How capability building can power transformation

Here is an excerpt from an article written by Hugh Bachmann, Dominic Skerritt, and Elizabeth Young McNally for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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A well-designed program to promote productive behavior and skills can not only energize an organization’s workforce but also become an essential element of any successful transformation.

Picture this: an international manufacturing corporation with thousands of workers is spun off from its parent. In less than a year, its stock price drops more than 80 percent, morale plummets, and measures of the organization’s health drop into the bottom quartile of its sector. Something has gone very, very wrong.
Fast-forward four years, and the company’s stock price has increased sixfold. A step change in organizational health has taken the corporation from the bottom to the second quartile, with its employees feeling more connected to each other and invested in the success of the company. Plant safety has dramatically improved, with increased discipline and effective risk management. Customers have noticed and celebrated the changes. One even calls the CEO to say the manufacturer will be the customer’s preferred vendor going forward.So what changed? In this real-life example, the manufacturing company undertook a full-scale transformation effort to change its trajectory on performance, organizational health, and one other crucial value-building element we call “capabilities,” or the hard and soft skills needed to help organizations reach—and sustain—their full potential.

When it comes to enterprise-wide transformations, we know that most companies miss the mark on capabilities during their initiatives. While the majority of organizations recognize the importance of a skilled and motivated workforce, many don’t devote enough time and resources to developing one. The priorities lie elsewhere, and an irreplaceable opportunity is missed. For others, foundational capability building sounds too simple—we are already doing this, a CEO might think. But in our experience, what sounds like common sense is rarely common practice across an organization, and that leaves opportunities to better performance on the table.

Capability building goes well beyond traditional training of employees: it’s about fundamentally changing how the work gets done. It’s also one of the best ways to energize people, from the C-suite to the factory floor, to support the transformation in the first place. Without that energy, achieving and sustaining a successful transformation becomes exceedingly difficult—perhaps impossible. But with effective capability building, companies develop the mindsets and behaviors to deliver transformational gains and add to these gains over time, embedding an execution engine for continuous value improvement.

In this article, we explore the essential elements of a robust capability-building program. We show how empowering employees with new skills not only enables sustainable change at scale but also helps the bottom line, as it did during the holistic transformation eventually undertaken by the international manufacturing corporation previously described.

The building blocks of an effective capability-building program

Capability building changes the way people go about their jobs. It strips the workday down to its most basic components and rebuilds it, embedding new habits around timeworn tasks. The lessons can be basic (for example, how to hold a meeting in 30 minutes instead of an hour and how to write the most effective emails) or more sophisticated (for example, how to prioritize responsibilities and how to anticipate, and thus ward off, poor project outcomes). They can also be technical or functional in nature. For example, to create an efficient supply-chain organization, employees can build capabilities in forecasting, segmented networks, demand planning, inventory management, and more. Many of these core ideas sound like common sense, but we’ve found that they are rarely common practices consistently applied across an organization (see sidebar, “Approaches to closing capability gaps”).

Because this disconnect is ultimately behavioral, we turned to behavioral science for solutions. Three key elements are necessary for an effective capability-building program: leadership role modeling, widespread employee engagement, and virtual delivery.

Role modeling

Research tells us that people mimic—both consciously and unconsciously—the actions of the individuals and groups around them. One of the best ways to drive the adoption of new mindsets and behaviors is by ensuring that senior leaders model the desired change. 1 When employees see highly visible colleagues behaving differently, it reinforces the new way of working and signals a commitment to the transformation. Indeed, when senior leaders role model the behavior changes they’re asking employees make, transformations are 5.3 times more likely to be successful. This means it’s often best for senior leaders to be the first participants to complete a capability-building program.

This was the case at the international manufacturing corporation mentioned previously. When executives first took the pulse of its employees, the company scored in the bottom quartile of McKinsey’s Organizational Health Index (OHI). 2 Survey results and further discussions showed that many employees lacked trust in top management as the organization’s financial position deteriorated. Leaders weren’t communicating their goals or progress clearly, and no one was accountable for results.

By role modeling new norms, senior leaders helped rebuild trust in the organization and the transformation itself—capability building included. By changing their own behaviors, they signaled to the organization that this change was real, thereby building trust.

The company’s former chief transformation officer recalls that employees were convinced that capability building was a worthwhile endeavor only when they learned that they could trust what management was saying. “Management had to actually do things that were different, show some evidence of change, take some risks.”

The CEO joined in as well, attending many of the capability-building workshops that the company held and interacting with employees across role levels around the world. Employees, watching closely, responded in kind when it became clear how important the program was to the boss. A virtuous cycle of encouragement and recognition was born. The CEO even began calling employees directly if they did something well or demonstrated the behaviors that the program was trying to enforce. To this, frontline employees at first expressed disbelief. Some actually hung up on the CEO, thinking that the call was a prank. When it became clear that it wasn’t, employees proudly related the turn of events to one another.

Not all top managers readily accepted the program, however. For one, the company’s head of talent, a key player, was skeptical. He thought that the skills felt too basic and that the company was already doing enough. He changed his mind when he realized that however simple the capabilities may have sometimes appeared, the organization didn’t consistently apply the skills effectively, which dragged down productivity, reinforced silos, and generally short-circuited the value building, threatening the ultimate aspiration: the success of the broader transformation.

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Transformations are difficult to execute and even harder to sustain. Tens of thousands, sometimes hundreds of thousands, of employees need to be engaged and aligned, regardless of where they live, the language they speak, or the culture they know. Effective capability-building programs enable organizations to develop the mindsets, behaviors, and skills needed to power a transformation and achieve their full potential.* * *

Here is a direct link to the complete article.



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