In this McKinsey organizational transformation guide, we’ll explore key concepts related to change management, organizational change, and more.
Among other things, we’ll learn about:
- McKinsey’s “scientific” approach to change management
- The impact of leadership on organizational change and transformation
- The building blocks of successful change
McKinsey, a famous research firm, has a lot to say on these topics, so let’s get started.
McKinsey Organizational Transformation 101: Key Concepts and Ideas
Here are some of McKinsey’s most important ideas and concepts related to organizational transformation and change:
Organizational transformation should be a science, not guesswork.
Large-scale organizational changes, says the research firm, can be designed scientifically.
Organizational change is not easy, but with the right approach, organizations can engineer success.
There are four key actions that change practitioners should engage in when designing change:
- Role modeling
- Fostering understanding and conviction
- Reinforcing changes through formal mechanisms
- Developing talents and skills
According to McKinsey, the more actions that a business engages in, the greater its chances of success.
These mechanisms echo many other change management frameworks, such as the ADKAR model.
Like this set of key actions, Prosci’s famous model also recommends building awareness, developing skills, and reinforcing change.
Change leaders should follow an integrated transformation approach in order to keep transformation projects on track.
Organizational transformation is not the same as organizational change.
An organizational transformation is a set of interdependent organizational changes designed to reinvent an organization across almost every dimension.
However, McKinsey points out, the problem with organizational transformation is that each business unit has its own idea of what change should look like:
- HR wants change that centers around employees
- Finance wants changes built around the finance department
- Operations wants operational changes
And so forth.
Unfortunately, these competing agendas can prevent useful dialogue … the kind of dialogue that management teams must engage in to drive successful transformation.
To tackle this conundrum, business leaders should follow an integrated transformation approach.
McKinsey dubs its three-pronged model the “transformation triangle.”
Predictably, it consists of three parts:
- Top-down direction setting, which helps create focus within the organization
- Bottom-up performance improvement, to get ideas and enhance performance
- Cross-functional core process redesign, to achieve breakthrough improvements in cost, quality, and timeliness
All three “axes of change” are necessary to successfully drive transformations.
Business leaders that don’t implement each axis will end up with a disparate set of activities, no dialogue, and no coordination.
Needless to say, this would produce poor results, and can easily cause a transformation project to fail.
Today, most organizational transformations involve digital components – to successfully transform, organizations need to evolve their approach to change management.
Digital transformation lies behind many organizational transformations in the modern era.
Although digital transformations present a great deal of opportunity, they are also more complex and challenging.
- New skills and resources
- The right talent
- New approaches to change and change management
In order to overcome these hurdles, McKinsey offers a few suggestions:
- Leaders must stay engaged at every step and be aware of blind spots
- Given the difficulty of finding employees with the right skills, organizations should allocate time and resources to obtaining that talent
- Environments can change rapidly, so change programs should stay agile and responsive
These approaches can help during each stage of a transformation: setup, piloting, scaling and implementation, and sustaining change.
Following a few best practices can triple the odds of success.
The more rigorous the approach to change management – and the more actions a business engages in – the greater the chances of success.
In their research, McKinsey identified a few best practices and activities that successful change programs all had in common.
These practices were based on traits that the most successful survey respondents had in common and included:
- Communication. Communication means communicating openly about the transformation’s progress, success, and its implications for individuals. It also means using a consistent change story to help align the organization.
- Leading by example. That is, leaders should embody the change and spend a significant amount of time working on the change. They should also take on the responsibility of leading and developing their teams.
- Engaging employees. The survey’s most successful transformations proactively engaged the workforce through several means. They held change leaders accountable, clearly defined roles and responsibilities, allocated sufficient personnel to support the change, gave supportive employees key roles in the change effort, and assigned high-potential personnel to lead the transformation.
- Continuous improvement. Planning for continuous improvement is another trait that boosts success rates. Organizations can do this by ensuring that everyone in the organization understands how their work relates to the organization’s overall vision, identifies errors before they reach the customer, identifies and share best practices, continually develops, and stays engaged with their personal goals and targets.
Following these change management principles can triple the chances of success, says McKinsey.