2012-MK-Qual & Oper Excell-42 Slides PDF

Sustaining Quality and
Operations Excellence
Laws of Physics for Successful Quality and

Operations Transformation
Date: May 2012

ABSTRACT
As industry leaders, we still see more than half of our quality and
operations excellence initiatives "fail" (or, more precisely, because we
rarely acknowledge failures -- quietly and politely fade into irrelevance and
obscurity),
Working Draft - Last Modified 22/05/2012 17:13:43

.....but years of successful experience and empirical data from industry
leaders have also established, beyond reasonable doubt, the key factors
and their interrelationships, as reliable and predictable as the "laws of
physics", for sustained success and performance improvement in quality
and operational excellence. What can we learn from the successes of
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industry leaders?
McKinsey & Company | 1

“Laws of Physics” for Sustained Quality and Operations Excellence (OE)
1. Be clear and aligned on “the destination” (i.e., with meticulous alignment to enterprise
vision, mission, strategic objectives, targeted performance and practices)
2. It‟s a “Transformation” -- Design and implement “holistically” (i.e., with balanced

and complete attention to the technical processes and systems, management systems,

Text
and organizational capabilities and behaviors)
3. Approach Quality and OE “systemically” (i.e., based on thorough accounting for

interdependencies in related processes and systems)
4. Go to “the work” to make the change (i.e., the only change that matters -- “go deep”,
to the line level)
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5. Adults “learn by doing” (i.e., Employ adult learning principles and concepts in training
and capability-building.)
6. “Have a pre-flight checklist and flight plan….and follow it.” (i.e., Design and
implement programmatically -- with attention to key enablers and key success factors)
7. Leaders must “LEAD” (i.e., with active, visible support and role modeling)

1 Be clear and aligned on “the destination”
Operational Excellence (OE) focuses on simultaneously driving continuous

performance improvement in Quality, Efficiency, and Time
Efficiency in Delivery
▪ Process Efficiency, e.g. Quality of Outcomes
reduction of waste, ▪ HSE performance, …

cycle times, WIP, etc. ▪ Asset reliability and integrity…
▪ Economic Quality ▪ Conformance to Product
Efficiency/Profitability specifications, …
▪ Labor Productivity ▪ Etc…
▪ Equipment Utilization
▪ Total Cost of
Ownership
▪ Energy Efficiency
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Operational
▪ Overheads Timeliness of delivery
Excellence
▪ Etc… ▪ Process cycle times, e.g.
asset turnarounds,
establishing new contracts,
Efficiency Time implementing a new
practice across assets, ….
▪ Event response times, e.g.
asset trips, well
interventions
▪ Etc…

1 Be clear and aligned on “the destination”
Implementing management systems to deliver “sustained competitive advantage”

requires more aggressive approaches to standard-setting and programmatic
implementation
Sustained
Competitive

Advantage
Excellence
Targeted Programmatic Implementation

Value Impact? Efficiency allows achievement of:
Creation
• Higher level of
Business standardisation (e.g.,
Competitive practices, procedures,
Impact
Requirements tools, methods, application

of best practices, etc.)
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Legal &
Regulatory
• Higher consistency and
Value completeness in
Compliance
Preservation implementation (e.g.,
enablement, performance
Risk management, change
Mitigation management, etc.)
Minimum
Loss
Standards?
Reduction
Programmatic Implementation

2 It‟s a “Transformation” -- Design and implement “holistically”
“Business Transformations” are fundamental changes that penetrate deep within

an enterprise and lead to substantial and sustained performance improvement
Crosses a threshold;
new levels of Requires integrated program
performance and dedicated leadership: not

maintained over time business as usual
Not just
Transformation is a conscious transition to a incremental
sustainable way of working at a higher level improvements –
of business performance, based on fundamental a quantum leap
shifts in
▪ Ambition
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▪ Mindset and behaviors Financial and
▪ Capabilities, systems, and processes operating
performance
Organizational and
individual skills and
competencies

Large-scale performance transformations are very challenging and most do not meet
their objectives due to incomplete/non-holistic approach
How successful was the transformation overall in reaching the targets your company set?
Percent of respondents from executive survey (N = 2,994)

Extremely successful 6
Successful
Very successful 28
Only 34%
of company
Somewhat successful 52 executives
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considered their
Unsuccessful transformations
successful
Not successful at all 5
Don‟t know 10
SOURCE: July 2008 McKinsey Quarterly Performance Transformation Survey McKinsey & Company | 6
2 It‟s a “Transformation” -- Design and implement “holistically” Successful
transformations
Unsuccessful performance transformations often result Unsuccessful
in minimal impact, at the cost of valuable time and resources transformations
Cumulative improvement ▪ Unsuccessful transformations

% of COGS result in lost impact…
25 – E.g., by as much 15% of COGS
over several years1

– Benefit in first 15-18 months
20 requires focused initial wave
– Longer-term benefits from
continuous improvement
15
15% ▪ …and require large amounts of
time and resources that could
10
have been used elsewhere2
– Average of 5 months from
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5 discussion to implementation
– 80% affected large portion of
company
0 – 80% strongly involved CEO or
0 12 24 36 48 60 business unit leader
– 30% of executive staff directly
Duration
involved
Months
1 Impact from successful transformations from direct company experience and research of operationally excellent companies. Impact from unsuccessful
transformation illustrative only and not drawn from source work
2 Select results from McKinsey Quarterly survey
SOURCE: McKinsey Operations Practice; July 2008 McKinsey Quarterly Performance Transformation Survey McKinsey & Company | 7
Common failure modes in large-scale improvement programs
Failure to scale
Business Failure to sustain ▪ Multiple bottom-up efforts with
results ▪ No change in day-to-day behaviors competing methodologies and
▪ Change agents – not the line – no overarching blueprint
leading the change ▪ Limited leadership capacity
▪ No capability upgrade at the site level ▪ Waning focus from senior team

▪ Improvements not baked into budgets
Failure to launch
▪ Stuck in diagnostics –
leaders unable to align on
what to do, where to start
▪ Managers not held account-
able for performance
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▪ Employees resistant
1-3 years
Time
Sites involved <10 <50 Network
People involved 100s 1,000s 10,000s

Reliable and sustained delivery of the

targeted business objectives and benefits Related Technical components
Management
requires Technical
Components
Infrastructure • Processes and Practices,
Components
• Procedures
Organizational • Methods, tools, and technology

Alignment with Components
overall vision, strategy and • Facilities and equipment

objectives (KPIs) • ….
Related Management Infrastructure

Technical
Management
Infrastructure
Components
Components
Components
• Resources and budgets
Management • Performance measures,

Organizational
Technical monitoring, and reporting
Infrastructure Components
Components
Components
• Reliability Continuous
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Improvement
•…
Organizational
Components
• Reliability Management Principles

Management
Technical
Components
Infrastructure and Practices Competency and
Components
Capability Building
• Maintenance QA Training and
Organizational
Components Competency
Leadership Commitment and Support • Contractor Management

(Active, Visible, Engaged) •…

Formalized Performance Management processes and objectives must be Business

part of every holistic, sustainable Business Transformation Individual
Set direction and Measure

1. Establish
context stakeholder
clear metrics,
value/delivery of
targets, and

outcomes
accountability
5. Ensure
▪ Business – Take
corrective actions
rewards, ▪ Business – Choose
consequences Execute and metrics and set
▪ Individual– Ensure and actions manage
appropriate rewards 2. Create targets
and consequences
performance realistic ▪ Individual – Agree to
and health budgets and performance contract
plans
4. Hold ▪ Business – Create
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robust budgets and plans
▪ Business – Review
business performance
performance 3. Track ▪ Individual – Build
dialogues performance capability
and risks
effectively
▪ Individual – Review
talent and individual
performance
▪ Business – Track unit business

performance and health
▪ Individual – Track individual
performance

3 Approach Quality and OE “systemically”
Integrated Quality and Operations Management Systems (OMSs) are a natural

evolution of Quality Management Systems, developed to drive long-term sustainable
excellence in Operational Integrity (i.e., Safety. Reliability, Environmental
Compliance), Quality, and Efficiency

Operations Management Systems (OMSs) are
Operations deliberately designed to provide or promote
Management Systems ▪ Targeted levels of operational performance
(OMSs) are the
response of industry
▪ Common standards, guidelines, processes and
practices, organizational capabilities, methods
leaders to stakeholder,
and tools in all company areas
competitive, and
▪
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regulatory demands for Internal and external best practices
dramatic, reliable, and ▪ A holistic, systemic framework for sustaining
sustained and continuously improving performance
improvements in ▪ Create a common language and culture of
operational operatingl discipline and excellence
performance
SOURCE: McKinsey McKinsey & Company | 11

Operations Management Systems can be viewed as a layered “elements”,
deliberately designed, integrated, and implemented to align, drive and sustain
targeted performance, processes, and practices at all levels

Operations
Objectives
Operations
Performance
Priorities
OMS Design &

Implementation
Core Support
Enablers
Processes Processes
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Expectations & Standards
Detailed Operating Processes,

Procedures & Practices
Day to Day
Line Operations
Expectations & Standards

Integrated Operations Management Systems can be viewed as a hierarchical structure
of interdependent elements or subsystems Different levels of elements
Level 1 Aspirations/ objectives (linked to vision), e.g.,

• Recognition for • Continuous
Element – A subsystem or a Excellence Improvement
combination of Management, • Premier company Culture
Organizational, and Technical • Risk Mgt Discipline • Efficiency
Infrastructure components and

capabilities (i.e., processes, practices, Basic elements, e.g.
competencies, mindsets, behaviors, Level 2
- Performance Priorities – e.g., HSE, Efficiency, Optim
systems, etc.) which deliver business - Key enablers – e.g., People, Plant, Processes, Tech
results in a particular area of the - Operating Principles – e.g., Lean, Continuous Impro
system
Level 3 Functional and technical elements, e.g.

• Core Business • Supporting Elements
Elements (e.g., (e.g., Training, Perf.
HSSE, Mgt, Asset Mgt., Procurement,
Integrity Mgt, Asset Supply Chain Mgt.,
Reliability Mgt, IT & Document Mgt,
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Energy Mgt, Control Performance Mgt.)
of Work, Production
Optimization, Capital
Project development)
Level 4 Specification of Technical Standards

associated with Level 3 Elements
Level 5 Formal and informal Procedures and

Practices on Level 3 and 4 Elements

Source: McKinsey
There are a few important principles to understand with regard to Quality and Operations
Management System design and implementation
Management ▪
3A By nature, management systems need to cover all company
System processes (“elements”), in one holistic system; they are therefore
Design complex, with many interdependencies

▪
3B Management systems in the oil & gas arena look different on the
highest level but in reality they are very similar in terms of scope
and many common elements
Management ▪ Having a management system that drives sustainable,

3C
System competitive advantage, beyond compliance to e.g. safety
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Implemen- standards requires that “you go deep” to address the required
tation elements
▪ Implementation on an element-level needs to be holistic, i.e. to
3D
cover 1) the technical system, 2) the management structure around
it as well as 3) the mindsets & capabilities to be sustainable
▪ Such implementation therefore require a well-architected

3E
programmatic approach over a longer period of time (3 years to
build internal capability)

Source: McKinsey
The Benefits of Formalized, Structured Quality and Operations

Management Systems
100% 91% Firms with Structured OE

90% Control Firms
79%
80%
69%
70%
60%
50% 43%
40% 37%
32%
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30% 23%
20%
7% 8% 9%
10% 6%
0%
0%
Operating Sales Total Assets Employees Return On Return on
Income Sales Asset
Ref: Kevin B. Hendricks, Vinod R. Singhal, 2000
15
Quality Management System Framework Illustration - EFQM
Balancing Enablers and Performance Results (i.e., keys to reliability

and sustainability) and Performance

Enablers Results
People
People Results
Key
Policy & Customer Performance
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Leadership Processes Results
Strategy Results
Partnerships Society
& Resources Results
Innovation & Learning

Quality Management System Illustration - EFQM
Objective: Create a continuously reinforcing system of performance

drivers and enablers leading to sustained high levels of operational
excellence

Results
Orientation
Corporate
Customer
Social
Focus
Responsibility
Partnership Leadership &
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Development Constancy of
Purpose
Continuous Fact-based
Learning & Management
Improvement
People
Development &
Engagement

The importance of Systems Analysis and Systems Thinking --addressing complex
interdependencies
Raise
Condition
Monitoring Improve Improve
SIMPLIFIED Improve
System
& Equipment
Stds Condition
Monitoring
Tech Services
Performance
Increase
Technology
Improve Criticality Tech Services
Operations Analysis Capacity
Performance

Improve
Condition Increase
Monitoring
OM&T
Failure
Raise
Operating Intervention
Standards Increase
Improve Tech Services Improve
Cross Capability Maintenance
Functional Improve Performance
Design
Improve Failure
Review
Operations Analysis
Training Improve
Construct Increase
& Commission Asset
QA Reliability
Improve
Raise ERS & EDMS
Improve
Maintenance Enablement
Design
Operability & Repair
Increase Standards
Inherent
Design
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Reliability
Accelerate
Improve Reliability
Engineering Continuously
Raise
Materials Design Improvement
& Parts Standards
Standards Improve
Improve Reliability
Engineering
Performance Knowledge
Management
Increase
Improve Cross
Lifecycle Functional
Cost Improve
Reliability
Analysis Project
Teamwork
Development
Standards

Source: McKinsey
3
OMS Framework – Oil and Gas Industry Illustration
„Exxon Mobil‟s OIMS framework establishes common worldwide expectations for controlling operations
integrity risks inherent in its business‟
„Each operating unit must have in place properly designed and documented management systems that

address all the expectations set out in the OIMS framework‟
Driver Operations Evaluation
• Risk assessment and management

• Facilities design and construction
• Information/documentation Operations integrity
Management
• Personnel and training assessment and
leadership,
• Operations and maintenance improvement
commitment and
• Management of change
accountability
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• Third-party services
• Incident investigation and analysis
• Community awareness and emergency
preparedness
“Assurance of
operations integrity
requires
management
leadership and Supported by 64 “expectations”, 256 Annual internal assessments and 3–5
commitment visible detailed guidelines on best practice yearly external assessment of
to the organisation implementation and 27 common management system „status‟ (design and
and accountability systems deployment) and „effectiveness‟
at all levels” (conformance, execution, impact)

Source: ExxonMobil
3
Operations Management Systems often look different at the highest
levels i.e. the “superstructure”

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3
However, overall system scope and content is ILLUSTRATIVE, NOT EXHAUSTIVE
very similar…..
XOM RDS CVX BP
Basic • Leadership X X X X
Behaviors
Elements X X X X
Any variances linked to • Competency
business performance Mgt X X X X
imperatives, priorities, and • Continuous

context at the time of Improvement
system design and • ….
implementation
Core Business • HSSE

X X X X
Elements • Ops Integrity
Mgt X X X X
• Asset Integrity X X X X
& Reliability
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• ….
Support • IT and X X X X
Document Mgt
Elements X X X X
• Supply Chain
• Technical X X X
Services
• ….

3
… and at the lowest levels, they are even ILLUSTRATIVE, NOT EXHAUSTIVE
more similar
XOM RDS CVX BP
Core Business • Control of

Elements Work
X X X X
• Process
Hazard X X X X

Analysis
X X X X
• Reliability
Improvement
Support • IT and X X X X
Document Mgt
Elements X X X X
• Contractor
Management X X X
• Procurement
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Basic • MOC
Leadership
Elements Review X X X X
• Any •variances linked
Similarities to business
reflect • Required X X X X
performance imperatives,
industry‟s priorities, and
inherent asset Safety
context at the time of system
intensivity, technical design and Training X X X X
implementation
complexity and risk profile • Employee
Feedback

4 Go to “the work” to make the change
Addressing OMS implementation at the lowest level is necessary to impact the actual
work practices and behaviors …….
Implementing an
OMS requires
“going deep”, e.g.

"The Defined System“ • Cascade company vision
that is put on paper as a and targeted
central, formalized and
maintained system
performance
expectations (e.g., KPIs)
to lowest levels
• Break down
organizational silos and
facilitate cross-functional
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collaboration
• Drive standardization on
internal and external best
"The actual day- practices across
to-day Work"

….which has some implications related to implementation strategy and approach
Implementing an OMS You want to… Which requires…
- Cascade objectives - Leadership alignment

and expectations and commitment on

objectives and
aspirations
- Engage at the line level - Thorough and

rigorous Change
"The Management approach
Defined
System
"
- Define and drive - Objective, application

standard practices of best practices
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"The actual
day-to-day
Work"
- Deeply collaborate - breaking through
across functions organizational silos
- Link efforts to top-level - closed loop

company performance continuous
performance
improvement

For each element “successful implementation” (i.e., sustained performance at the target
level) requires a holistic, integrated approach
Reliable and sustained delivery of the
targeted business objectives and
benefits requires
Alignment with

overall vision, strategy and
objectives (KPIs)
Management
Technical
Infrastructure
Components
Components
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Organizational
Components
Leadership Commitment and Support

(Active, Visible, Engaged)

A holistic approach to an individual element illustrates the depth of integration and
alignment required across elements to achieve sustained results
Related Technical components

E.g., “Asset Reliability Technical
Management • Asset Condition Monitoring
Management”
Infrastructure
Components
Components
• Inspection Management
• Maintenance Management

Organizational
Components
• Asset Reliabilty Improvement
Alignment with • ….
overall vision, strategy
and
objectives (KPIs) Related Management Infrastructure
Technical
Management
Infrastructure
Components
Components
Components
• Inspection and Maintenance
Budgeting and Planning
Organizational
Components • Reliability Performance Monitoring
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and Reporting
• Reliability Continuous Improvement
Leadership Commitment and •…
Support (Active, Visible,
Engaged)
• Reliability Management Principles
Management
Technical
Components
Infrastructure and Practices Competency and
Components
Capability Building
• Maintenance QA Training and
Organizational
Components Competency
• Contractor Management
•…

5 Adults “learn by doing”
Adult learning methods employ experiential, physical learning environments (model
workplace)
"I hear and I forget, Typical learning center
I see and I remember,
I do and I understand" ▪ Realistic learning
Confucius environment in which

managers and change
leaders are trained to lead
Learning
Hearing Seeing Doing operational transformations
by …
▪ New tools and skills are
presented and immediately
applied in real-life settings
85% of a work place
Recall
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72%
after 70%
65% ▪ Learning center designed for
3 weeks lean service operations
and manufacturing,
Recall covering private and public
after 32% sector institutions
3 months
10%

ILLUSTRATIVE
Capability-building must employ adult learning approaches (e.g., “field and forum“)
▪ Prepare for ▪ Understand key ▪ Find solutions for ▪ Prepare for roll-out ▪ Implement changes ▪ Keep continuous
diagnostic issues and possible key issues and phase (incl. and engrain new improvement loop
phase impact prioritize organizational way of working alive (do not revert
changes) to old situation)
1 2 3 4 5 6
Prepare Diagnose Design Plan Implement Review

Idea
Forum 2 Plan for Implement
Forum 1 Applying generation
Analysis implement Forum 4 and Forum 5 Continued
Lean lean and Forum 3
and ation of Imple- optimize Refine/ cycles of
Basics diagnostic problem Planning
problem improve- menting improve- Sustain improvement
and tools tools solving
solving ments ments
workshops
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Coaching Coaching Coaching Coaching Continuous
4 days 2 weeks 2 weeks 2 week 14 weeks
Example of forum
Lead business Lead self Lead others Lead change
▪ HSE processes and ▪ Time management ▪ Problem-solving ▪ Creating and
standards – 7-step problem solving communicating story
▪ Work permitting planning – Root-cause problem solving for change
▪ Maintenance policies – Value driver mapping
▪ Operating standards ▪ Interviewing
– Listening and asserting
▪ Workshop facilitation

McKinsey Learning Center Darmstadt Example: Learning by experience in a real
production environment with real products
Objective A real production environment ...
▪ Learning of lean principles in a real-life production
environment
▪ Experience of significant change through application of

lean tool in a realistic production environment
Set-up
▪ End-to-end production of a pneumatic cylinder with a
machining center and an assembly line with 8 work
stations from raw material to quality tested product
▪ Up to 10 line technicians in operation (trained staffed of
the Technical University)
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Process
▪ Clients observe a non-optimized workflow at the
beginning of the session
▪ Step-by-step teaching and immediate application of With real products …
performance improvements measures in the work flow
▪ Final target state fully optimized with nearly 100%
productivity increase and a reduction of 50% in Pneumatic cylinders
inventory and required space From industry partner
Bosch Rexroth
SOURCE: CiP, McKinsey McKinsey & Company | 29

6 “Have a pre-flight checklist and flight plan….and follow it.”
The need to “go deep” in each element and, at the same time, cover the full system a
programmatic approach
Management system concept Program concept
Wave 3
Wave 2

Wave 1
Pilot IC
PPE
Purchas-
ing
▪ One element on ▪ Few ▪ Complete the management sys-

which test the elements to tem working on all the elements
optimization/ scale up the of QG
improvement program and
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Best practices to build a methodology build the
management system is to work competences
at business processes/element to replicate
level
Program Management Office
Overall concept
Development and implementation of QGMS means optimize/ improve
every single element of Qatargas business process universe

Change champion
Programmatic Capability Building ensures sustainability by creating
your Change Champions to lead the improvement initiatives and carry forward the
design and implementation principles

Wave 3
▪ Change Champions
Wave 1 and 2 support multiple
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▪ Change Champions improvement areas,
Pilot move into leading role for supervising team leaders
▪ Coaches lead the increasingly significant and front-line staff
improvement efforts, improvement areas ▪ Coaches provide
client‟s Change ▪ Coaches support and feedback
Champions participate in provide feedback
initial pilot with peers and
supervisors

Formalized Program Management methods and tools are required
Explicit tracking of program … existing and resolved … and project-wide resources

quality & risks … issues …
Risk matrices Issue matrix Progress Reports

Risk Factor Risk Factor
Low: Keep in mind Low: Keep in mind
4a RISK MATRIX Medium: Action required 5b ISSUE MATRIX Medium: Action required
High: Urgent measures High: Urgent measures
required required
Working Draft - Last Modified 11/22/2006 11:52:45 AMPrinted 11.10.2006 17:11:35

Red
High(4)
A
A
Quality and Risk reports C B

Issue report Resource Reports
Status
Urgency
Yellow
B
D 5a Issue report
4a Risk report – project risks and
E proposed measures
Deadline

Issue Description Proposed measures Date Responsible Issue Description Proposed measures Date Deadline (new) Responsible
Green
Working Draft - Last Modified 11/22/2006 12:21:47 PMPrinted 11.10.2006 17:11:35
Low (1)
A Regu- • Product Roadmap • Set up meetings with regulatory 10/30/06 Overall project
latory interferes with new board leader A Software • Delivery of • Continue test on alpha 10/20/06 10/21/06 11/04/06/ J. Westin
Environ- governmental
delivery release 1.0 release
Low(1) High(4)
ment regulation plans Low(1) High(4) delayed by • Set up contingency plan
Project • Insufficient project • Review project plans/milestones 10/31/06 Workstream
two weeks • Allocate additional Impact
B
manage- management and
Importance leaders
(Importance = Impact x Probability)
resources to testing
ment progress control (Importance = Impact x Probability) Source: Team
C • Legal danger to
PoSSource: Team • Revise contracts and set up a 11/15/06 Sales and B Promotor23 •BVA-262309-758-20061107-GE1-client
Allocation • Launch internal 10/14/06 10/25/06 - T. Cochran
21
contracts product sales by
BVA-262309-758-20061107-GE1-client task force for negotiations with Distribution allocation of qualified campagin for promotor
loopholes in distributor distribution channels promotors recruiting
contract for Points of difficult • Reach out for outsource
Sale partners
Printed 3/15/2012 9:53:42 AM

D Construc- • Cities obstruct cable • Initiate talks with political leaders 12/15/06 Technical
tion Per- construction works by • Check project plans for speed-up Wokrstream • Average • Assess process speed-
C Product 10/01/06 11/25/06 - L. Hersh
missions delaying permissions potential booking time to up potential within IT and
E First • Integration of • Launch marketing campaigns ongoing Project Office perfor- book a process description
mover employees mance product • Transfer tasks to Back
advan- • Competitors are is to high Office
tage pushing quickly to (>10 min)
market
Source: McKinsey Source: McKinsey
21 BVA-262309-758-20061107-GE1-client 22 BVA-262309-758-20061107-GE1-client
▪ Compiled and tracked optimally ▪ Compiled and tracked by the ▪ Regular tracking of project
by the PMO PMO progress via estimate
▪ Ongoing numbering to ensure ▪ Covers only main issues completion time
consistency and ability to ▪ "Traffic light" logic to trigger ▪ Consistent, transparent tracking
reference necessary action of budget allocation
to work streams is key

7 Leaders must “LEAD”
John Kotter‟s Critical Success Factors to Sustained Performance
Transformation
1 Establish a sense of urgency 5 Empower others to act on the vision
▪ Examine market and competitive ▪ Get rid of obstacles to change
realties ▪ Change structures that seriously undermine the vision
▪ Identify and discuss crises, potential ▪ Encourage risk taking and non-traditional ideas,

crises, or major opportunities activities, and action
2 Form a powerful guiding coalition 6 Plan for, and create, short-term wins
▪ Assemble a group with enough ▪ Plan for visible performance improvements
power to lead the change effort ▪ Create those improvements
▪ Encourage the group to work ▪ Recognize and reward those involved in
together improvements
3 Create a vision 7 Consolidate improvements and produce still more

▪ Create a vision to help direct the change
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change effort ▪ Use increased credibility to change systems,
▪ Develop strategies to achieve that structures, and policies that don‟t fit the vision
vision ▪ Hire, promote, and develop employees who can
implement the vision
Communicate the vision
4 ▪ Reinvigorate the process with new projects, themes,
▪ Use every vehicle possible to and change agents
communicate the new vision and
strategy 8 Institutionalize new approaches
▪ Teach new behaviors by the ▪ Articulate the connection between the new
example of the guiding coalition behaviours and corporate success
▪ Develop the means to ensure leadership
development and succession
Leadership dimensions
▪ Understand your value needs and system of beliefs and how it influences your behavior
▪ Take accountability and regulate behaviors to create change
▪ Manage energy and attention
▪ Develop strong support network
▪ Leave one‟s comfort zone and commit to opportunities
▪ Use personal vision to motivate self

Lead
self
▪ Develop the business vision and
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strategy
Effective
▪ Examine operational implications
▪ Align the BU strategies with the leadership ▪ Inspire and motivate to action
overall corporate strategy ▪ Turn difficult situations into
▪ Create environment for higher learning moments
performance Lead Lead ▪ Build relationships and networks
▪ Communicate inspiring vision business others ▪ Foster collaborative leadership
through stories and decision making
▪ Define leadership strategies to ▪ Engage organizational support
shift the broader dynamics ▪ Create energy to sustain change

Required Leadership behaviors
Role modeling Fostering understanding

“I see superiors, peers, and and conviction
subordinates behaving in “I know what is expected of
the new way” me – I agree with it, and it is

meaningful”
▪ Align management processes (including

strategic, operational, and people planning
and review, 360° feedback, performance
dialogues, and personal development
Mindsets and plans) and systems with the desired
behaviors leadership behavior
▪ Set up individual and organizationwide
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performance goals necessary to reach or
exceed aspirations
▪ Motivate individual and group
Developing talent and Reinforcing with formal performance and align employee interest
skills mechanisms with the organization‟s objectives, through
“I have the skills and “The structures, processes, financial and nonfinancial incentives and
competencies to behave in and systems reinforce the consequence management
the new way” change in behavior I am ▪ Other specific interventions tailored to the
being asked to make” client‟s context

Companies with top quartile leadership characteristics have measurably better
performance
Likelihood that top quartile leadership1 has

above-median EBITDA margin performance
%

59
▪ The likelihood that a company with top-
quartile leadership has above-median
1.8x EBITDA margin is 59%, suggesting it is
a key contributor to financial
33 performance
▪ Companies with top-quartile leadership
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are 1.8 times more likely to outperform
on EBITDA margin, compared with
companies with bottom-quartile
leadership
Bottom Top
quartile quartile
1 Leadership measured as an element in the Organizational Health Index database
Source: Organizational Health Index database mining effort (N = 60,000) McKinsey & Company | 36
Organizations that invest in developing leaders through business
transformations are ~2.5 times more likely to succeed Degree of transformation success
Extremely successful
Very successful
Somewhat successful
Unsuccessful
To what extent, if at all, did your company invest in developing leaders through
the transformation?

%, N = 2,0471
A great deal 1 36 52 11
Somewhat 3 53 39 5
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A little 7 65 26 3
Not at all 15 59 23 3
x 2.4
1 Unweighted data
Note: Because of rounding off, totals might not add exactly to 100%; data weighted by proportion of world GDP, following McKinsey Quarterly
weighting standards
Source: McKinsey Quarterly transformational change survey, January 2010 McKinsey & Company | 37
Successful approaches to Cultural Change (i.e., values, mindsets, and
behaviors) are fact-based and link aspirations to Program Architecture Area of focus
Organizational Health Cultural Change Architect Programmatic

Assessment Engineering J
Cultural Change
Use the influence model to design interventions that address
FROM TO shifts along the four levers

Role Understanding &
modeling Conviction
“…I see my leaders, “... I understand
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colleagues, and staff what is being
behaving differently.” asked of me and it
makes sense.”
“I will change
my mindset and
behavior if . . .”
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“…I have the skills
and opportunities “…I see that our
to behave in the structures, processes, and
new way.” systems support the
changes I am being asked
to make.”
Skills required Reinforcement

for change mechanisms
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SOURCE: Scott Keller and Colin Price, ‘Performance and Health: An evidence-based approach to transforming
your organization’, 2010.
▪ Diagnose organizational ▪ Focus efforts on most ▪ Use influence model to

health outcomes and critical practices for a design interventions
practices given archetype ▪ Construct portfolio of
▪ Analyze relative ▪ Identify current initiatives to “move the
emphasis of practices activities to address needle” on practices
critical practices and
highlight activity gaps

“Laws of Physics” for Sustained Quality and Operations Excellence (OE)
1. Be clear and aligned on “the destination” (i.e., with meticulous alignment to enterprise
vision, mission, strategic objectives, targeted performance and practices)
2. It‟s a “Transformation” -- Design and implement “holistically” (i.e., with balanced

and complete attention to the technical processes and systems, management systems,

Text
and organizational capabilities and behaviors)
3. Approach Quality and OE “systemically” (i.e., based on thorough accounting for

interdependencies in related processes and systems)
4. Go to “the work” to make the change (i.e., the only change that matters -- “go deep”,
to the line level)
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5. Adults “learn by doing” (i.e., Employ adult learning principles and concepts in training
and capability-building.)
6. “Have a pre-flight checklist and flight plan….and follow it.” (i.e., Design and
implement programmatically -- with attention to key enablers and key success factors)
7. Leaders must “LEAD” (i.e., with active, visible support and role modeling)

Working Draft - Last Modified 22/05/2012 17:13:43 Printed 3/15/2012 9:53:42 AM
| 40
McKinsey & Company
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Sustaining Quality and

Laws of Physics for Successful Quality and

Date: May 2012

Working Draft - Last Modified 22/05/2012 17:13:43

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McKinsey & Company | 1

2. It‟s a “Transformation” -- Design and implement “holistically” (i.e., with balanced

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3. Approach Quality and OE “systemically” (i.e., based on thorough accounting for

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McKinsey & Company | 2

Operational Excellence (OE) focuses on simultaneously driving continuous

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McKinsey & Company | 3

Implementing management systems to deliver “sustained competitive advantage”

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Targeted Programmatic Implementation

Requirements tools, methods, application

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McKinsey & Company | 4

“Business Transformations” are fundamental changes that penetrate deep within

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McKinsey & Company | 5

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Cumulative improvement ▪ Unsuccessful transformations

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McKinsey & Company | 8

Reliable and sustained delivery of the

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overall vision, strategy and • Facilities and equipment

Related Management Infrastructure

Management • Performance measures,

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• Reliability Management Principles

Leadership Commitment and Support • Contractor Management

McKinsey & Company | 9

Formalized Performance Management processes and objectives must be Business

Set direction and Measure

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▪ Business – Track unit business

McKinsey & Company | 10

Integrated Quality and Operations Management Systems (OMSs) are a natural

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SOURCE: McKinsey McKinsey & Company | 11

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OMS Design &

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Detailed Operating Processes,

Expectations & Standards

McKinsey & Company | 12

Level 1 Aspirations/ objectives (linked to vision), e.g.,

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Level 3 Functional and technical elements, e.g.

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Level 4 Specification of Technical Standards