In this episode of the McKinsey Podcast, McKinsey global managing partner Dominic Barton speaks with Simon London about how CEOs and boards can get strategic in managing human capital. Talent is a crucial element of achieving #Marsshot missions.
Here are the key learnings from the podcasts:
One of the recommendations in the book is the “G3”—this idea that, at the top of companies, there should be a group of three executives: the chief executive, the CFO, and the chief human-resources officer [CHRO].
2% of the organization drive the value of it
This came from working sessions we had with the coauthors, just looking at what drives performance in an organization and how concentrated is it. And we had this very big debate, “Is it 5 percent? Or 2 percent?”
There’s no regression analysis or analytics behind it, but we had a strong view that it’s a very small proportion of people who drive a lot of value, because of technology that enables outstanding talent to deliver performance way in excess of average performers.
One of the places this came from was private equity. We have a number of examples in the book. One is a private-equity firm that bought a 12,000-person organization, a machine-tool company. The investment view was, “We’re going to improve the EBITDA [earnings before interest, taxes, depreciation, and amortization], the profitability, from $600 million to $1 billion. So it’s going to be an uplift of $400 million EBITDA. When we take it back into the market, taking it private, we’re going to improve the price–earnings multiple a little bit, but the core is this $400 million delta.” What they did is break that down into its component pieces—$60 million comes from procurement; $70 million comes from some distribution changes. What they found is you could then translate that $400 million into 37 specific positions that were going to drive it.
Agility is a bit of a buzzword. Everyone talks about being agile. And maybe we don’t know what it means. I think for us, in the book, what we felt is there’s a number of components to agility.
One is speed. With the world moving faster, you’ve got to be able to reallocate the capital and the people more quickly. If you look at a lot of start-ups, not start-ups with two or three people but start-ups with 50 to 100 people, you notice some very different things. They’re not on a one-year planning cycle but an eight-week planning cycle. At first you think, “Well, what’s all that about?” That’s not how I was taught at McKinsey coming in. There’s a one-year plan, a three-year plan. Well, maybe there’s an eight-week plan to move resources around.
So part of agility is clock speed, speed of making decisions, which, by definition, means you have to be flatter because hierarchy takes a lot of time. In a hierarchy, you have to work decisions up the chain and down the chain. You may have missed the opportunity.
A second element is that in a hierarchical organization, the people who are presumed to know the most are the most senior. I don’t believe that’s true. Maybe it never was. It certainly is less true now than it was. People with the right information are down in the organization. So decentralizing—flattening, allowing smaller groups of people to be able to make decisions faster—is an element of agility.
Then there is the cross-functional element: the idea that you need multiple skills to be able to solve a problem or get something done in an organization. Whether you are creating a new customer-service program or building out a new set of businesses in Asia or another part of the world, you need to have a cross-functional group of people work together.
When you bundle just those elements together, you get the core elements of agility—smaller teams that are cross-functional, with some serious decision rights, and that may pack up and go and do something different every few weeks.