Insights into organization How do I drive effective collaboration to deliver real business impact? Carolyn Dewar Scott Keller Johanne Lavoie Leigh M. Weiss
How do I drive effective collaboration to deliver real business impact? 1 Why is this important? Collaboration is at the heart of why organizations exist. Corporations came into being because they were more efficient than markets at deploying a set of resources to produce specific goods and services. But the bigger and more complex a corporation becomes, the more likely it is that silos will start to emerge around business units, functions, or locations. When that happens, people start to work for the benefit of their immediate group, not the organization as a whole preventing it from tapping into the many sources of value created by collaboration across businesses: Improved customer experience such as seamless access to multiple products and services from across the corporation. More effective execution that saves time (through faster decision making) and money (from resource sharing, knowledge transfer, and lower interaction costs). Greater innovation and bolder strategic moves thanks to the cross-pollination of ideas and the abolition of impenetrable boundaries between businesses. Better development and retention of talent such as nurturing leaders who can see the big picture, spot opportunities, and build internal links to capture them. Higher motivation and morale deriving from the greater trust between individuals and the sense of belonging to a community that is working toward shared goals. Our research indicates that companies with better collaborative management capabilities achieve superior financial performance. Moreover, academic research shows that the ability to collaborate in networks is more important than raw individual talent to innovativeness; it also boosts employees overall performance and loyalty. 1 Yet a 2005 McKinsey survey revealed that only 25 percent of senior executives would describe their organizations as effective at sharing knowledge across boundaries, even though nearly 80 percent acknowledged such coordination was crucial to growth. 2 When internal cooperation is lacking, management teams often fall back on the same few strategies to improve it: organization restructuring, business-process reengineering, cross-unit incentives, teamwork training. Some yield the occasional success, but few manage to dismantle organizational silos or make a real impact on business results. Indeed, many fail outright because they create unintended consequences or overlook the underlying issues that stop people changing their behavior. Here, we aim to provide a pragmatic approach to help executives dramatically improve cross-business collaboration. 1 Mohan Subramaniam and Mark A. Youndt, The influence of intellectual capital on the types of innovative capabilities, Academy of Management Journal, 2005, volume 48, number 3, pp. 450 63; Ronald S. Burt and Don Ronchi, Teaching executives to see social capital, Social Science Research, 36, 2007, pp. 1156 83. 2 The McKinsey Global Survey of Business Executives, July 2005, The McKinsey Quarterly, web exclusive, at www.mckinseyquarterly.com/links/22581.
2 What do I need to know? A leader seeking to promote value-creating collaboration in an organization should be aware of four key insights. 1. Collaboration is the means, not the end Too often, collaboration is seen as a panacea: There s a problem, so we need people to collaborate more. However, more collaboration is not necessarily better. Collaboration delivers substantial business value only when it is applied in the right situations and when the approach is appropriate to the challenge. So how can you tell when collaboration is not serving your business? There are three main reasons why collaboration goes wrong: Wasting time. At one highly respected company, nearly half of the interactions in several decision-making processes added no value. The culture was overly inclusive, roles and accountabilities were unclear, and too many people wasted too much time in meetings that reduced productivity and slowed decision making. In our experience, as much as 30 to 45 percent of interactions are not effective. Targeting the wrong areas. At one high-profile financial institution organized by country, executives believed that collaboration was needed between different product areas within each country to improve cross-selling. The biggest opportunity, however, lay with the multinational accounts for which collaboration across countries was key. Although the national sales teams became more connected, collaboration between product areas in different countries remained ineffective sending mixed messages to customers and driving up complexity costs. Destroying value. Executives need to be aware that collaboration incurs the opportunity costs of forgoing other initiatives. It can also create high interaction costs that can slow decision making and have knock-on effects like poorer quality, interpersonal conflict, and loss of motivation. At one organization, asking leaders of two different business units to work together was a recipe for disaster. The leaders got distracted from running their own businesses and their bickering affected employee morale in both business units. 2. People matter more than lines and boxes When leaders want to encourage their people to work across silos, their first response is often to adjust the structure of the organization to try to hard-wire the desired connections between employees. But the results of restructuring can be disappointing at best. At worst, they can destroy value through the upheaval, confusion, and cynicism that come from regular bouts of reorganization. That s because the lines and boxes on the organization chart are not an accurate depiction of how work actually gets done.
How do I drive effective collaboration to deliver real business impact? 3 Modern companies operate through a complex network of informal working relationships that influence the way people behave. Within this network there are two groups that deserve special attention: Brokers. Most companies have a few brokers : people who keep alive informal connections in the organization and serve as bridges between subgroups, sometimes knitting entire networks together (Exhibit 1). These unsung heroes can be easy to miss because they tend to operate in the white spaces in an organization chart, but you need to know who they are, manage their involvement, and keep them on board. One pharmaceutical company seeking to relocate 80 percent of its scientists believed that it could compensate for attrition by redistributing tasks among other employees or hiring new personnel. But it overlooked the importance of the relationships a few key scientists had with outside academics. When two of the scientists left, the relationships deteriorated and the company s innovation rate per scientist dropped sharply. Exhibit 1 How brokers integrate a network Example: sales networks at a consumer company Three regions in a salesforce network Without brokers, the network falls apart Broker Broker Europe sales Europe sales North America sales Broker Asia sales North America sales Asia sales
4 Bottlenecks. Just as some individuals promote collaboration, others hold it back. A leading provider of outsourcing and IT consultancy services found that growth had made it inflexible. Redundant expertise, solutions, and technology were rife and costs were ballooning. Analysis revealed that ten key executives all but one a vice-president or a director had become bottlenecks. More than 50 employees regularly came to each of them for information, resources, or decisions; many more could not get access. If the company had changed its structure without removing these bottlenecks the results would almost certainly have been disappointing. Identifying who your brokers and bottlenecks are may not be as easy as it seems. When a retail company applied a structured approach to this challenge, senior leaders found that their initial guesses were wrong in three out of five cases. 3. True collaboration embraces accountability and conflict Collaboration does not mean letting people off the hook for the consequences of their actions. Nor is it about always being in harmony with co-workers. People can collaborate with others but still be accountable for their results and they can (and should) disagree amongst themselves without losing faith in their ability to work together toward a common goal. Accountability can be maintained. Executives often fear that pushing for more collaboration will undermine the clear, single points of accountability they need to drive results. But accountability and collaboration need not be opposites to be traded off; instead, they can reinforce one another. One company divided itself into more than 80 individual P&Ls as a mechanism to hold senior leaders firmly accountable for their own results, but balanced this structure with a relentless focus on achieving a company-wide growth metric. Incentives were similarly balanced: executives didn t receive their maximum bonus if the company as a whole didn t reach its goal, however well their individual business units had done. Conflict is healthy and necessary. True collaboration can t exist without personal commitment, and commitment can t exist without the possibility of engaging in healthy conflict and debate. If I go to a meeting but don t have the chance to test my views against contrary opinions, I may leave the room saying yes to initiatives without feeling any personal commitment to them. Before you can have healthy debate, you need to establish a baseline of trust that makes it safe to voice dissenting views. You may also need to develop people s skills in areas such as how to de-personalize ideas, how to ensure that everyone s views get heard, and how to make it clear that once the debate is done, the decision is binding on everyone taking part, even if their view wasn t adopted.
How do I drive effective collaboration to deliver real business impact? 5 4. Collaboration works only when it s personal To get beyond just talking about collaboration, companies need to make it personal for leaders by: Incorporating collaboration measurements into individual 360-degree feedback and personal development. It s easy for hard-working and well-meaning leaders to imagine that they are already collaborative and that the barriers to collaboration lie elsewhere until they are faced with concrete examples of their personal behavior that prove the contrary. To improve collaboration, companies should ensure that the behaviors that support it are incorporated into their leadership standards and their processes for measuring and developing personal effectiveness. Building questions about collaboration into individual performance ratings, with meaningful rewards and consequences. These questions might include: how many assists have you given other business units? How many best practices from other areas have you brought into your business unit? What value have you created by collaborating? While CEO of General Electric, Jack Welch created a GE Theft Award that he would personally hand out to leaders who had imported the most ideas from other businesses. Some organizations have gone so far as to use survey-based approaches to quantify the time saved by collaboration across business units or other boundaries, tying the gain back to the individuals involved. Sharing stories of what good collaboration looks like throughout the organization. Companies can use channels such as intranet sites, in-house newsletters, town halls, and talent forums to tell stories illustrating the customer impact, efficiency gains, and strategic wins that can be derived from working together across silos. A transportation manufacturer profiled stories of effective teamwork across boundaries in its employee newsletter, via its intranet, and in quarterly CEO reviews that were broadcast live across the company.
6 Contacts Americas Scott Keller Principal Chicago office + 1 (312) 795 7082 scott_keller@mckinsey.com Europe, Middle East, and Africa Pierre Gurdjian Director Brussels office +32 (2) 645 4340 pierre_gurdjian@mckinsey.com Asia Pacific Gautam Kumra Director Delhi office +91 (124) 661 1025 gautam_kumra@mckinsey.com
Organization Practice September 2009 Copyright McKinsey & Company