People & Strategy Winter 2015 Vol. 38 Issue 1 - 29

Just as concentrating on too many practices
diminishes an organization's odds of achieving top
health and success, adding the wrong practices to the
recipe can be extremely harmful.
This company developed what it called "critical paths" for a ladder of opportunities available to high-potential leaders. These paths
culminated in an important role, such as general manager for a large region, and promoted
to prominence leaders who were visibly inspirational. When the company's own research
showed that trust accounted for 90 percent of
its employees' perceptions of how effective
their managers were, it focused its development efforts accordingly. (Coincidentally, trust
was one of its three core cultural values.)
The company ultimately avoided the "commodity hell" it feared. It reliably increases its
margins every year, leads its industry in segments where it elects to compete, and is recognized by respected analysts as a leading
"talent factory."

The Importance of Selection
Our earlier research had already shown that
to be in the top group of healthy
organizations, companies must do better
than bottom-quartile ones across the full
suite of 37 management practices. But a
better-than-bottom score is generally
enough for practices that are not essential
to a company's recipe. The trick is to be
truly great in a handful of practices-and
not to worry a lot about the rest, which is
just as well because no company has the
capacity, resources, or management time to
be great at all 37. The power of the four
recipes our research unearthed is that they
provide an indication of where to
concentrate improvement efforts.
We discovered that 73 percent of the companies that strongly or very strongly follow one
of the four recipes (and are not in the bottom
quartile for any practice) enjoy top-quartile
health. By contrast, only 7 percent of companies that have at least one broken practice
and a less-than-strong embrace of any of the
recipes are in the top quartile.

Taken together, this represents a better than
10:1 ratio of effectiveness. It also suggests that
the right course is to fix all broken practices
(by improving them enough so that a company
escapes the bottom quartile) and to turn a
targeted handful of practices into true
strengths. Trying to exceed the median benchmark on a large number of practices is not
effective.

risks. Choose well your recipes and ingredients, as the wrong mix may sour employees,
executives, and investors alike.

References
1

Keller, S. and Price, C. Beyond performance: How
great organizations build ultimate competitive
advantage. First edition, Hoboken, NJ: John
Wiley & Sons, 2011. (See also Scott Keller and
Colin Price, "Organizational health: The ultimate
competitive advantage," McKinsey Quarterly,
June 2011, mckinsey.com.)

These were the fortunate ones. Our global survey
shows that only one-third achieve change goals.

The explanatory power rose to 56 percent when
a single outlier was removed.

The full database includes many nonpublic
companies and government organizations that
were excluded for this analysis.

An indicator of maintenance performance: a
measure of the amount of time that craft
personnel spend actually carrying out their
primary tasks (for instance, using tools to make
a repair), as opposed to time spent traveling from
project to project or sitting in meetings.

The Danger of Recipe Killers
Our research also identified recipe killers-
the management equivalent of baking a beautiful chocolate soufflé but then adding too
much salt and rendering the dish inedible.
The new data suggest that, just as concentrating on too many practices diminishes an
organization's odds of achieving top health
and success, adding the wrong practices to
the recipe can be extremely harmful.
One example is the overemphasis on
command-and-control leadership styles in
companies trying to follow the executionedge recipe. Most people think execution
requires that approach. Actually, execution
requires tremendous on-the-ground energy,
so the best execution-driven organizations
employ internal competition and bottom-up
innovation to empower the front line to excel.
Overuse of top-down processes would kill
that dynamic-and, indeed, in our data set
the least healthy execution-edge organizations are those that have the authoritativeleadership practice in their top 10.
Building organizational health can be a powerful lever for improving the long-term performance of companies. Leaders can't ignore
this lever, given the accelerating pace of
change facing most industries.
The journey to organizational health has several paths-the four best ones were identified
here. But gratifying simplicity masks hidden

Dr. Michael Bazigos is an executive
in McKinsey & Co.'s OHI Solutionbased in the firm's New York City
office. He can be reached at
michael_bazigos@mckinsey.com.
Dr. Aaron De Smet is a principal at
McKinsey in Houston. He can be
reached at aaron_desmet@mckinsey.
com.
Dr. Bill Schaninger is a director, with
global responsibility for organizational analytics in Philadelphia. He
can be reached at bill_schaninger@
mckinsey.com.
Scott Blackburn, Lili Duan, Chris Gagnon,
Scott Rutherford, Matt Smith, and Ellen
Viruleg contributed to this article.

VOLUME 38/ISSUE 1 - 2015

People & Strategy Winter 2015 Vol. 38 Issue 1

Table of Contents for the Digital Edition of People & Strategy Winter 2015 Vol. 38 Issue 1