves disproportionate, not to mention wasted, effort.
Which combinations of practices are most effective at creating high levels of near-term organizational performance and longer-term organizational health—meaning the ability to generate sustained performance year after year? Careful selection is crucial because the complementarity among practices (the additional impact they have when applied together) is what creates organizational excellence.
A Look at Prevailing Wisdom
Advice from business commentators, elder statesmen, consultants, and other experts on organizational performance often falls into either of two traps. Some of these authorities fail to give the full picture because they assume that companies already have a number of complementary building blocks in place and therefore systematically overestimate the impact of a single practice. Others have a preference—as external observers, consultants, and new appointees typically do—for one big, visible intervention they regard as more effective than a combination of less dramatic initiatives.