• Strategy
  • McKinsey & Co.

Managing Your Organization by the Evidence

An organization is much more likely to improve its current performance and underlying health by using a combination of practices rather than any one of them alone, new McKinsey research finds.

Direction

Every company must give its employees a sense of direction and enable management to make the right trade-offs. What’s the best way to achieve these goals? Our data reveal that 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. We know one European mobile-phone operator, for example, whose new high-level corporate vision and operating strategy helped its middle managers identify priorities for improving its operating, customer service, and cost performance rapidly. By contrast, a rival’s more detailed transformation program struggled to get traction with the key implementers.

A Performance Culture

Our research offers statistical proof that the best way to promote high-performance behavior in organizations is to emphasize openness and trust among employees. A manufacturing company we know, for example, stresses experimentation and ad hoc project work, which lead to higher levels of productivity and innovation than rivals achieve with better-funded but highly structured programs. Our data and experience show that the typical approaches companies take to improve their performance—internal competition or process-driven efficiency and consistency—are a lot less effective than openness and trust.

The Other Half

Our view that at least 50 percent of all companies should apply the base case is founded on data showing that 23 percent of them already apply two out of the three practices effectively and that 40 percent apply one. Furthermore, we reckon that 25 percent of all companies could redesign themselves from scratch after a dramatic organizational event such as an acquisition or a radical strategic or leadership change. But how can we identify the 50 percent of companies that would not be best off applying the base case? And what combinations would probably work most successfully for them?

The data do not support the answers you might have expected. There is no correlation, for example, 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. This is not to say that management should ignore the differences among industries or types of work, but the data do not tell us that the base case is less effective in any one of them. Differences in the way companies should apply it in such contexts may well emerge through further research, but for the moment we must look elsewhere.

What we can safely say now is that contextual differences in organizational culture or strategy are more important than contextual differences among industries. A company’s organizational culture or strategy may mean that excessive transitional costs or the uncertainties of cultural change would make it unwise to implement the base case.

To choose the right combination of practices, companies should test their emerging options against the base case and then look for any obstacles that their organizational, leadership, and strategic context might put in its way. They will find that they don’t have an infinite number of options; they must identify the right combination of two to four complementary practices that could improve their performance significantly given their particular context. The base case is so powerful in part because it builds on preferred patterns of effective management behavior and in part because of the complementarities across its three major practices. Alternatives to it must, at a minimum, show the same high degree of complementarity across the practices they emphasize.

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