S E P T E M B E R 2 012o r g a n i z a t i o n   p r a c t i c eEncouraging your people totake the long viewToby Gibbs, Su...
2therefore more appropriately assessed in     leaders to build health into performancethe context of immediate performance...
3managerial-training programs the              2. Prioritize values.company needed to change so thatproblems identified at...
4attendants interact. (Rooting out              as the employee discussions at theexcessive hierarchy in such relationship...
5Another thing business units can’t always      focus more on nonfinancial rewards—indo alone is look at the big picture a...
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Encouraging your people

  1. 1. S E P T E M B E R 2 012o r g a n i z a t i o n p r a c t i c eEncouraging your people totake the long viewToby Gibbs, Suzanne Heywood, and Matthew PettigrewEmployees and managers should be measured as much on their contribution toan organization’s long-term health as to its performance. Measuring the performance of people, tricky to convert into annual especially managers and senior performance metrics. Moreover, an executives, presents a perennial organization’s health may not change conundrum. Without quantifiable goals, much in a single year, and an employee’s it’s difficult to measure progress contribution often comes down to objectively. At the same time, companies judgments and trade-offs. What risks to that rely too much on financial or other take and avoid? Which people to“hard” performance targets risk putting develop, and how? Getting a handle on short-term success ahead of long-term the employee’s personal contribution health—for example, by tolerating flawed typically requires in-depth conversations“stars” who drive top performance but and a more thorough 360-degree style of intimidate others, ignore staff evaluation than most employees development, or fail to collaborate with (including senior managers) generally colleagues. The fact is that when people receive. Because of all this, few don’t have real targets and incentives to companies manage people in ways that focus on the long term, they don’t; over effectively assess their contributions to time, performance declines because not corporate health or reward them for enough people have the attention, or the improving it. capabilities, to sustain and renew it. When companies do try, they often endYet measuring, let alone strengthening, up using metrics that are discretionary,the capabilities that help companies weighted less heavily than traditionalthrive over the long haul is difficult. measures of performance, or appliedThese “soft” measures of organizational inconsistently. One mistake is to becomehealth—for example, leadership, confused about issues that appearinnovation, quality of execution, related to organizational health but inemployee motivation, or a company’s practice lie at the heart of an individual’sdegree of external orientation1—are operational, day-to-day job (and are
  2. 2. 2therefore more appropriately assessed in leaders to build health into performancethe context of immediate performance). management. While the specificIt’s fine, for example, to judge a senior measures of health that organizationsproduct manager’s contribution to a employ will ultimately be unique to them,company’s external orientation by the principles outlined here should betracking the number and quality of the applicable to any company.new external contacts he or shedevelops over a year. But it makes littlesense to apply the same health test to a 1. Root out unhealthy habits.media relations specialist for whommeeting new people is an essential part Senior executives know in their bones howof the role. Similarly, it wouldn’t be to handle managers who don’t dohelpful to measure an HR manager’s well on traditional performance measures:contribution to leadership, capabilities, provide clear feedback, a developmentand innovation (other key features of plan to address the problem and build theorganizational health) by tracking the necessary capabilities, and an evaluationtime he or she devotes to building the to judge progress. The processes forskills of employees and training them— handling such issues are second naturevery much features of that person’s day- to most companies.to-day performance. In principle, the same should go forManagers and others quickly recognize incorporating measures of organizationalflaws such as these and respond health. In reality, however, theaccordingly. At a global consumer goods organizational processes and mechanismscompany, for example, the head of HR companies employ may well send mixedadmitted that managers view the messages about the importance oforganization’s health-related targets as a health and even undercut it. Often, it’slever to “top up” their incentive necessary to start by unlearning badpackages. That was hardly the effect the habits. High-hazard companies, forcompany intended, and a perception example, have had to do just that in thethat’s proving difficult to change. wake of much-publicized accidents and subsequent pressure from regulatorsAgainst this backdrop, we believe it’s and consumers for improved safety.useful for CEOs and their senior teams tostep back and collectively examine how— One such company started byand in some cases whether—their conducting an audit of critical rolespeople-management systems give across the organization and compiling asufficient priority to the long-term health list of all the key safety-relatedof their organizations. This article, competencies required for each of them.drawing on work we’ve done recently The goal was not only to ensure thatwith several companies in sectors where workers had the necessary technicalexecution is central to long-term success, know-how and leadership skills but alsosuggests three tried-and-true ways for to spot HR processes, systems, or
  3. 3. 3managerial-training programs the 2. Prioritize values.company needed to change so thatproblems identified at the line level could Identifying the right values requiresbe traced to their roots. discussion and debate, informed by extensive engagement with a range ofIt was one thing for the company to add employees, among senior leaders.more realistic emergency scenarios that Organizations conducting suchline managers and their teams could act discussions are beginning to createout together, another to insist that the metrics that shed light on how wellnew approach be taken seriously. employees respond to particular health-Managers who struggled with the new related values.simulations were therefore removed fromtheir roles until they improved, even if Leaders of a global pharmaceutical andtheir previous track record of operational consumer goods company, for example,safety had been impeccable. prioritized a number of values, such as treating others with respect, behavingMechanisms alone, in other words, won’t with integrity, and managing for the longcut it. Getting organizations to assess term. To give managers a qualitativeand compensate managers on their basis for evaluating the way employeescontributions to health, and to view this upheld these values, the company beganissue as a deal breaker (or maker) in introducing clearly defined standards ofpromotion decisions, often requires a leadership in each of them. In addition tosignificant shift in company culture. gauging business results, the standardsStrong support from the CEO and include the qualitative measurement ofexecutive team is a must. softer skills, like developing organizations and people, masteringThe high-hazard company began to complexity, and focusing on customerssucceed with its new corporate-health and market conditions. The moves areagenda only when senior executives who helping to create a common language forpersonified the new ethic—longer-term discussing how the company getsperformance as the priority—were results, not just what they should be.promoted. Only then did employees startto believe the change was real. Changing Airlines too depend on their values. Allpromotion criteria is, of course, difficult airlines must prioritize safety to succeed,at the best of times but particularly so if but to embed this important ingredient ofno one is ready to replace existing role long-term health, many voluntarily goholders. This reinforces the need for a beyond what regulators require. Somestrong talent pool and the importance of create detailed performance-building health into a company’s broader management metrics to dig into thetalent-development strategy (and metrics nature of key interactions that aon corporate health into the performance company values highly—for example, toappraisals of senior managers see how well flight crews work togetherresponsible for it). to solve problems or how pilots and flight
  4. 4. 4attendants interact. (Rooting out as the employee discussions at theexcessive hierarchy in such relationships Middle East airline reinforced the valuesis important because flight attendants of safety and cooperation.are often the first to spot in-flighttroubles and must therefore feelempowered to respond decisively.) 3. Keep it simple—but meaningful.The pilots of one Middle East–basedairline frequently write incident reports A final principle companies shouldthat candidly raise concerns, questions, embrace when trying to improveand observations about potential organizational health is simplicity. Inhazards. The reports are anonymous short, don’t let the metrics get out ofand circulate internally, so that pilots can hand. Companies sometimes try tolearn from one another and improve— impose a comprehensive set of healthsay, in handling a particularly tricky measures on each employee, though aapproach at an airport or dealing with a handful of well-chosen ones wouldsafety procedure. The resulting suffice. A certain organization, forconversations reinforce the safety culture example, discovered that over time it hadof this airline and the high value it places captured so many hundreds ofon collaboration. Moreover, by making competencies in its performance-sure that the reporting structures aren’t management processes that it couldn’tpunitive, the airline’s executives get manage any of them actively. Similarly, abetter information and can focus their professional-services firm we studiedattention where it’s most needed. introduced a suite of health-related metrics so complicated and bureaucraticEmphasizing health-related values can that few employees took them seriously.be particularly important in turbulenttimes. During a significant change- Poor outcomes are more likely when themanagement effort, executives at a affected business units don’t getNorth American manufacturer codified a involved with corporate-health measures.list of leadership values for which it Best-practice manuals delivered from onwould hold managers accountable. high tend to be ignored or scorned. ByThese included softer values, such as contrast, the best companies encourageputting people first and teamwork, along business units to play a meaningful rolewith more traditional performance- in determining how to translate health-related goals, such as continuous related goals into a handful of metrics onimprovement and drive for results. The which to act.2 Since some of the metricseffort sent employees an important will be new—and, often, qualitative—signal that management was serious senior executives should work withabout changing how the company leaders of business units to make sureworked. The resulting performance that the metrics are “owned” byconversations and role modeling by employees and remain up to date andsenior executives are reinforcing the effective, and that business units havecompany’s commitment to health, much the investigative skills to gather the necessary data from multiple sources.
  5. 5. 5Another thing business units can’t always focus more on nonfinancial rewards—indo alone is look at the big picture and act particular, for employees in technicalon it. Here again, simplicity is essential. disciplines. Given the proven power ofFor example, one global energy company nonmonetary incentives to drive positiverelies on a central audit team to behavior, such moves are wise andaggregate a number of metrics used by worth investigating further.the company’s core business units into asingle, simplified report for corporate-level leaders evaluating personnel,incentives, and career progression plans Over time, traditional hard performancefor business leaders. metrics can encourage short-term success at the expense of anWhat’s crucial is to develop mechanisms organization’s long-term health. Bythat reward people while corporate starting to think about individualhealth improves. For example, one oil performance in the light of the three coreand gas company links incentives principles discussed here, companiesassociated with big capital projects to can start spotting ways to make suretheir operational results two to three their people-management systems areyears after launch. That’s long after the built for the long haul.managers involved in the originaldecisions have moved on to other tasks. 1 For more, see Scott Keller and Colin Price, “Organizational health: The ultimate competitive advantage,” mckinseyquarterly.com, June 2011.Once companies develop the right 2Seehandful of health metrics, define the Aaron De Smet, Mark Loch, and Bill Schaninger,behavior that supports them, and performance,” mckinseyquarterly.com, Novemberimplement assessments of the 2007.willingness of employees to practice that 3 Formore about CEO compensation, see Davidbehavior, the final step is ensuring that F. Larcker and Brian Tayan, “Does your CEO compensation plan offer the right incentives?,”their compensation reflects contributions mckinseyquarterly.com, April 2012.to health. This should be true for seniorexecutives as well—indeed, we believe The authors wish to thank John Fisherthat organizational health warrants more and Robin Riedel for their contributionsconsideration in executive-level compen- to the development of this article.sation decisions than it often receives.3 Toby Gibbs and Suzanne HeywoodOf course, the balance between health are principals in McKinsey’s Londonand performance will vary by company office, where Matthew Pettigrew is anand context. But in our view, companies associate principal.should start with the expectation thathealth-related considerations are just as Copyright © 2012 McKinsey & Company. Allimportant as performance-related ones. rights reserved. We welcome your comments on this article. Please send them to quarterly_Some companies may go so far as to comments@mckinsey.com.base monetary compensation equally oncontributions to performance and health(as a European bank recently did). Others

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