Most managers believe that single-minded devotion to driving performance and profits will lead to success. But Colin Price, who leads McKinsey & Co.’s organizational practice around the world from his perch in London, England, says it’s more complicated than that. And he has the data to prove it.
Instead of being single-minded, he says you have to blend two opposites. At the core, you must grapple with the duality of driving performance and boosting organizational health. But that devolves into dealing with three sets of opposites: change and stability, control and empowerment, consistency and variability. Seek one without the other, and you could be toast. Success requires a yin-yang mindset.
His team started their research with an eye to the rising number of business failures, wondering what makes an organization thrive. The prevailing wisdom was that success comes by driving performance. Oil companies focus on developing more oil, bankers on more liquidity. Concentrate on certain measures that lead to profitability, and you’ll be successful, the thinking goes.
But after measuring 1,000 companies, and with one million people filling in a 139-question survey, Mr. Price found the prevailing approach is only half right.
Focusing on performance accounts for half of success. The other half comes from focusing on what he calls organizational health: the ability of the organization to align, renew itself, and execute faster than competitors.
“There’s a paradox. The more companies focus on performance, the less they will be able to win the performance game. And if you focus only on health, you’ll hit the dustbin as well. You need balance,” he said in an interview.
Performance and organizational health are fuzzy concepts, not easily translated into daily leadership. He described three specific areas, comprising six elements in all, that need to be balanced, in a recent McKinsey Quarterly article:
Change and stability
Leaders these days are consumed by the need for change. “But constant or sudden change is unsettling and destabilizing for companies and individuals alike. Just as human beings tend to freeze when confronted with too many new things in their lives – a divorce, a house move, and a change of job, for example – so will organizations overwhelmed by change resist and frustrate transformation-minded chief executives set on radically overturning the established order,” Mr. Price wrote in the article.
The more you can keep some workplace touchstones stable, and advise staff of the stability, the more they will be willing to accept change.
“You have to be clear about what you’re keeping stable as well as what you’re changing,” he explained in the interview. Companies such as Procter & Gamble and PepsiCo, he notes, have very stable business models but go through radical change within that framework.
Control and empowerment
Many executives hunger to control their organization tightly, but these days, Mr. Price points out, pop psychology is urging them to embrace radical empowerment, in which employees follow their own best sense. Too much empowerment, of course, can lead to anarchy and chaos.
But too much control can freeze an organization. The idea is to create strong controls on issues such as where the money goes and which customers are to be prized, but then allow experimentation within what he calls that “envelope of control.” This is particularly true in industries where you have many people selling to many people.
Consistency and variability
He notes that consistency is the Holy Grail of management. Producing high-quality products and delivering them to customers on time and with the same level of consistency is critical to success in most industries.
But consistency can harden into a rigid mindset. Instead, you must allow experimentation and variability. Mr. Price points to Amazon, which has a consistent business model to deliver its products with dispatch but also allows continual experimentation.
“The larger and more powerful the organization, the higher the desire for consistency. But if you only have consistency, where will your innovative edge come from?” he wondered in the interview.
So think through these three pairings – six elements in all. What change do you want, and where will you be emphasizing stability? How do you control and where do you empower? How can you nurture both consistency and variability? Figure out how to stress all six in your organization, in a balanced way.
Special to The Globe and Mail
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter