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A better grasp of how value is created will help executives resist short-term pressure

By McKinsey & Company on March 19, 2011

Editor’s note: Why are managers so often short sighted at the expense of the long-term health and value of their companies? One reason is that compensation and incentive systems are too often geared to the short term. These incentives can skew our perspective of the bigger picture. Indeed, research suggests that most executives wouldn’t fund a viable new initiative if doing so reduced current earnings. Changing this won’t be easy, but building new incentive systems that focus executive attention on creating long-term stakeholder value is a critical priority for management innovation. One of the MIX’s Moonshots for Management addresses this need: Stretch management timeframes and perspectives .

This adaptation from Value: The Four Cornerstones of Corporate Finance , by McKinsey authors Richard Dobbs, Tim Koller, and Bill Huyett, argues that a better understanding of how shareholder value is created will help executives and their boards stay focused on longer-term goals .

It’s surprising how often senior executives and their boards make decisions that defy their own intuition about what creates lasting shareholder value. Perceived market pressure to deliver short-term profits, new financial engineering techniques, and misconceptions dressed as...

Why good bosses tune in to their people

By McKinsey & Company on August 30, 2010

Know how to project power, counsels Stanford management professor Bob Sutton, since those you lead need to believe you have it for it to be effective. And to lock in your team’s loyalty, boldly defend their backs.

Bosses matter. They matter because more than 95 percent of all people in the workforce have bosses, are bosses, or both. They matter because they set the tone for their followers and organizations. And they matter because many studies show that for more than 75 percent of employees, dealing with their immediate boss is the most stressful part of the job. Lousy bosses can kill you—literally. A 2009 Swedish study tracking 3,122 men for ten years found that those with bad bosses suffered 20 to 40 percent more heart attacks than those with good bosses.

Bosses matter to everyone they oversee, but they matter most to those just beneath them in the pecking order: the people they guide at close range, who constantly tangle with the boss’s virtues, foibles, and quirks. Whether you are the CEO of a Fortune 500 company or the head chef at a restaurant, your success depends on staying in tune with the people you interact with...

Retaining key employees in times of change

By McKinsey & Company on August 15, 2010

Many companies throw financial incentives at senior executives and star performers during times of change. There is a better and less costly solution.

Too many companies approach the retention of key employees during disruptive periods of organizational change by throwing financial incentives at senior executives, star performers, or other “rainmakers.” The money is rarely well spent. In our experience, many of the recipients would have stayed put anyway; others have concerns that money alone can’t address. Moreover, by focusing exclusively on high fliers, companies often overlook those “normal” performers who are nonetheless critical for the success of any change effort.

Our work with companies in many sectors (among them, energy, financial services, health care, pharmaceuticals, and retailing) suggests there is a better and less costly approach to employee retention—and one that will serve companies well as they merge, restructure, and reorganize to seize strategic opportunities as the economy picks up. It starts with identifying all key players, but targeting only those who are most critical and most at risk of leaving. These people are then offered a mix of financial and nonfinancial incentives tailored to their aspirations and concerns. A European industrial company applied this approach during a...

Putting a value on training

By McKinsey & Company on July 27, 2010

Training programs generate greater value for organizations when the curricula reflect key business performance metrics. Testing real-world outcomes is crucial. All organizations train their people, and most spend significant sums doing so. Yet they generally don’t have any idea whether they’re getting any business value from training. Beyond teaching new employees the specifics of their jobs, most companies train staff in areas such as leadership, communications, performance management, or lean operations. But they typically measure training’s impact by conducting surveys of attendees or counting how many employees complete courses rather than by assessing whether those employees learned anything that improved business performance.

This approach was, perhaps, acceptable when companies had money to spare. Now, most don’t. Yet more and more, organizations need highly capable employees—90 percent of the respondents to a recent McKinsey Quarterly survey said that building capabilities was a top-ten priority for their organizations. Only a quarter, though, said that their programs are effective at improving performance measurably, and only 8 percent track the programs’ return on investment.

The story of one social-sector group, the Boys & Girls Clubs of America (BGCA), illustrates how organizations can make the most of their outlays for training programs by...

Building the next-generation business leader

By McKinsey & Company on April 28, 2010

Garth Saloner, dean of Stanford University’s Graduate School of Business, discusses the challenge business schools face in educating students for a new world of companies without borders.

From lean to lasting: Making operational improvements stick

By McKinsey & Company on April 10, 2010

By focusing on the “soft” side of lean and Six Sigma initiatives, leading global companies gain substantial, scalable, and sustainable advantages.

The Irrational Side of Change Management

By McKinsey & Company on April 6, 2010

Most change programs fail, but the odds of success can be greatly improved by taking into account these counterintuitive insights about how employees interpret their environment and choose to act.

In 1996, John Kotter published Leading Change . Considered by many to be the seminal work in the field of change management, Kotter’s research revealed that only 30 percent of change programs succeed. Since the book’s release, literally thousands of books and journal articles have been published on the topic, and courses dedicated to managing change are now part of many major MBA programs. Yet in 2008, a McKinsey survey of 3,199 executives around the world found, as Kotter did, that only one transformation in three succeeds. Other studies over the past ten years reveal remarkably similar results. It seems that, despite prolific output, the field of change management hasn’t led to more successful change programs.

It also hasn’t helped that most academics and practitioners now agree on the building blocks for influencing employee attitudes and management behavior. McKinsey’s Emily Lawson and Colin Price provided a holistic perspective in “The psychology of change management,” 1 which suggests that...

Good Boss, Bad Times

By McKinsey & Company on April 2, 2010

Management expert Robert Sutton shares lessons on handling layoffs and teams in crisis. This is a Conversation Starter, one in a series of invited opinions on topical issues. Layoffs, pay cuts, and organizational reordering have become widespread realities in the downturn. In this video interview, management professor and author Robert Sutton offers his advice on how to be a good boss in today’s difficult climate. Watch the interview and then share your thoughts on Sutton’s lessons—and what your own experience has taught you about leadership in the crisis

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