Some Impressionistic Take away from the Book of

Scott Keller & Colin Price

Beyond Performance
( How Great Organizations build ultimate competitive Advantage)
Ramki
ramaddster@gmail.com
About the Authors
 Scott Keller is a director in the Southern California
office of McKinsey & Co., and leads its
transformational change practice in the Americas.
He has published several articles on change
management & organizational behavior, as well as
a book for colleagues and clients. Outside
McKinsey, Keller is a co-founder of Digital Divide
Data, an award-winning social enterprise that
benefits some of the world’s most disadvantaged
people.
 Colin Price is a director in McKinsey’s London
office, and leads its organization practice
worldwide. He has advised many of the
world’s largest corporations, several national
governments and a number of charitable
institutions. His books include Mergers and
Vertical Take-Off
Prelude
 In an ever-changing world where only a third of excellent
organizations stay that way over the long term, and where even
fewer are able to implement successful change programs, leaders
are in need of big ideas and new tools to thrive. In Beyond
Performance, McKinsey & Company's Scott Keller and Colin Price
give you everything you need to build an organization that can
execute in the short run and has the vitality to prosper over the
long term.
 Drawing on the most exhaustive research effort of its kind on
organizational effectiveness and change management, Keller and
Price put hard science behind their big idea: that the health of an
organization is equally as important as its performance. In the
book's foreword, management guru Gary Hamel refers to this
notion as "a new manifesto for thinking about organizations."
 The authors illustrate why copying management best practices
from other companies is more dangerous than helpful.
Prelude

 Clearly explains how to determine the mutually reinforcing

combination of management practices that best fits your
organization's context
 Provides practical tools to achieve superior levels of performance
and health through a staged change process: aspire, assess,
architect, act, and advance. Among these are new techniques for
dealing with those aspects of human behavior that are seemingly
irrational (and therefore confound even the smartest leaders), yet
entirely predictable
 Ultimately, building a healthy organization is an intangible asset
that competitors copy at their peril and that enables you to skillfully
adapt to and shape your environment faster than others—giving
you the ultimate competitive advantage.
Why Performance is not Enough
Why Performance is not Enough
 Perhaps surprisingly, we have found that leaders of
successful and enduring companies make substantial
investments not just in near-term performance-related
initiatives, but in things that have no clear immediate benefit,
nor any cast-iron guarantee that they will pay off at a later
date.
 At IT and consultancy services company Infosys
Technologies, for instance, Chairman & Chief mentor N.R.
Narayana Murthy talks of the need to “make people confident
about the future of the organization” and “create
organizational DNA for long-term success.”
 So why is it that focusing on performance is not enough —
and can even be counterproductive?
 To find out, let’s first look at what we mean by performance
and health.
Why Performance is not Enough
 Performance is what an enterprise delivers to its stakeholders in
financial and operational terms, evaluated through such
measures as net operating profit, return on capital employed,
total returns to shareholders, net operating costs and stock turn.
 Health is the ability of an organization to align, execute and
renew itself faster than the competition so that it can sustain
exceptional performance over time.
 For companies to achieve sustainable excellence, they must be
healthy. This means they must actively manage both their
performance and their health.
 The 2010 survey of companies undergoing transformations
revealed that organizations that focused on performance and
health simultaneously were nearly twice as successful as those
that focused on health alone and nearly three times as
successful as those that focused on performance alone.
Toyota – A Cautionary Tale
 Sometimes, a firm’s profitability, financial productivity and business
performance harm its rivals.
 In 2005, Toyota was performing so well that it hoped to supplant
General Motors (GM) as the world’s leading automaker.
 Due mostly to robust US sales, Toyota produced a 39% jump in net
profits in 2006.
 Toyota enjoyed a sterling reputation for production expertise, quality
automobiles and harmonious relationships with its many suppliers.
 However, Toyota’s plan to outdo GM meant expanding dramatically.
 Maintaining its strong supply-chain operations would be very difficult.
The firm would need to develop new working relationships quickly with
numerous non-Japanese suppliers.
 Toyota lacked sufficient senior engineers to monitor new suppliers
around the globe or to teach them how to adapt their operations to the
“Toyota Way.” Such potentially disruptive problems all became
painfully real.
Toyota – A Cautionary Tale

 As a result, Toyota proved unable to maintain its production

and quality standards, and it suffered a medium-term drop in
performance.
 By 2010, its manufacturing base had become so fraught with
problems that Toyota had to recall certain models due to
safety issues.
 Congress summoned Toyota’s president, Akio Toyoda, to
explain his cars’ many defects.
 Toyota’s ambitious attempt to increase its sales and profits
over the short term wrecked its long-term organizational
health.
The Big idea : Performance & Health
 Organizational health is “the ability of an organization to align,
execute and renew itself faster than the competition so that it
can sustain exceptional performance over time.”
 Executing your financial goals is vital, but sustaining that
success requires always being mindful of organizational health.
 Firms that pay as much attention to their organization’s health
as to its functionality are almost three times more successful
than firms that focus only on performance.
 To do well in the future, companies must keep evolving in the
face of new challenges even as they pursue top results in the
present.
 The strongest, most viable firms work to become competitive
and to stay competitive. They excel in the short term and the
long term.
Performance & Health matters
“You need to create organizational DNA
for long-term success. And that’s what
enables you to perform in the short term”  Organizations attain excellence only
Narayan a Murthy,
when leaders manage both
Former Chairman of
Infosys Technologies
performance and health with equal
rigor
 “Health” can be defined as an
organization's ability to align,
execute and renew itself faster than
the competition
 Managing health is not something
you do in the future; it is about the
actions you take today to deliver
performance tomorrow
 Organizational excellence can be
achieved through a five-stage
process: aspire, assess, architect,
act and advance
Both Performance & Health must be managed
The Big idea : Performance & Health

 The ability to adjust to new market dynamics is vital. Companies

that cannot handle change today will be extinct tomorrow.
 In 1955, the average firm on the S&P 500 index remained on the
list for 45 years; by 2009, S&P 500 longevity had dropped to
only 17 years.
 Two thirds of firms thriving today will fail in the long run.
Generally, the newest firms set the pace in most business
sectors and create most of the wealth.
 The market outpaces established firms that can’t keep up with
the newcomers.
 Evolution, agility, adaptability and flexibility are critical attributes
of healthy organizations
The Science: Hard facts behind the Soft stuff
 In a management world “rife with opinion and conjecture,” the
authors base their conclusions and recommendations on a broad
base of research, including:
 Organizational Health Index (OHI) surveys on the drivers of
organizational performance and health from more than 600,000
respondents in more than 500 organizations across the globe.
 McKinsey Quarterly survey panels asking more than 6,800 CEOs
and senior executives about their experience of transformational
change from.
 Data from more than 100 clients served by McKinsey& Company
on specific performance and health engagements.
 Reviews of more than 900 books and academic articles.
 In-depth personal interviews with 30 CEOs & other senior
leaders who shared their personal experiences of leading
change and driving performance.
The Science: Hard facts behind the Soft stuff
 In the exhaustive research underpinning the authors’ definition of
organizational health and the OHI tool that they have developed,
they believe they have been able to get closer than ever before
to “counting what counts” in creating effective organizations.
 In this process, they identified nine elements of organizational
health that grouped into three clusters, with leadership appearing
in each cluster:
1. Internal alignment, comprised of direction, leadership, and
culture and climate.
2. Quality of execution, comprised of accountability,
coordination and control, capabilities, motivation, and
leadership.
3. Capacity for renewal, comprised of external orientation,
innovation and learning, and leadership.
 Nine vital signs of organizational health

A clear sense of where the organization is heading

Direction
and how it will get there that is meaningful to all employees

Leadership
Direction The extent to which leaders inspire actions by others

Culture and
The shared beliefs and quality of interactions in and among
Account- Coordination climate
organizational units
ability & control
The extent to which individuals understand what is expected of
Accountability them, have authority, and take responsibility for delivering
results
External Leadership Innovation &
orientation learning Coordination The ability to evaluate organizational performance and risk, and
and control to address issues and opportunities when they arise

Capabilities Motivation Capabilities The presence of the institutional skills and talent required to
execute strategy and create competitive advantage

Motivation The presence of enthusiasm that drives employees to put in

extraordinary effort to deliver results
Culture &
climate
External The quality of engagement with customers, suppliers, partners,
orientation and other external stakeholders to drive value

Innovation The quality and flow of new ideas and ability to adapt and shape
and learning the organization as needed
The Five Frames
The 5 Frames
 Bringing about significant & mutually reinforcing improvements
on both the performance and health fronts is easier when the
task is broken into smaller parts.
 Keller and Price describe the process for achieving
organizational excellence in terms of five basic questions that
need to be answered in order to make change happen:
 Aspire: Where Do We Want to Go?
 Assess: How Ready Are We to Go There?
 Architect: What Do We Need to Do to Get There?
 Act: How Do We Manage the Journey?
 Advance: How Do We Keep Moving Forward?
Each of these “Five Frames of Performance and Health” presents a different
challenge depending on whether it is asked in the performance realm or health
realm. The authors give more emphasis to the health realm in light of evidence
that 70 percent of change program failures are driven by poor organizational
health factors.
The 5 Frames
Frame One-Where we want to be ?
Aspire – Where do we want to go?
On the health side, this means setting the right organization
aspirations

Measure
organizational health

Set the right health

aspirations

Involve a broad
leadership coalition
A runner, a boxer, and a swimmer
are all healthy, but in quite different
ways What kind of health
aspirations are right for your
organization?
Aspire-Where we want to go ?
 A broad coalition of leaders should be personally involved in
setting the aspirations.
 Which aspirations they choose for their organizations depend
to a great extent on where the organization is at the start of
the change process and vary by industry or sector.
 There are, however, three lessons that almost any
organization can apply when setting its performance targets:
1. Focus on the medium-term future.
2. Strike a balance between facts and intuition.
3. Set tough but achievable goals.
 The immediacy of medium-term goals—planning two or three
years ahead—allows managers to choose relevant goals and
identify specific initiatives to reach them. Having a long-term
vision at the start is helpful, but not enough, and a lack of
long-term vision at the start is not a reason to delay starting.
Aspire-Where we want to go ?
 Clearly, hard facts have a role to play in determining the
organization’s performance aspirations.
 Obtaining a robust fact base requires companies to ask themselves
lots of questions, such as:
 What competitive pressures and opportunities do we face?
 What do our customers demand?
 How does our performance stack up against benchmarks?
 However, data alone is not enough.
 The key is to balance fact with intuition.
 It is important to guard against the kind of fact-based logic that led
the CEO of Digital Equipment Corporation to say in 1977 that he
saw “no reason for any individual to have a computer in his home.”
While it might seem that intuition has had its day in an era when
information is so freely available, the authors think that its role in
decision making will only increase.
Aspire-Where we want to go ?
 Setting tough but achievable performance goals is also
crucial.
 Targets that are easy or incremental fail to create momentum
to push the limits of what is possible.
 Targets seen as impossible are disillusioning and cause
people to give up.
 As to health aspirations, the McKinsey survey found that
change programs with clearly defined aspirations for both
performance and health were 4.4 times as likely to be
extremely successful compared to programs with clear
aspirations for performance alone.
 Moreover, the authors’ research indicates that there are four
basic “archetypes,” or patterns of practices, into which
organizations tend to fall:
Aspire-Where we want to go ?
 Leadership driven—The organization believes in leaders as
the catalysts for performance.
 Execution edge—The organization believes in discipline,
sound execution, and continuous improvements.
 Market focus—The organization believes in shaping
market
 trends and building a portfolio of strong and innovative
brands.
 Knowledge core—The organization believes its pool of
talent and knowledge represents its most important asset.
 It is harder to change an organization’s archetype than it is to
improve that organization’s health within its existing
archetype.
Aspire – Where do we want to go?
There are 4 archetypical combinations for healthy organizations

Leadership driven Market focus Execution edge Knowledge core

1 Career opportunities Business partnerships Knowledge sharing Talent acquisition

2 Open and trusting Customer focus Creative and entrepreneurial Role clarity

3 Performance contracts Competitive insights Employee involvement Consequence management

4 Inspirational leaders Government and Talent development Financial incentives

community relations

5 Strategic clarity Financial management Internally competitive Personal ownership

6
6 People performance review Capturing external ideas Personal ownership People performance review

7
7 Operational management Process-based capabilities Bottom-up innovation Career opportunities

8
8 Operationally disciplined Shared vision Top-down innovation Performance contracts

9 Consultative leadership Outsourced expertise Meaningful values Professional standards

10 Consequence management Strategic clarity Consequence management Financial management

Frame Two-Where are we today ?
Assess – how ready are we to get there?
On the health side, this means understanding the few critical mindset
shifts that are needed

Identify liberating and

limiting mindsets

Focus on the vital few

Assess both what is

+ - working and what
isn’t
Understanding the key limiting
mindsets in your organization
Assess-How ready are we to go there ?

 The assess stage is hard for both leaders and their

organizations, but the failure to address it in this stage will
result in addressing it after the transformation has stalled,
and high hopes have given way to cynicism and
disengagement.
 Performance is assessed in two steps:
1. Determine the capabilities that are strategically
important to the organization’s performance—which
capabilities are scarce, superior to substitutes, and
difficult to imitate.
2. Evaluate the current state of those capabilities in the
organization. Objectivity is vital; overestimating strategic
abilities can undo even the best laid transformation plan.
Assess-How ready are we to go there ?
 On the health side, assessment must look at underlying mindsets.
 Mindsets drive behaviors, and behaviors support (or obstruct) the
management practices that lead to good (or bad) organizational
health.
 Bringing these to the surface and explicitly working on them is the
only way to make sustainable change happen.
 The process is intended to identify both mindsets that need to be
changed and mindsets that should be reinforced.
 In this context, “mindset” means a fixed mental attitude or outlook
that predetermines how people interpret situations and respond to
them.
 In companies with long history and employees of long tenure, it
may help to encourage people to think in terms of eras, to
emphasize that ways of thinking that worked well in the past may
not work so well in the future.
Assess-How ready are we to go there ?
 The basic tools for uncovering the organizations mindsets
include an interview technique known as “laddering,” focus
groups employing such techniques as collages and card
sorting, and analysis of word patterns used in texts created
by or talking about the organization.
 Outsiders with specific skills and objectivity are helpful, but
Keller and Price recommend that the leadership team also
take part to gain firsthand knowledge.
 Shifting mindsets is a gradual process, and organizations
should not take on too many at one time; tackling three to
five over a period of a year to 18 months is a reasonable
target.
 The trick is to start with those mindset shifts that will make
the biggest difference.
The discovery process deep dives into an organization's inner workings

Dig deep to identify limiting mindsets

Mindsets underpin Performance
Frame Three-What do we need to get there ?
Architect – what do we need to do to get there?
On the health side, this means architecting the implementation using the
key levers that drive people to change

Create the right

context

Use performance
initiatives to influence
mindset and
behavioral change

Understanding how to make

! Expect and leverage
irrationality
change happen at an individual
level
Architect-What do we need to do to get there ?

 The architect stage determines how to bridge the gap between

the organization’s current capabilities and mindsets, and the
ones needed to achieve the performance and health aspirations
identified earlier.
 A series of strategic choices produces a concrete plan for both
performance and health.
 On the performance side, the organization constructs a portfolio
of clearly defined performance improvement initiatives that are
well balanced in terms of timing and familiarity.
 Keller and Price think that the most valuable aspect of a portfolio
of initiatives approach is that it makes choices explicit.
 Organizations are forced to have robust discussions about what
they will focus on—and, equally important, what they will not.
Architect-What do we need to do to get there ?
 On the health side, a coherent set of actions is identified to
bring about the desired shifts in mindsets and behaviors.
 These actions draw on the “four levers” leaders can use to
influence their organizations:
 Telling a compelling story.
 Establishing reinforcement mechanisms.
 Building the skills required for change.
 Setting a strong example through role modeling.
 So that employees experience the efforts to improve
performance and health as a single unified program, the
actions taken to address mindsets should be integrated as
much as possible into execution of the portfolio of
performance initiatives.
Frame Four-How do we manage the Journey ?
Act – how do we manage the journey?
On the health side, it means taking a structured approach, building broad
ownership, and measuring impact

Ten teams, Take a structured

each with ten members approach
were asked for their collective
ten priorities

Build broad
Heaven = 100 ownership for
change

Hell = 1,000
Measure and
evaluate
Answer: 922
Act-How do we manage the Journey?
 The “act” stage usually lasts for years. Leaders need to
unleash energy in the organization repeatedly during this time
when employees are both performing the day-to-day tasks
and fundamentally rethinking those tasks.
 At this stage, however, the distinction between improving
performance and improving health starts to blur.
 The authors recommend a three-phase approach to
implementing initiatives: test, learn, and scale-up. In practice,
this means that a prototype initiative is tested out in a pilot
location, the leaders learn from that experience, a second
pilot is performed to confirm the broader feasibility, and the
refined initiative is rolled out.
 The actual rollout or “scale-up” may follow a variety of
approaches, such as:
Act-How do we manage the Journey?
 Linear, in which the feasibility pilot is tried in one location after
another.
 Geometric, in which the feasibility pilot is rolled out in waves, each
wider than the last.
 “Big bang,” in which the feasibility pilot is implemented across all
relevant areas at once.
 Keller and Price have developed a tool they call “the change
engine,” that consists of three linked elements and applies equally
to performance and health initiatives:
 A structured approach to bring order, clarity, and coherence to
transformation activities.
 Building ownership of the transformation among employees
and, to the extent possible, among external stakeholders.
 Evaluation and measurement, by regularly collecting data on
progress, allows course correction & celebrates achievements.
Frame Five-How do we keep moving forward ?
Advance – how do we keep moving forward?
On the health side, this means developing leaders to drive the change

No organization can depend on

genius; the supply is always Develop centered
scarce and unreliable. It is the leaders to drive
test of an organization to make continuous learning
ordinary human beings perform and improvement
better than they seem capable of
… The purpose of an
organization is to enable Build skills in
common men to do individual, team and
uncommon things organizational
leadership

Apply adult learning

– Peter Drucker, principles
1954
Advance-How do we keep moving forward ?
 The “advance” stage is never over because the job of
continuously improving its performance and health is
continuous.
 That means putting in place a robust continuous
improvement infrastructure with knowledge sharing,
improvement processes, learning methods, and dedicated
expertise.
 It also means building centered leadership qualities that drive
continuous performance improvement in a way that energizes
the organization, rather than exhausts it.
 The Centered Leadership model is comprised of 5 elements.
When combined, they give leaders the resilience and
emotional capacity to continuously improve themselves as
they continuously improve their organization:
Advance-How do we keep moving forward ?

 Meaning. Finding and communicating personal meaning in

work, and enabling others to tap into their own sources of
motivation and purpose.
 Framing. Viewing even the most difficult problems in a way
that opens up constructive and creative solutions.
 Connecting. Taking active steps to build internal and
external relationships.
 Engaging. Generating the confidence to step up & act,
involving themselves and others in the face of uncertainty
and risk.
 Energizing. Investing systematically in physical, mental, and
emotional energy and creating the practices and norms
needed to energize others
Advance – how do we keep moving forward?
The Centered Leadership Model
Meaning Framing
Finding an inspiring ▪Happiness ▪Self-awareness
purpose that is built on ▪Core ▪Learned Looking at problems in new
strengths optimism ways to find better solutions
strengths and using it to
generate hope and action ▪Purpose ▪Moving on
▪Adaptability

Personal and Connecting

Energizing professional Actively shaping networks
Actively managing ▪Inclusiveness
▪ Sources and context to heighten one’s sense of
experiences to achieve ▪Reciprocity belonging, ability to
maximum “flow” in the uses
▪ Recovery ▪Network influence change, and
work day design personal growth
▪ Flow ▪Sponsorship
Engaging
▪Voice, taking
action
▪Ownership
▪Risks and fears

Taking personal accountability for one’s life

experience and setting aside fears to step up to
opportunities
Putting it all Together
Role of Senior Leaders
 “Senior leader” refers to the individual in charge of an
organization, no matter their title or the nature of the
organization.
 The senior leader’s role is unique. The person at the top of the
pyramid provides cues for everyone else in the organization as
to what really matters.
 The authors’ 2010 survey found that transformations were 2.6
times more likely to succeed if they had strong involvement from
the top of the organization.
 Successful senior leaders play four roles in transformation
efforts:
 Making the transformation meaningful.
 Role modeling desired mindsets and behavior.
 Building a strong and committed top team.
 Relentlessly pursuing impact.
Role of Senior Leaders

 If the senior leader is not on board, another member of the

organization can either attempt to influence the senior leader
to adopt the transformation program, at least if the senior
leader is not actively opposed to it.
 Short of that, program advocates can adopt as much of the
program as possible and act to maximize the likelihood of
success of both performance and health
Moving Stage to Stage
 It is important not to jump from one stage to the next until the
organization is ready for the move.
 Accordingly, although transformations do not tend to occur in
a linear fashion in the real world, the authors offer a
structured analysis for deciding when to move ahead.
 It consists of two questions—one for performance, the other
for health—under each of the 5As.
 If the organization can answer yes to both questions on a
specific stage in the transformation, it is ready to move to the
next stage.
 If the transformation program gets stuck along the way, the
reason is typically that it has not paid sufficient attention to
some aspect of health or performance at an earlier stage of
the transformation
Moving Stage to Stage
 Most often it is health rather than performance fac- tors that
have been neglected.
 The authors emphasize that the right time to correct that is
always right now with the caveat that “if your organization is
already so unhealthy that it’s fighting for its life, the first order
of business will be to stem the bleeding.”
 The way that organizations apply these ideas will vary but the
authors reiterate that there are three principles behind
everything in their program:
 Performance and health are equally important and can be
measured and managed with equal rigor.
 Performance and health are both things that should be
managed today.
 Nothing changes unless behavior does.
The Ten tests of Organizational Excellence
Key Take Aways
 Some leaders mistakenly focus on short-term performance
goals and ignore their company’s long-term well-being.
 Organizational health is just as important as financial
performance.
 Up to 80% of the market value of an organization’s shares
rests on public expectation of long-term profitability.
 Organizational health is “the ability of an organization to align,
execute and renew itself faster than the competition so that it
can sustain exceptional performance over time.”
 Companies with good organizational health are three times
more successful.
 Your organizational health goals should be as explicit as your
performance goals.
Key Take Aways

 Make sure your firm has the “strategic capabilities” to achieve

its performance goals.
 Planning and implementing long-term organizational well-
being require strong leadership and constant adaptation to
new market dynamics.
 Create an enduring culture with the “five frames of
performance and health.”
 This list of five “A’s” covers: “Aspire” to a vision, “assess” your
progress, design your path like an “architect,” “act” to manage
the journey and steadily “advance” forward.
Mail your comments to
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