The Five Frames – A Guide to
Transformational Change
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Performance AND health matter
“You need to create organisational
DNA for long-term success. And that’s
what enables you to perform in the
short term”
Narayana Murthy,
former Chairman of
Infosys Technologies
▪
Organisations attain excellence only
when leaders manage both
performance and health with equal
rigour
▪
“Health” can be defined as an
organisation’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
▪
Organisational excellence can be
achieved through a five-stage process:
aspire, assess, architect, act and
advance
SOURCE: Interview by Gautam Kumra and Jim Wendler, ‘The creative art of influence: Making change personal’, Voices
on Transformation 1, McKinsey & Company, 2005.
McKinsey & Company
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Contents
Health today drives performance tomorrow
The Five Frames of successful transformation
Where are you in your journey to health?
McKinsey & Company
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Competitiveness naturally declines over time
Total return to shareholder of new entrants
relative to industry average
Estimated life span of S&P 500 companies
based on company exits
Percent
Half of all companies in the S&P 500
in 2008 are likely to be gone by 2015
90
15
Attackers
10
Survivors
5
45
0
26
19
-5
14
-10
1
5
10
15
20
25
1935
1955
1975
1995
2008
Years
There seems to be a “survivors’ curse”
whereby beyond a 20-year life cycle,
organisations will struggle to remain
competitive and effective
SOURCE: McKinsey, ‘Creative Destruction’
McKinsey & Company
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Companies that succeed over time build and maintain organisational
health - failure to do so can be an organisation’s downfall
Share price of IBM
US$
Share Price of General Motors
US$
150
60
140
50
130
120
CAGR
4.26%
110
40
100
CAGR
- 54.38%
30
90
80
20
70
10
60
50
Sep-09
Sep-08
Jan-09
May-09
Sep-07
Jan-08
May-08
Jan-07
May-07
Jan-06
May-06
Sep-06
Sep-04
Jan-05
May-05
Sep-05
Jan-04
May-04
“Despite its size, IBM has remained nimble and has kept its
feet moving by changing with technology trends. Without
question, IBM is distinguishing itself as one of the best-run
companies in the world.”
– Business Week (21/07/2009)
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
0
40
“GM's core problem is its corporate and workplace culture the unquantifiable but essential attitudes, mindsets and
relationships passed down, year after year.”
– New York Times (06//2009)
SOURCE: Datastream; Web Search; Press search
McKinsey & Company
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Both performance AND health must be managed
Performance
Health
What an enterprise
delivers to stakeholders
in financial and
operational terms (e.g.,
net operating profit,
ROACE, TRS, net
operating costs, stock
turn)
The ability of an
organisation to align,
execute and renew
itself to sustain
exceptional
performance over
time
“The narrow pursuit of
shareholder value was the
dumbest idea in the world”
– Jack Welch
Former Chairman and CEO of GE
Financial Times, August 2009
“We have not achieved our
tremen-dous increase in
shareholder value by making
shareholder value the only
purpose of our business”
– John Mackey
Founder and CEO of Whole Foods
Reason Magazine, October 2005
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
McKinsey & Company
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There are nine vital signs of organisational health
Direction
Accountability
External
orientation
Coordination
and control
Leadership
Capability
Innovation
and learning
Motivation
Culture and
climate
Direction
A clear sense of where the organisation is
heading and how it will get there
Leadership
The extent to which leaders inspire others to
act
Culture
and climate
The shared beliefs and quality of
interactions across the organisation
The extent to which individuals understand
Accountability what is expected, have appropriate authority,
and take responsibility for results
Coordination The ability to evaluate organisational
performance and risk, and to address issues
and control
and opportunities
Capability
Motivation
External
orientation
Innovation
and learning
The presence of the institutional skills
required to execute strategy and create
competitive advantage
The presence of enthusiasm that drives
employees to put in extraordinary effort to
deliver results
The quality of engagement with customers,
suppliers, partners and other external
stakeholders
The quality and flow of new ideas, and the
ability to adapt and shape the organisation
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
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Healthy organisations are more profitable
Likelihood that organisations with ‘top’ results in health profile have above-median financial performance, %
EBITDA margin
31
Bottom
68
48
Mid¹
2.2x
“Barclays has survived and
prospered only by making tough
decisions. This has required
leaders to make the right
judgements in their time - right
for the business of the day,
respectful of history and mindful
of setting the right path for a
healthy business in the future"
Top
Growth in enterprise value/book value
52
62
2.0x
31
Bottom
Mid¹
Top
Growth in net income/sales
38
Bottom
53
58
Mid¹
Top
1.5x
John Varley
CEO Barclays,
Financial Times
4 June 2009
1 Comprised of 2nd and 3rd quartiles
SOURCE: McKinsey Organisational Health Index data mining effort
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Organisations typically encounter similar pitfalls in their transformational
journey to achieving performance AND health
1. The urgent drives the important out of sight
2. Pressure for progress inhibits discovery
3. Change programmes emphasise”doing different things” rather
than “doing things differently”
4. Initiatives are created independently, complementarily
5. Standardisation results in insensitivity to context
6. Planning takes the place of piloting and experimentation
7. Apparent consensus fades when challenged
8. Continuity is marginalised in the midst of change
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We have invested in years of learning to uncover the key to successful
transformation
311,000
3,000
900
20
Respondents from over 400 organisations
completed our organisational health survey
providing the inputs for McKinsey’s Organisational
Health Index (OHI) database
CEOs and senior executives completed
surveys regarding their experience with
transformational change
Academic journal articles and books
reviewed
CEOs and chairpersons shared their personal
experience with change in face-to-face interviews
4
Leading academics reviewed, challenged and
augmented our findings
3
Years dedicated to developing and refining our
understanding of healthy organisations
McKinsey & Company
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Winning organisations focus on the Five Frames of performance and
health to drive sustainable transformational change
Performance
1. Aspire
2. Assess
3. Architect
4. Act
5. Advance
Where do we
want to be?
Where are
we today?
What do we
need to do?
How should we
manage the journey?
How do we sustain
and improve?
Strategic
Objectives
Capability
Platform
Portfolio of
Initiatives
Delivery
Model
Continuous
Improvement
Health
Essentials
Discovery
Process
Influence
Model
Change
Engine
Centred
Leadership
Health
Five Frames of…
Transformation stages
McKinsey & Company
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Contents
Health today drives performance tomorrow
The Five Frames of successful transformation
Where are you in your journey to health?
McKinsey & Company
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Frame one – Where do we want to be?
Successful transformations stretch aspirations with a clear and inspiring view of the future state
Health
Essentials
Discovery
Process
Influence
Model
Change
Engine
Centred
Leadership
Which of the following statements best describes the targets
your company set to define success for the transformation?
%, N = 2, 694
Relative success
Relative failure
The targets were well defined
and represented a genuine
new level of performance
The targets were well
defined but did not
stretch the company
significantly
The targets were
not well defined
56
44
73
88
27
12
“Of course, we want to grow and produce
a great bottom line. But in doing so, we
want to be seen as a truly innovative
company breaking new ground and going
into unchartered territories successfully.
We want to make India proud.”
Ravi Kant,
Vice Chairman, Tata Motors
Source: McKinsey analysis; CEO interviews
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A powerful aspiration clearly states which organisational qualities
are needed to deliver on strategic performance ambitions
CLIENT
EXAMPLE
Our strategy
Meeting customers’ needs
and improving margins
through new revenue streams
Sustaining and building on our
leadership position in our hub
5
4
1
To be the
leading global
premium
player in our
industry
by…
Being the provider of choice
for premium customers
2
Delivering differentiated service
for all customers at key touch
points
3 Growing our presence in key locations
Our health aspiration
Elite
Direction
Able
To become a high-performing market-focused
organisation –
Characterised by a pervasive external focus
Coordination
and control
Accountability
External
orientation
Leadership
Ailing
Innovation
Providing the conditions that facilitate innovation
Capabilities
Motivation
Internally cohesive and disciplined
Work
environment
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Measure organisational health
Use rigour to measure health
Organisation’s health profile
n = 260
Distinctive, 85% +
Superior, 70%-84%
Direction
52%
External
orientation
59%
Coordination
& control
51%
Motivation
54%
49%
53%
61%
50
75
37%
54%
46%
Administration
n = 43
52%
49%
46%
58%
60%
Identify
perception
of
70%
57%
56%
health
at71%specific
58%
business
lines or
40%
management levels
45%
57%
62%
51%
49%
31%
34%
43%
37%
25
52%
50%
Capabilities
61%
View results for each
Culture and
climatedimension of health
0
48%
34%
26%
Sales and logistics
n = 23
47%
47%
44%
43%
43%
Innovation
& learning
43%
Leadership
47%
Pulp and energy
n = 44
47%
Common, 50%-69%
Not effective, <50%
Accountability
53%
Paper
n = 85
100
No or weak spike
Direction
Emerging spike
Prevalent spike
Leadership
Culture &
climate
Leadership driven
Accountability
Market focus
Coord & control
Performance edge
Capabilities
Knowledge core
Motivation
Innovation &
learning
External Orient
Not Effective
Benchmark your
organisation against a
Common
Superior
Distinctive 400
database
of over
companies
0
View
organisational
fit
5
8
10
relative
to
four
health
Similarity Index
archetypes
SOURCE: Don Beck, Mark Loch, Patricia Oaklief, Raj Ratnakar, Bill Schaninger, Salah Zalatimo, ‘The organisational
health index: Improving and sustaining performance’, McKinsey & Company, 2009
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Frame two – Where are we today?
Successful transformations go beyond the surface to identify and shift deep-seated mindsets
Health
Essentials
Discovery
Process
Influence
Model
Change
Engine
Centred
Leadership
Performance impact post transformation
% difference in improvement
Transformations focused on systems
and process re-engineering only
Transformations incorporating mindset
and capability-building interventions
Retailer
(Sales-tolabour ratio)
+67
15
“If the pace of change is slow, it is
because mindsets have not changed. So
that’s the leader’s biggest challenge.”
25
+126
Mining
(Productivity
increase)
19
43
Narayana Murthy,
Chairman and Chief Mentor of Infosys
Technologies
+50
TELCO
(Churn
reduction)
34
51
Source: McKinsey analysis; CEO interviews
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Dig deep to identify limiting mindsets
The discovery process deep dives into an organisation’s
inner workings
Current state
Where are we, and what
do we want to achieve?
What changes in
practices do we need to
achieve the desired
outcomes?
What changes in
behaviour do we need to
breathe life into desired
practices?
What changes in mindsets
do we need to make in order
to achieve sustainable
changes in behaviours?
Desired state
Outcomes
(e.g.
accountability)
Outcomes
(e.g. blame)
Practices
(e.g. no clear
performance
contracts)
Behaviours
(e.g. minimal
performance
dialogue)
Mindsets
(e.g. “Keep my
head down,
watch my back”)
Practices
(e.g. clear
performance
contracts)
Behaviours
(e.g. ongoing
performance
dialogue)
Mindsets
(e.g. “If it is to
be, it is up to
me”)
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
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Dig deep to identify limiting mindsets
Mindsets underpin performance
What we see
and attempt
to address
Individual
behaviours
Mindsets
and beliefs
What we don’t
see and don’t
know how to
address
Performance =
Potential – Interference
“There is always an inner game
being played in your mind…How
aware you are of this game can
make the difference between
success and failure”
Values
Hamel and Prahalad’s thought experiment
about monkeys’ learnedNeeds
behaviour
(met
unmet)
illustrates their point that pastorexperiences
can create mindsets that limit current
performance
Timothy Gallwey’s ground-breaking
investigation into how people develop
excellence in sporting and working
contexts highlights the potential negative
impact mindsets can have on performance
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
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Systematic data gathering can help to identify the shifts that
are required
Value drivers
% of value Behaviour
% Utilization
Calls per day
To …
Low call resolution
with high level of
transfer to other
internal area
(back-office)
I filter and transfer calls
“I can’t actually resolve
client issues”
Service times met
but customer
satisfaction scores
and quality falling
Cost at the expense
of quality
“You can’t cut costs and
improve service quality and
time together”
We can
deliver the
AND
Over 40% of agents
do not reach the
minimum standards
of required
performance
I am an individual
contributor “Its not worth
making an effort, I can’t
make a difference”
I am a vital
part of a
highperforming
team
I facilitate
solving
client’s issue
10
Service quality 15
Wait time
CALL CENTRE EXAMPLE
10
Call resolution 25
Cost per call
Underlying
mindsets
uncovered …
10
20
Avg handle time 10
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Frame three – What do we need to do?
Successful transformations support strategic and operational shifts with targeted behavioural shifts
Health
Essentials
Discovery
Process
Influence
Model
Change
Engine
Centred
Leadership
Transformation success rate and reasons for failure
Success
Failure due to behavioural reasons
Failure due to other reasons
Employee
resistance
Program
achieves
objectives
30%
10%
Other
obstacles
10%
Insufficient
resources/
budget
27%
“I came to see, in my time at IBM, that
culture isn’t just one aspect of the game,
it is the game.”
23%
Senior
management
behaviour does
not support
change
Lou Gerstner,
Former Chairman IBM
Source: McKinsey analysis; CEO interviews
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Shift employees’ context using the influence model
The four levers in the influence model
Role
modelling
A compelling
story
“…I see my leaders,
colleagues, and staff
behaving differently.”
“... I understand
what is being
asked of me and it
makes sense.”
“I will change
my mindset and
behaviour if . . .”
“…I have the skills
and opportunities
to behave in the
new way.”
Skills required
for change
“…I see that our
structures, processes, and
systems support the
changes I am being asked
to make.”
Reinforcement
mechanisms
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
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Expect and leverage irrationality
Expect the unexpected
A compelling story
Role modelling
!
What motivates you, does
not motivate (most of) your
employees – tell ‘5 stories
at once’
!
It takes both “+” and
“-” to create real energy –
call out both what is
working and what is not
!
Your leaders believe they
already ‘are the change’ –
ensure they are changing as
well
!
Influence leaders are not that
influential – don’t over-rely on
them
!
Employees are what they
think – address the
underlying mindsets as
well as the technical skills
!
Create space for
employees to practise
new skills back in the
workplace
Money is the most expensive
way to motivate people – small,
unexpected gestures can have a
disproportionate effect
!
Pay careful attention to achieving
fairness in processes and
outcomes
!
Skills required for
change
Reinforcement
mechanisms
SOURCE: Carolyn Aiken, Scott Keller, ‘The irrational side of change management’, McKinsey Quarterly Article, 2009
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Frame four – How should we manage the journey?
Successful transformations are designed in a collaborative effort to build ownership and energy
Health
Essentials
Discovery
Process
Influence
Model
Change
Engine
Centred
Leadership
How was your company’s transformation designed and
planned?
%, N = 2, 694
Relative success
Relative failure
The transformation was
designed and planned
through a large-scale
collaborative effort
across the organisation
47
53
A small cross-functional team
formed especially for the
purpose did most of the work
66
34
The CEO and top team did most
of the work themselves
68
32
“It's really very simple. When people feel
they are doing something extraordinary,
their motivation increases. Our people
loved the work they did during the
transformation.”
Filippo Passerini,
CIO Procter & Gamble
Source: McKinsey analysis; CEO interviews
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Developing a ‘change engine’ consisting of structure,
ownership and evaluation is essential to success
Structure - The transformation was
organised into a clear structure with
readily understandable sections
%, n = 2,041
%, n = 2,057
Entirely
true
27
Very
true
Somewhat
true
Not at
all true
Ownership - Roles and
responsibilities were clear, so
people felt accountable for
delivering results
47
73
52
25
75
12
%, n = 2,044
Entirely
true
74
26
Very
true
53
47
Somewhat
true
Not at
all true
88
Evaluation - Clear, unambiguous
metrics and milestones were in
place to ensure that progress and
impact were rigorously tracked
78
23
11
72
28
Very
true
54
47
Somewhat
true
Not at
all true
89
x 6.1
Entirely
true
27
73
91
9
x 6.4
x 7.3
SOURCE: McKinsey Quarterly Transformational Change survey, January 2010
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A powerful change structure brings order, clarity and coherence
to the transformation activities
“The desired
transformation story”
“The chapters of the
transformation story”
“The key initiatives to
deliver the transformation
story”
Health themes
Level 1
The bold aspiration
De-bureaucratising
People systems
Collaboration
Growing production
Value chain integration
Maximising downstream
Efficiency and Safety
Level 2
The big change themes
Performance themes
Performance themes
To become a highly
competitive integrated
company, recognised as
one of the top 5 energy
producers worldwide and
seen as the employer of
choice in our industry
Corp. citizenship
Health themes
Level 3
Initiatives across three horizons
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Build ownership for change
Build ownership by combining military and marketing tactics
Manage the
transformation like a
military campaign…
Role clarity
Governance
rigour
Project
discipline
Role descriptions, accountabilities,
performance contracts, decisionmaking authorities
Direction-setting, decision-making
and sign-off processes, funding,
risk mitigation, performance
management
Problem-solving approach, project
management, cross-initiative
integration, best practice sharing,
tracking and adjusting
…as well as a
marketing campaign
Viral tactics to unleash largely self-directed
change, mobilised by cause beyond
individual gains
▪
▪
▪
▪
▪
▪
▪
Activists
Core team plus voluntary connectors
Simple rules, opportunistic, go with energy
Big aim, open approach
Celebrations, change campaigns
Empowered
Based on wisdom
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
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Gathering evidence of change on multiple levels is key to coursecorrection along the journey and reinvigorating celebration of success
Description
4.
3.
2.
1.
Monitor enterprise value or
shareholder value as the
ultimate outcome
Measure performance to
ensure improvement where
expected. Key metrics are
business outcomes like
increased revenue, decreased
cost, cash flow and reduced
risk
Monitor key health indicators
to ensure initiatives are having
impact. These will be
behavioural outcomes
assessed through surveys,
check-ins, customer forums
and the like
Track progress of initiatives to
ensure they are delivered on time,
on budget and to quality. Invest in
developing an effective
programme dashboard
Enterprise
value
▪
There is most value in
measuring the highest
level of the system but this
is also where cause-andeffect linkages are hardest
to establish
▪
Measure both performance
and health to provide
powerful evidence of change
- layers one, two and three
should be rigorously tracked
at a minimum
▪
Identify the high-impact
interventions and correlate
between health and
performance
Performance
Health
Initiatives
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Evaluate consistently over time to see results
Year 0
Year 1
Year 2
Year 3
Year 4
1 Cost reduction
1 Cost reduction
1 Cost reduction
1 Cost reduction
1 Customer focus
2 Shareholder
value
2 Profit
2 Shareholder
value
2 Customer focus
2 Cost reduction
3 Results
orientation
3 Shareholder value
3 Accountability
3 Shareholder value
3 Accountability
4 Profit
4 Results
orientation
4 Customer focus
4 Accountability
4 Continuous
improvement
5 Goals orientation
5 Hierarchical
5 Profit
5 Continuous
improvement
5 Achievement
6 Bureaucracy
6 Continuous
improvement
6 Results orientation
6 Profit
6 Profit
7 Hierarchical
7 Customer focus
7 Continuous
improvement
7 Results orientation
7 Results orientation
8 Short-term focus
8 Bureaucracy
8 Achievement
8 Achievement
8 Community
involvement
9 Control
9 Achievement
9 Bureaucracy
9 Community
involvement
9 Shareholder value
10 Risk averse
10 Goals orientation
10 Being the best
10 Customer
satisfaction
10 Customer
satisfaction
28 Customer focus
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Frame five – How do we sustain and improve?
Successful transformations develop the leaders needed to continuously change and improve
Health
Essentials
Discovery
Process
Influence
Model
Change
Engine
Centred
Leadership
How strongly involved was the leader in the transformation?
% of respondents, N = 2, 694
Relative success
Relative failure
Very strongly (e.g., took
an active interest in key
initiatives, reviewed
progress regularly,
pushed for impact)
Fairly strongly
Not very strongly
(e.g., most transformation
responsibilities were
delegated to others)
Source: McKinsey analysis; CEO interviews
51
72
80
49
28
20
“Challenges of today call for new ways to
lead change. The key is to help my most
competent leaders develop selfreflection capacity so they can
transform their own behaviours and set a
new tone”
Gary Loveman,
Chief Executive Officer and President
Harrah's Entertainment
McKinsey & Company
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Build skills in individual, team and organisational leadership
Centred Leadership begins with self-mastery, enabling individuals
to lead others and the organisation
Leading
self
▪
▪
▪
▪
▪
Use personal vision to
self motivate
Take accountability to
regulate one’s own
mindsets and behaviours
to create desired change
Manage energy and
attention to maintain
productivity
Develop a strong support
network
Leave one’s comfort zone
and commit to
opportunities
SOURCE: McKinsey & Company
Leading
others
▪
▪
▪
▪
▪
Motivate others to
action
Turn difficult
conversations into
learning opportunities
Build relationships
based on trust and
emotional mastery
Engage system support
for teams
Sustain and renew via
coaching and
sponsorship
Leading the
organisation
▪
▪
▪
Communicate inspiring
vision and change
stories
Recognise and shift
system dynamics for
greater accountability
Engage multiple
stakeholders through
appreciative inquiry
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Develop a programme leveraging adult learning principles
The journey to centred leadership
Characteristics of centred leadership
programmes
Image
Example programme structure
Diagnose &
Design
Link directly to performance
improvement
Forum 1:
Lead Self & Others
Take place over time in a “field and
forum” approach
Span leadership of self, of others,
and of organisational change
Accommodate different learning
styles
Are led from the top
Allow for self-discovery
Coaching
Are grounded in a quantifiable
baseline
Fieldwork
Forum 2:
Lead Teams & Org
Fieldwork
Embedding
Monitor and
measure
SOURCE: Joanna Barsh and Susie Cranston, ‘How remarkable women lead’ Crown publishing, New York, 2009
McKinsey & Company
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Contents
Health today drives performance tomorrow
The Five Frames of successful transformation
Where are you in your journey to health?
McKinsey & Company
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The ten tests of organisational excellence
1
Strategic
objectives
Capability
platform
Portfolio of
initiatives
Delivery
model
Continuous
improvement
Health
essentials
Discovery
process
Influence
model
Change
engine
Centred
leadership
1.
Do we have a compelling, widely understood, and jointly owned vision
of change and set of performance targets for our organisation?
2.
Do we have a robust baseline and shared aspirations for the health of
our organisation?
3.
Do we have a solid assessment of our organisation’s capability to
deliver our change vision?
4.
Do we have insight into the root-cause mindsets that inhibit or
enhance our organisation’s health?
5.
Do we have a concrete, balanced set of performance improvement
initiatives defined to deliver our change vision?
6.
Do we have a clear plan for how to reshape our work environment to
influence healthy mindsets?
7.
Do we have a well-defined scale-up model for each of the initiatives
in our portfolio?
8.
Do we have a reliable method to ensure that energy for change is
continually infused and unleashed during the change process?
9.
Do we have the structure, processes, systems, and people to drive
continuous improvement in performance and health?
2
3
4
10. Do we have a group of committed leaders who can lead
transformation and sustain high performance from a core of selfmastery?
SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organisation’, 2010.
McKinsey & Company
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