How do I develop an effective top team?

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1 Insights into organization How do I develop an effective top team? Scott Keller Michiel Kruyt Judy Malan

2 Article at a glance Why is this important? No one would dispute that top teams are critical to an organization s success, yet few top teams feel they get it right. Poor team performance breeds silos, competing agendas, turf wars, and indecision; high performance produces organizational coherence and focus. What do I need to know? Four insights are key: your top team should do only the work that no one else can do; direct reports shouldn t automatically get a seat at the table; the soft stuff matters and is hardest to get right; and it takes more than a workshop to create a high-performing team. How do I make it happen? Improving top team effectiveness is a journey in several stages: get your team composition right, understand the dynamics and set a performance baseline, make your field and forum journey, and embed the results. What is it worth? A regional insurance company that had agreed its strategic direction yet made little headway with delivery adopted this approach to overcome a lack of trust and find constructive ways to reach alignment, improving both team and business performance. A technology services company used transformation at the top as the driving force to turn around its entire service delivery. Research: Nathalie Hourihan, Rachel Tuffield Editing: Jill Willder Design: Jacqui Cook No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey & Company.

3 How do I develop an effective top team? 1 Top teams seldom function as well as they should. It is their job to set the strategy and model the behavior they want the rest of the organization to follow. Yet we have all seen executives agree one thing but do another, put departmental loyalties before corporate priorities, or allow personal conflicts to blight team interactions. Tough though it may be, it is the CEO s responsibility to get the right people on (and the wrong people off) the top team, to keep it focused on the right things, and to ensure everyone works together as effectively as possible. The payoff is deeper and more productive discussions, smarter decisions, more accountability, and faster execution all leading to better business performance. Have you asked yourself lately... How can I get my top team to work together more effectively? Why don t my colleagues act on the decisions we make in meetings? How does my own behavior help or hinder my team s performance? How can I get the most out of the different perspectives and skills people bring to the team? How can we be more responsive to new perspectives, approaches, and challenges?... If so, then you might want to continue reading.

4 2 Why is this important? No one would dispute that top teams are critical to an organization s success. Even the most effective CEO will be able to achieve far more by working with senior colleagues to probe issues, identify opportunities and threats, test ideas, set direction, make decisions, and lead others. Yet surprisingly few top teams feel they get it right. When we surveyed over 600 top team members from major companies, only 10 percent were confident they were effective in making change happen. 1 In fact, many top teams don t really act like teams at all. They are more like working groups: collections of individuals who are accountable only for their own unit s performance and who get together to discuss how far their contributions are helping to achieve the objectives of the organization as a whole. 2 Proper teams are different: they create value above and beyond what their individual members can bring to the table. For instance, when a telecom company identified cross-cutting programs that were capable of transforming its whole business, it realized that the only way to capture the potential was by having its leadership collaborate as a true team at the top. Getting it right can make the difference between success and failure for a business. Describing his approach to transforming P&G, former CEO A. G. Lafley noted that You need to understand how to enroll a leadership team. 3 Steve Luzco, former CEO of Seagate, made teamwork at the top the number one priority in his turnaround of the company. Its top team was described by former CFO Charles Pope as one that was synched, respected one another, and had the ability to align goals. 4 Conversely, executives at failed companies often point the finger at weak top team performance. Former CEO Richard S. Fuld pinned the blame for Lehman Brothers collapse on a leadership group that tolerated poor decision making. The failure of ABN-AMRO, forced to sell in 2007 but once a top-15 global financial institution, is widely attributed to a breakdown in the decision-making processes of its top team and board. Important strategic choices met with gridlock, and decisions were postponed until it was too late. 5 Poor performance by the top team breeds silos, turf wars, and indecision. High performance produces organizational coherence and focus. Below we consider what you can do to avoid the former and encourage the latter with your top team. 1 McKinsey has been compiling a database since 2008 to evaluate the effectiveness of leadership groups in terms of three critical dimensions: alignment, execution, and renewal. So far, our top team effectiveness survey has elicited 616 responses from top team members in 30 major corporations from 15 countries. 2 This distinction between teams and working groups is borrowed from former McKinsey director Jon Katzenbach, an expert on teamwork and the author of books including Teams at the Top. 3 Rajat Gupta and Jim Wendler, Leading change: An interview with the CEO of P&G, The McKinsey Quarterly, July Rosabeth Moss Kanter, Douglas Raymond, and Lyn Baranowski, Driving change at Seagate, Harvard Business Case, September Jeroen Smit, De Prooi, Prometheus, 2008.

5 How do I develop an effective top team? 3 What do I need to know? Improving your top team s performance can be fraught with pitfalls. The insights below address four common examples from our research and work with companies. Your top team should do only the work that no one else can do Few top teams consistently spend their time where they should. When we asked members whether they concentrate on work that truly benefits from a top team perspective and delegate the rest to others, only a third of respondents agreed. Equally few felt they had the ability to identify and capitalize on synergies between different parts of the organization. A common complaint is that We are too operational; we don t spend enough time on the strategic stuff. Top teams seldom make an effort to define their joint purpose what they can accomplish together that no other team or individual can. Instead they assume their role is simply to carry out the organization s mission, or that their value lies in the sum of individual contributions. As a result, team meetings can sometimes look like a series of bilateral interactions between business leaders and CEO. But things don t have to be this way. High-performing teams recognize that their position gives them not just a unique view of the whole organization but the authority and responsibility to take decisions that affect the entire business. Capturing the opportunities that can be captured only by working across organization boundaries is what enables a top team to add disproportionate value to a company. Who else can make robust decisions about company strategy, allocate corporate resources, identify synergies across business units, validate decisions that affect all employees, or build a distinctive performance culture that creates competitive advantage? Conversely, top teams should not be doing work that is better done within individual functions or lines of business. Direct reports shouldn t automatically have a seat at the top table Getting the right people on the team and the wrong ones off it is the CEO s responsibility. The composition of your top team is a strategic decision about how best to run your business. Assumptions that title is membership, that you have to keep the people you inherit, or that your direct reports automatically qualify for a seat at the top table should be challenged. Effective top teams have members who are carefully chosen to contribute the precise knowledge, capabilities, and experience needed to achieve their purpose. For a CEO, adapting team members roles to meet new challenges can be an arduous task involving difficult conversations with key executives. Yet failing to act decisively can be a big mistake. When looking back over their careers, CEOs often express regret at

6 4 being too slow to get the wrong people off their teams. Corrado Passera of Banca Intesa notes that If necessary, you have to get rid of those individuals... who quarrel and cannot work together. 6 IBM s Lou Gerstner observes that In the end, you can t change people; you can only invite them to change. 7 There s another important reason to get your team composition right: moves at the top prove to the rest of the organization that things are truly changing. When a global financial institution needed to get its loan origination and risk departments to collaborate rather than compete, it reassigned key top team roles, moved the chief risk officer to head up the commercial side of the business, and removed a vocal opponent of the new approach. TXU CEO John Wilder captured the impact of such moves well when he said, Nothing rallies the troops faster because everyone knows who these people [the blockers] are, so getting them out makes people realize that it s going to be different this time. Like it or not, the soft stuff matters and is hardest to get right High-performing top teams have productive habits that separate them from the rest. Three areas stand out: an ability to make the most of individual members skills and perspectives (aided by effective listening and communication); an agreed and efficient decision-making process that leads to commitment and action; and a focus on continuing learning for both individuals and the team. When these three areas are strong, so is the quality of discussion among the top team. In our experience, this is one of the hardest things to get right. When we ask senior teams to estimate how much time they spend in productive dialogue, most report a meager 20 to 40 percent. The reasons cited include too many egos in the room, defensiveness arising from fixed points of view, power struggles between functions and regions, a desire to hide mistakes and avoid conflict, and a reluctance to give or receive criticism. Yet robust debate is essential if an organization is to make sound and timely decisions and commit itself fully to executing them. In a way, the difficulty top teams have in collaborating constructively is only to be expected. By definition, typical top team members have strong track records and firm views on how to succeed. When they are asked to put the good of the group before what they could accomplish as individuals, it s no wonder that cabinet solidarity is hard to come by and that what s decided in a meeting isn t necessarily what happens afterwards. Dynamics like these bear out the view of former General Electric CEO Jack Welch that The soft stuff is the hard stuff. So what can you do to develop soft skills in your top team? Tempting though it may be to call in the experts to teach them how it s done, the fact is that teaching and telling do little to help teams interact better or achieve breakthroughs on difficult issues. On the contrary, top teams learn best through personal discovery and practice while getting 6 Carolyn Aiken and Scott Keller, The CEO s role in leading transformation, The McKinsey Quarterly, February Louis V. Gerstner, Jr, Who Says Elephants Can t Dance? HarperBusiness, 2002.

7 How do I develop an effective top team? 5 real work done. Effective learning cycles comprise three elements: reflection (taking stock of team dynamics to uncover what is blocking high performance), skill building (learning and practicing new skills in a challenging but supportive environment), and action (using the new skills while working together on real business problems). The behavioral aspects of teamwork can be greatly aided by ensuring that meetings follow basic hygiene principles. Clear, well-thought-through agendas; proper preparation; short, decision-focused papers; efficient note taking; and adequate administrative support lay the foundations for high-quality discussions and sound decisions. It takes more than a workshop to create a high-performing team Some training and development programs claim that team performance can be transformed in a two-day workshop. Experience suggests otherwise. In reality there are no quick fixes, although progress can be achieved in months rather than years with the help of the right approach. Successful team effectiveness programs typically involve a field and forum journey: a six- to nine-month series of offsite workshops interspersed with practical application and coaching back in the office. Workshops combine the soft stuff of improving trust and collaboration with the hard stuff of handling high-stakes issues such as strategy, resource allocation, and people management. Doing fieldwork between workshops ensures that new insights, skills, and behaviors are taken out of the classroom and applied in day-to-day business. Great teams keep up their performance by investing in a routine of reflection, learning, and action that becomes their way of leading. For such a journey to be effective, the key drivers of both behavioral and business performance must be defined and measured so that the team can track progress, be accountable for outcomes, adapt the program where necessary, and build confidence as results improve over time. Most teams benefit from the support of a few coaches and facilitators who understand the business context as well as the team dynamics, maintain objectivity, and ensure that any elephants in the room are identified and tackled. By the end of a successful journey, the team will have achieved significant and measurable improvements in its alignment on the company s direction, its quality of interaction, and its ability to generate innovative ideas and new ways of working. It will also have achieved tangible business impact by planning and executing initiatives that unlock the value of working across organizational boundaries. Less measurable, but perhaps even more valuable, is the impact that a high-performing top team has on the rest of the organization as people take their cue from the top.

8 6 How do I make it happen? While every company s experience is different, successful top team effectiveness journeys typically take four stages: 1 Get your team composition right The first stage is to think about your performance aspirations and decide what role your top team needs to play in pursuing them. This will determine who should be in the team and what contribution they need to make. At this stage it is important to distinguish between your top team and your extended leadership group. Different companies use different names for these two groups, but the role of the top team is to make decisions about the key company-level issues involved in implementing the business strategy, whereas the role of the extended leadership group is to understand these decisions and drive execution. The top team is likely to meet frequently, perhaps every week or two, compared with once a month or quarter for the extended leadership group. The composition of the team should reflect the skills and vantage points required to fulfill your performance aspirations while staying small enough to allow real dialogue to take place. In our experience the optimal size is six to eight senior leaders, although teams can be as large as twelve. Once you know what you need in your top team, you can compare it with what you have. What skill and will are you looking for, and which team members (current or potential) can provide them? Where can you get the skills you lack? Can will issues be fixed or do you need to move people on? Reconfiguring teams is always challenging, but unavoidable. In the words of Jack Welch, Those who like doing it shouldn t be in the job, but neither should those who can t. 2 Understand your team s dynamics and set a performance baseline Setting a baseline for your team s effectiveness serves two purposes. First, it establishes hard facts about what would otherwise be an opinion-laden topic, thus enabling it to be managed with due rigor. Second, the diagnostic is in itself an important step in your journey: it demonstrates that you are giving priority to team performance, creates a shared language for discussing it, and prompts individual members to reflect on their part in creating the team dynamic. The nature of your diagnostic process will depend on your company s particular context, but most teams draw on a set of commonly used tools: A top team effectiveness survey. Various surveys exist in the marketplace; we recommend that CEOs choose one that is simple enough to appeal to common sense yet capable of yielding deep insights. McKinsey s proprietary survey has been designed to fit these criteria. It measures how effectively top teams perform in three dimensions: alignment, execution, and renewal (Exhibit 1).

9 How do I develop an effective top team? 7 Exhibit 1 Three dimensions of top team performance Alignment Shared assumptions about the business Context, strategy, goals, operational implications Shared beliefs about the top team Purpose, values governing behavior, balance between individual and collective interests Quality of execution Effective team configuration Structure and processes, mix and level of skills, focus of time, incentives to work together High-quality interaction Respect, understanding, trust, open communication and challenge, constructive conflict management and resolution Ability to renew Sustainability Investment in team motivation and energy, balance of attention across different time horizons, succession planning Adaptability Awareness of the organization and its context, openness to change and learning, effective internal and external communication Thought-provoking interviews. Where top team effectiveness is concerned, traditional interview questions (such as Are you aligned? and Do you trust one another? ) seldom go far enough. Probing how individuals deeper mindsets create team dynamics calls for different techniques, ranging from repeatedly asking Why? to getting participants to play out roles in hypothetical situations. It is often useful to extend the interviews to other leaders outside the top team. This helps them feel part of the development journey, shows up any gaps between their view of the top team and its own self-perception, and signals the importance of teamwork to leaders at all levels. Focus groups. Companies also need to understand how their top team is perceived by staff and other stakeholders. One focus group technique that yields revealing results is to show a range of images depicting different situations and ask participants to choose the five that best represent their view of how the top team works. Asking why someone chose a traffic-jam image, say, can spark off a dialogue that provides valuable insights into emotional as well as intellectual perceptions. Individual leadership assessment. As individuals, we seldom recognize our part in creating dysfunctional dynamics: I can see there are problems, but it s not because of anything I m doing. Using an individual 360 feedback tool as part of the diagnostic process can help break through this barrier, especially when it focuses on the mindsets and behaviors that support effective teamwork rather than on generic leadership skills. Supplementary approaches. Companies sometimes benefit from using additional techniques such as having an impartial observer attend meetings to gather facts about team dynamics and coach team members if interactions break down. One CEO was

10 8 shocked to discover he spoke for five times longer than other top team members and interrupted their contributions on nine occasions out of ten. Analyzing meeting agendas and minutes to see if the team is really spending its time in the way it intends can also be productive. A top team that is striving to create a customer-centric culture but spends only 5 percent of its time reviewing customer data may need to rethink its priorities. Using the methods above will create a solid baseline against which to measure and manage team performance. 3 Make the field and forum journey Once the diagnosis has been completed and tested, the top team s journey begins: An initial two-day hold up the mirror workshop. In this session, team members discuss the diagnostic findings to gain a fuller understanding of their personal strengths, weaknesses, and contributions to the team dynamic. This helps them reach agreement on their role in the organization, their performance, and their targets for improvement. It also enables them to get to know each other better, build trust and interpersonal skills, and work through conflict constructively. On the business side, the team debates the company s strategic direction and ways to create value by working across silos. Fieldwork. Here the top team takes business topics from the workshop and applies them back in the office, putting new awareness and skills into practice as well as collaborating to capture value from agreed business initiatives. To improve team dynamics, leaders can also take part in activities such as trading places for a day, traveling together to visit the front line and talk to customers, and attending one another s staff meetings. Individual coaching and observation and coaching of the whole team during routine meetings are effective ways to reinforce new behaviors. Follow-up workshops. Up to three follow-up sessions of one and a half or two days each are typically held to build on the objectives set and experiences gained in the initial workshop. The content of these sessions will depend on the issues teams need to work on, but will involve advancing important business topics while continuing to build interpersonal skills. As part of the process, teams will be refining their aspirations, working rhythms, decision-making processes, and behavioral norms. 4 Embed the results After the intensive transformation that comes in stage 3, there is typically a consolidating phase involving periodic structured stock-takes of team performance. The timing varies from company to company, but could be quarterly for the first couple of quarters and then twice yearly for the next two or three years. This embedding process ensures that team performance doesn t slip back but continues to improve over time, and that any new members joining the team are properly integrated. In some cases individual coaching programs for selected team members may continue into this phase.

11 How do I develop an effective top team? 9 What is it worth? Top team improvement journeys have an impact that ripples out beyond the team to the whole organization. At a regional insurance company, the CEO was frustrated that his top team didn t always act in line with the agreed strategy and had made little headway with implementing it. Meetings were no help: fire fighting took up much of the time, contrary opinions were suppressed, and trust was lacking. A diagnostic revealed that although the team was aligned on the broad strategic direction, there was little consensus on how to achieve it. In addition, the CEO s quick temper and readiness to rebuke team members made for tense meetings that seldom ended in agreement. By adopting a field and forum approach coupled with targeted coaching for the CEO and other senior leaders, the team discovered more constructive ways of working together. At the same time, it tackled critical issues such as how strategic direction translated into operational reality, who should do what, and how performance should be assessed. After a year, team members rating of their alignment had risen from an average of just 3.5 to 9 on a ten-point scale, while their assessment of interaction quality improved from 5 to 9. As the CEO put it, The team has come light years in terms of knowing where we are going and how we are going to get there, and in terms of how we behave with one another. I can t imagine going back to the way things were. Another leader noted, We now speak with one voice within and outside of the organization. The incoming leader of a large technology services company took over a team that was struggling. Customers responding to a survey rated the company s cost, quality, and service delivery at just 2.3 on a seven-point scale where 7 reflected delight and 1 disappointment. This negative perception was shared by the top team: only 17 percent felt it was highly respected, 22 percent that it shared a common vision for the future, and 33 percent that it made a valuable contribution to performance. The company s first step was to change the composition of the top team by removing two members and bringing in three new ones. At the same time, it put in place a new structure organized around customer segments. The team then worked together on a portfolio of initiatives designed to encourage collaboration across silos for better customer service. Members took part in four offsite workshops over nine months with fieldwork in between. By the end of the first year, customer perceptions had improved dramatically, with an average performance delivery rating of 4.3. The team also felt it was working together effectively: over 88 percent of members agreed that it shared a common vision for the future, 82 percent that it was highly respected, and 85 percent that it made a valuable contribution to performance. The leader commented, When I first took over this team I wanted to go back to my previous job. Now I couldn t be more proud of what we ve

12 10 achieved together in the last 12 months. Performance continued to improve even after the program had ended: customer feedback jumped again to 5.4 and the top team remained resoundingly positive about how well it worked together. Better teamwork at the top can transform the performance of the entire organization. Deeper discussions, clearer accountability, and greater trust lead to closer alignment on strategy, smarter decisions, and superior execution. Having a high-performing top team helps companies to innovate, to pursue cross-cutting business opportunities, and to stay open and adaptable to change as new challenges arise.

13 How do I develop an effective top team? 11 Insights into organization Insights into organization is a series of articles written by experts and practitioners in McKinsey & Company s Organization Practice. The purpose of the series is to address senior executives most important and challenging questions on people-related issues. The topics covered include organization behavior, organization design, organization diagnostics, merger management, performance transformation, and talent management. If you have any questions or would like more information on the series, please contact Scott Keller (Principal, Chicago) at Related articles in the series How do I align and mobilize my organization to execute strategy? Even the best strategic plans are worthless without execution. In today s increasingly demanding markets, the ability to align and mobilize an organization to execute strategy is integral to a leader s success. Paying real attention to employee engagement and behavioral changes can make all the difference in translating strategy into bottomline results. How do I drive effective collaboration to deliver real business impact? Many companies struggle to break down organizational silos that create duplication, inflexibility, and waste. Others strive to encourage collaboration across boundaries but end up with cumbersome decision-making processes and proliferating meetings that serve no real purpose. More collaboration isn t always better, but the right kind is fundamental to creating value in a complex organization. How do I create a distinctive performance culture? Performance culture is at the heart of competitive advantage in the twenty-first century. Thanks to globalization and the instant flow of information, companies can quickly mimic a competitor s successful strategy but not a superior performance culture. Creating such a culture delivers better performance and a more fulfilling working environment, and it can be achieved through an approach combining pragmatic business sense with problem-solving rigor and behavioral insight. Articles can be obtained by contacting McKinsey & Company (see next page).

14 12 Contacts Americas John McPherson Director Dallas office +1 (214) Europe, Middle East, and Africa Pierre Gurdjian Director Brussels office +32 (2) Asia Pacific Florian Pollner Principal Singapore office

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16 Organization Practice February 2010 Copyright McKinsey & Company

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