• 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.

Since there will be no one-size-fits-all solution, it may be helpful to ponder the choices that some companies have made. Consider the case of the investment bank that, like its peers, uses financial incentives heavily. Even if they are not especially effective motivators by themselves, they can have a dynamic impact as part of a set of organizational interventions including efforts to develop a top-down vision of the future and a competitive, intense performance culture. This bank’s organizational and industry heritage therefore called for a large element of individual measurement and reward.

Likewise, in the petroleum industry each of the supermajors cherishes its own deep-rooted patterns of behavior and routines. ExxonMobil, for instance, has many more rigorously applied standard operating procedures than do BP, Chevron, Royal Dutch Shell, and Total. Standardization clearly has advantages—the company claims to “get things 90 percent right 100 percent of the time”—but the executives of ExxonMobil would have difficulty adopting practices that run counter to its current approach, which is ingrained throughout its management systems. Standardized operations mean that the base-case option is not available, at least not without high transitional costs in a global company with hard-to-change routines and values. If ExxonMobil wanted to make its employees more motivated, it might do better by giving them new roles or project opportunities when they show that they can improve its performance while staying within the rules of the standardized approach. It could reinforce that approach by developing its institutional capabilities through entry-level hiring, which would help it build leaders immersed in “the way we do things around here” right from the start of their careers.

Leadership styles too are a potential constraint on the base case. When the CEO’s job becomes vacant, for example, many companies routinely promote the CFO, and a fair proportion of these executives bring the financial habit of detailed control and checking to the new role. As a result, the management choice of deliberately stepping back from detailed command and control to adopt a more visionary and open approach to leadership is unlikely to succeed. Such a company should stick to its accustomed leadership style.

Command-and-control legacies also come into play for other reasons. One postal operator facing a liberalized market and intense competition initially made its workforce more efficient by using command-and-control techniques focused heavily on financial and operational metrics. An attempt to switch to a visionary style of direction setting in the next phase fell flat because the members of the organization were accustomed to being told what to do. Although an initiative to develop managers who can respond to the visionary style is slowly gaining traction, the company has so far been forced to go on setting its direction from the center and to exert control through financial metrics and motivational incentives.

Strategy too can be a constraining factor. If a company emphasizes M&A, for example, the otherwise desirable option of openness and entrepreneurialism can be problematic simply because entrepreneurial management styles can conflict with centralized value creation.

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