Here is a brief excerpt from an article written by Aaron De Smet, Johanne Lavoie     and Elizabeth Schwartz Hioe for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the <em>McKinsey Quarterly</em>, please click here.

* * *

Putting leadership development at the heart of a major operations-improvement effort paid big dividends for a global industrial company.

Few companies can avoid big, periodic changes in the guts of their business. Whatever the cause—market maturation, a tough macroeconomic environment, creeping costs, competitive struggles, or just a desire to improve—the potential responses are familiar: restructure supply chains; rethink relationships among sales, marketing, and other functions; boost the efficiency of manufacturing or service operations (or sometimes close them). Such changes start at the top and demand a relentless focus on nitty-gritty business details from leaders up and down the line.

Too often, however, senior executives overlook the “softer” skills their leaders will need to disseminate changes throughout the organization and make them stick. These skills include the ability to keep managers and workers inspired when they feel overwhelmed, to promote collaboration across organizational boundaries, or to help managers embrace change programs through dialogue, not dictation.

One global industrial company tackled these challenges by placing leadership development at the center of a major operational-improvement program that involved deploying a new production system across 200 plants around the world. While the need for operational change was clear—the performance of the company’s factories was inconsistent and in many cases far below that of competitors in terms of efficiency, productivity, and cost—so too were the organizational obstacles. Drives for improvement, for example, carried a stigma of incompetence; current performance was considered “good enough”; conflict tended to be passive-aggressive or was avoided entirely; and shop floor employees felt that they were treated as cogs and that their supervisors were enforcers. The effect of all this on employees was disengagement, a lack of trust in senior management, and a pervasive fear of making mistakes—a worry reinforced by the company’s strong culture of safety and of risk aversion.

These challenges were impossible to ignore, and that was probably a blessing in disguise: the senior team had to look beyond technical improvements and focus on helping the company’s leaders to master the personal behavioral changes needed to support the operational ones. To that end, the company mounted an intense, immersive, and individualized leadership program.¹

The results are still unfolding, but after three years the company estimates that the improvement program has already boosted annual pretax operating income by about $1.5 billion a year. Furthermore, executives see the new leadership behavior as crucial to that ongoing success. Indeed, the senior executive who launched the program believes that without the inclusion of leadership development, it would have made only half the impact it actually did. She adds that the company has seen a tenfold return on its investment in each of the dozens of leaders trained thus far.

* * *

Here is a direct link to the complete article.

Aaron De Smet is a principal in McKinsey’s Houston office, Johanne Lavoieis a senior expert in the Calgary office, and Elizabeth Schwartz Hioe is an associate principal in the New Jersey office.