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1、February 2023People&Organizational Performance PracticePerformance through peopleTransforming human capital into competitive advantageThe McKinsey Global Institute was established in 1990.Our mission is to provide a fact base to aid decision making on the economic and business issues most critical t
2、o the worlds companies and policy leaders.We benefit from the full range of McKinseys regional,sectoral,and functional knowledge,skills,and expertise,but editorial direction and decisions are solely the responsibility of MGI directors and partners.Our research is grouped into five major themes:Produ
3、ctivity and prosperity:Creating and harnessing the worlds assets most productively Resources of the world:Building,powering,and feeding the world sustainably Human potential:Maximizing and achieving the potential of human talent Global connections:Exploring how flows of goods,people,and ideas shape
4、economies Technologies and markets of the future:Discussing the next big arenas of value and competitionWe aim for independent and fact-based research.None of our work is commissioned or paid for by any business,government,or other institution;we share our results publicly free of charge;and we are
5、entirely funded by the partners of McKinsey.While we engage multiple distinguished external advisers to contribute to our work,the analyses presented in our publications are MGIs alone,and any errors are our own.You can find out more about MGI and our research at Directors MGI PartnersSven Smit(chai
6、r)Michael Chui Chris Bradley Mekala KrishnanKweilin Ellingrud Anu MadgavkarMarco Piccitto Jan MischkeOlivia White Jeongmin SeongJonathan Woetzel Tilman TackeMcKinseys People&Organizational Performance Practice equips people and organizations to unleash sustained performance.In a time of significant
7、change in the workplace,companies need the ability to transform again and again,with success relying on their most critical resource:their people.From the employee value proposition to the operating model,every part of the organization needs to enable talent and drive momentum.We help companies arch
8、itect an organization and make the best of their people so they can realize their strategy today and sustain performance in the future.Find out more at the McKinsey Global InstituteAbout McKinseys People&Organizational Performance PracticePerformance through peopleTransforming human capital into com
9、petitive advantage AuthorsAnu Madgavkar Bill Schaninger Dana Maor Olivia White Sven Smit Hamid Samandari Jonathan Woetzel Davis Carlin Kanmani ChockalingamEditorLisa RenaudFebruary 2023 Angel Santana/Getty ImagesContentsIn brief iv1.The companies that make people development pay off 22.How organizat
10、ional capital activates human capital 143.A blueprint for leaders:How to transform organizational capital 24Acknowledgments 32In brief Performance through people:Transforming human capital into competitive advantage How does developing talent affect financial returns for firms?This research finds th
11、at companies with a dual focus on developing human capital and managing it well have a performance edge.These People+Performance Winners rank among the most profitable firms within their industries.They further stand out in two important ways:greater earnings resilience and a superior ability to att
12、ract and retain talent,key advantages as businesses face economic headwinds and a war for talent.In addition to building skills,these companies have distinctive organizational capitalthat is,their management practices,systems,and culture.They challenge and empower employees while fostering bottom-up
13、 innovation to make their human capital investments pay off.While focusing solely on financial returns is one path to success,choosing the P+P model of emphasizing people and performance can yield the longer-term benefits of resilience and talent retention.People+Performance Winners develop talent a
14、nd deliver top-tier financial returns in tandem.We analyze 1,800 large companies across all sectors in 15 countries,sorting them into four categories based on markers of human capital development and financial performance over the prepandemic decade relative to sector peers.P+P Winners excel on both
15、 dimensions.They average high economic profit and returns on invested capital,similar to firms in our second category,Performance-Driven Companies.But P+P Winners put a greater emphasis on talent,with a higher share of internal role moves and more training for employees.Members of our third group,Pe
16、ople-Focused Companies,also emphasize talent development but are unable to translate that into strong financials.Typical Performers stand out on neither dimension.Firms that invest in human capital have greater resilience and more consistent earnings relative to their peers.P+P Winners closely track
17、 Performance-Driven Companies on profitability and shareholder returns.Yet they are roughly 1.5 times more likely to remain high performers over time and have about half the earnings volatility.When the pandemic hit,they maintained profitability and grew revenues twice as fast as Performance-Driven
18、Companies.Even beyond the top-quintile financial performers,investing in talent development seems to pay off:People-Focused Companies showed more consistency and resilience than Typical Performers.Developing human capital helps firms retain talent and deliver a better payoff for their people.P+P Win
19、ners are talent magnets,with attrition rates almost five percentage points lower than those of Performance-Driven Companies.Their employees report higher job satisfaction,and they are 1.3 times more likely to move into higher lifetime earnings brackets than those of Performance-Driven Companies.Peop
20、le-Focused Companies have similarly high levels of employee satisfaction and even lower attrition than P+P Winners,although not with the same stellar financial performance.P+P Winners achieve higher returns on human and organizational capital investment.Firms invest in different types of capital to
21、boost revenues:physical capital,human capital,organizational capital,and other varieties of intangible capital(such as intellectual property and brand).P+P Winners achieve roughly 30 percent higher revenue growth than both Performance-Driven and People-Focused Companies for every dollar they invest
22、in human and organizational capital(spending that amounts to one-third of all firms revenue,on average).By contrast,Performance-Driven Companies generate higher return on R&D and sales and marketing investment(typically one-eighth of all firms revenue)but may stand to gain by making their human and
23、organizational capital spending more productive.Certain mixes of organizational practices are more effective at activating human capital.Organizational capital is the fabric that surrounds employees,and its pattern matters.We compare the practices of each group using McKinseys Organizational Health
24、Index diagnostic and other firm-level metrics.P+P Winners achieve higher returns with a signature characterized by consultative and challenging leadership;bottom-up innovation and collaboration;positive,inclusive work environments;and rewards and advancement opportunities for employees.Performance-D
25、riven Companies have similar leadership styles but are more externally oriented to customers and competitors,with less emphasis on company-wide innovation,motivation,work environment,and on-the-job coaching.While People-Focused Companies have many practices in common with P+P Winners(such as motivat
26、ing employees and creating positive work environments),their leadership is less results-oriented,and they do not emphasize bottom-up innovation.Leaders can transform their organizational capital to drive sustained outperformance.People are a companys core asset,and the organizing principles governin
27、g how they work are crucial to realizing their potential.While some organizations have a singular focus on financial results,supporting talent with effective organizational practices does not come at the expense of performance.Companies that make their systems more people-centric stand to boost thei
28、r bottom lines over the long termwhile delivering for employees as well.At a time of uncertainty and talent scarcity,leaders can choose to capture lasting benefits by ensuring that their organizations truly work for their people.ivMcKinsey Global Institute|Performance through people:Transforming hum
29、an capital into competitive advantageEmpowering and challenging leadership styleTransparent performance expectations and incentivesSupport for entrepreneurship and initiative-takingEfective on-the-job coaching and trainingWidespread ownership and alignment with visionCompanywide innovation and colla
30、borationInclusive work environmentCompanies can gain a competitive edgewith a dual focus on people and performanceP+P Winners excel across a range of business outcomesProftabilityHigh returns oninvested capitalSizeGreater economicproftConsistencyGreater likelihoodof outperformanceGreater likelihoodo
31、f underperformanceHigh attritionEconomic lossResilienceBetter revenue growthduring the pandemicRetentionModerate rateof attrition$0.1B$0.1B$0.4B$0Out-performanceUnder-performance6%9%3%6%4%1.53.013.5%13.4%$1.1B4.28%7.9%28%28%1.18.5%Goal-orientedTop-downCaringEncouragingCollaborativePerformance-Driven
32、 CompaniesTop-tier fnancial resultsPeople-Focused CompaniesTop-tier human capital developmentPeople+Performance(P+P)WinnersOrganizational signatures by company typeChallengingNurturing92115Share of companies in each category,%55Typical PerformersNo clear patternsobservedOther frms can transform to e
33、mulate the“P+P Way”1McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantage Nitat Termmee/Getty ImagesRecent research from the McKinsey Global Institute(MGI)found that employers that excel at building skills,create more options for internal mobility
34、,and have better overall organizational health help their employees maximize the value of their own human capital.These effects persist long after individuals move on.Time spent early in a career in a positive workplace setting that emphasizes learning is the best predictor of whether employees even
35、tually propel themselves into a higher lifetime earnings bracket relative to their starting point.1 Yet business leaders sometimes naturally ask:while human capital development pays off for workers,does it actually benefit companies?Most agree that developing people is the right thing to do.But they
36、 are less clear on how those efforts relate to the bottom lineand why some organizations are so much more effective than others at turning human capital investment into a real competitive advantage.To explore these questions,we analyzed a large data set of companies from varied countries and sectors
37、.One subset in particular stands out.People+Performance Winners manage to create opportunities for their employees to build skills while consistently clearing a high bar for financial performance.We find that achieving these dual goals requires effective organizational capitalthat is,the management
38、practices,systems,and culture that make a workplace unique.When this organizational fabric works effectively,it creates a productive workplace that becomes a magnet and an incubator for talent.While every company has its own unique form of organizational capital,P+P Winners have a distinctive signat
39、ure,particularly in their leadership styles and how they empower employees.In subsequent chapters,we will examine the specific organizational practices that set them apartand how other companies might be able to replicate their“secret sauce.”Not every company will choose to follow the P+P Winner tem
40、plate.Some are singularly driven by financial results;focusing on people may not be in their DNA.Remaking organizational culture is a difficult undertaking that requires sustained engagement and a willingness to change familiar patterns.But companies that do shift in this direction have a lot to gai
41、n.In addition to financial returns,they can improve their consistency,resilience,talent attraction,employee loyalty,and reputationthe hallmarks of companies that are equipped to thrive over the long term.1 Human capital at work:The value of experience,McKinsey Global Institute,June 2022.1.The compan
42、ies that make people development pay off2McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageWe identify a set of People+Performance Winners that deliver exceptional value to both shareholders and employees MGIs research on human capital has focu
43、sed on how talent develops in the workplace.After exploring the benefits of building skills for the individual in our previous report,we now investigate the effects on financial returns for companiesand how organizational capital influences that process.We analyzed roughly 1,800 companies across sec
44、tors in 15 countries,benchmarking them along two dimensions:financial results and human capital development for their employees.(See Box 1,“Data sources and methodology,”for details.)Box 1Data sources and methodologyWe gathered data on financial performance and indicators of human and organizational
45、 capital for some 1,800 companies with annual revenue of more than$100 million.They span 15 countries:Australia,China,France,Germany,India,Japan,South Korea,the United Kingdom,the United States,and multiple countries in Southeast Asia(Indonesia,Malaysia,the Philippines,Singapore,Thailand,and Vietnam
46、).These companies represent all sectors,including communication services,consumer discretionary goods,consumer staples,energy,financials,healthcare,industrials,information technology,materials,utilities,and others,as defined by the Global Industry Classification Standard(GICS).We rely on multiple da
47、ta sources to measure financial performance,human capital development,and elements of organizational capital across companies.These include metrics from company balance sheets and profit-and-loss statements from 2010 to 2021,drawing on McKinseys Corporate Performance Analysis Tool powered by Capital
48、 IQ;and data from Refinitiv,which looks at more than 600 environmental,social,and governance(ESG)metrics for thousands of global companies spanning 2017 to 2021.In addition,we used results from McKinseys proprietary Organizational Health Index(OHI),which employs surveys to assess management practice
49、s and workplace outcomes.OHI has been used to gauge the state of more than 1,500 companies(based on more than seven million responses).We also draw on the database from our previous human capital research,which includes licensed,de-identified data from millions of online public professional profiles
50、 through 2019 in Germany,India,the United Kingdom,and the United States.We classify companies into four categories based on two dimensions:financial performance and human capital development.To characterize financial performance,we focus on economic profitability,measured as average economic profit
51、as a share of revenue from 2010 to 2019.We pick out true outperformers by identifying the top quintile among some 22,500 companies with data on economic profitability,rather than the smaller subset of 1,800 companies for which we also have human capital development indicators.To evaluate human capit
52、al development,we focus on three metrics:internal moves as a share of all moves(measured from 2015 to 2019 for companies based in the United States),average training hours per full-time employee(averaged over 2017 to 2019),and the overall OHI score(latest available since 2016).Weregard companies as
53、top performers in human capital development if they are in the top quintile within their sector on at least one of these three metrics.We verified that these three inputs move together;a company in the top quintile in one of the three is likely to be in the top quintile in the other two metrics,and
54、vice versa.To account for differences between industries,we evaluate each company against peers within its own industry.The threshold benchmark for what constitutes a top-quintile performer in each metric therefore differs across industries.The share of companies in the top quintile on either of the
55、se dimensions may add up to more than 20percent depending on data availability.To substantiate the robustness of our approach,we tested several different approaches for classifying companies(for example,excluding internal moves as a measure of human capital development),country-level variations,thre
56、shold sensitivities(for example,using top-quartile instead of top-quintile companies),and causalities between financial performance and human capital development.Our findings remained valid across all the tests.Finally,we reweighted all findings by industry to avoid potential sectoral bias and also
57、checked for statistical significance.For more detail on methodology(including sector thresholds),robustness,and statistical checks,see the technical appendix,which can be downloaded as a stand-alone document.3McKinsey Global Institute|Performance through people:Transforming human capital into compet
58、itive advantageWe analyze a decades worth of financial results,setting a high bar for what constitutes outperformance and using economic profit as a share of revenue as the primary benchmark.Separately,we measure human capital development by considering three metrics:average training hours per full-
59、time employee,internal role moves as a share of all employee moves,and overall organizational health as measured by a proprietary,survey-based McKinsey diagnostic.2 We choose these metrics intentionally,since our previous research established their correlation with the likelihood of employees moving
60、 into higher earnings brackets over their careers.In other words,companies that emphasize human capital building and create healthy cultures are engines of upward mobility for the individual.We sort companies into one of four categories,reflecting whether they rank within the top quintile in their s
61、ector for financial performance and the human capital metrics described above(Exhibit 1).The four groups are:People+Performance(P+P)Winners.Just under 10 percent of companies in our data set outperform on both financials and human capital development.Performance-Driven Companies.Twenty-one percent o
62、f all companies post financial results in the top quintile for their sector but fall short on developing people.People-Focused Companies.Fifteen percent of all companies emphasize human capital development but are unable to translate talent into strong financial performance.Typical Performers.More t
63、han half of the companies in our sample(55 percent)do not stand out on either dimension.P+P Winners exist in all sectors.They are not just the products of superstar industries such as technology and finance that are more profitable and knowledge-intensive by nature.3 Our categorization looks at the
64、best performers relative to their peers within each sector so that these effects do not obscure the picture.2 The second metric considers people taking on new roles within a company(whether promotions or transfers)as a share of total moves(which also includes people leaving the company,whether volun
65、tarily or involuntarily).For more information about the Organizational Health Index,see“How OHI works,”McK.3 Superstars:The dynamics of firms,sectors,and cities leading the global economy,McKinsey Global Institute,October2018.This research defines a“superstar sector”as having a substantially greater
66、 share of income than others(measured in this case as gross value added and gross operating surplus accruing to various activities that cut across business establishments),with a gap that has grown over time.Superstar sectors include financial services;professional services;real estate;pharmaceutica
67、ls and medical products;and internet,media,and software.Although P+P Winners are present in all sectors,they are more common in healthcare,consumer staples,and technology while less so in capital-intensive sectors such as utilities and energy.In addition,P+P Winners are found in all countries covere
68、d in our data set(more commonly in India and the United States;less so in France,the United Kingdom,Japan,and Southeast Asia).P+P Winners manage to create opportunities for their employees to build skills while consistently clearing a high bar for financial performance.4McKinsey Global Institute|Per
69、formance through people:Transforming human capital into competitive advantageExhibit 1Sample size:1,793 companies across sectors in 15 countriesWe categorize P+P Winners as companies that outperform on both financial results and human capital development.1 Measured as economic profit(EP)as a share o
70、f revenue averaged over 2010 to 2019.“Top performers”are top-quintile companies among the 22,500 companies for which this data is available(95 percent have data for all 10 years,and the remaining have data for at least 7 years).2 Measured using three input metrics:annual training hours per employee(
71、averaged over 201719);internal moves as a share of all moves(as of 2019 for only US companies);and overall scores from the Organizational Health Index(OHI),which is a proprietary McKinsey diagnostic(latest available data since 2016).“Top performers”are top-quintile companies in any of the three metr
72、ics,among 2,200 companies with at least one of the three data points available.Note:Companies are benchmarked against peers within their own sector to account for differences between industries when evaluating financial and human capital development metrics.All companies are later combined by catego
73、ry.Source:Organizational Health Index by McKinsey;Refinitiv;McKinseys Corporate Performance Analytics;S&P Global;McKinseys proprietary Organizational Data Platform,which draws on licensed,de-identified public professional profile data;McKinsey Global Institute analysisTop performersOthersFinancial p
74、erformance,by sector1OthersTop performersPeople+Performance(P+P)WinnersHuman capital development inputs,by sector2Performance-Driven CompaniesPeople-Focused CompaniesTypical Performers21%9%55%15%5McKinsey Global Institute|Performance through people:Transforming human capital into competitive advanta
75、geCompanies that invest in human capital achieve more consistent and resilient financial performance than their peersConsidering financial performance over a decade,we find that investing in human capital provides an edge to all types of companies,although in different ways.Both P+P Winners and Perf
76、ormance-Driven Companies are top performers on economic profitability by definition.As Exhibit 2 shows,they have similarly strong results in terms of return on invested capital(ROIC).Yet comparing People-Focused Companies and Typical Performers reveals a large gap in economic profitability(negative
77、5 percent versus negative 14 percent).People-Focused Companies also slightly top Typical Performers in ROIC and revenue growth.Additionally,they have somewhat higher growth in EBITDA(7 percent versus 5 percent)and ten-year total returns to shareholders(8 percent versus 7 percent).Oursegmentation sho
78、ws that investing in human capital clearly pays off for companies regardless of whether they are in the top band of financial performance.While the top-performing companies in our data setthe P+P Winners and Performance-Driven Companieshave very similar profitability and shareholder returns(13 perce
79、nt and 15 percent,respectively),a key difference emerges in the quality of their earnings.P+PWinners have an added edge:resilience that tends to smooth out the ups and downs of business cycles and helps these companies withstand disruptive events.This attribute is increasingly valuable in an era of
80、heightened uncertainty.4 Focusing on people development alongside financial performance seems to offer some protection from volatility.P+P Winners were 4.3 times more likely than the average company to remain in the top quintile of their sectors in ROIC for at least nine out of the ten years from 20
81、10 to 2019.Performance-Driven Companies also topped the average company,but their likelihood of maintaining outperformance for nine out of ten years was smaller,at 2.7 times.This implies that P+P Winners were 1.6 times more likely than Performance-Driven Companies to consistently outperform on ROIC
82、over time(see Exhibit 2).They also exhibited lower earnings volatility across the decade,with a 9 percent standard deviation in ROIC,versus 16 percent for Performance-Driven Companies.When the pandemic struck,P+P Winners were better able to weather the crisis and avoid taking major hits.Only 54 perc
83、ent of P+P Winners saw a reduction of more than 0.5percentage point in ROIC from 2019 to 2020,compared to 65 percent of Performance-Driven Companies.In fact,36 percent of P+P Winners saw an increase of more than 0.5percentage point(versus 29 percent of Performance-Driven Companies).MoreP+PWinners fo
84、und growth opportunities in the crisis years as well.From 2019 to 2021,they grew revenue twice as fast as Performance-Driven Companies(8 percent versus 4 percent).Organizations that had spent years building reserves of loyalty,goodwill,and innovative capacity by investing in people may have had more
85、 internal resources to draw on when the chips were down.Investing in human capital is associated with consistency and resilience for other companies,too.Focusing on the two segments that are not top performers financially,People-Focused Companies demonstrated greater stability than Typical Performer
86、s.Typical Performers were 1.5 times more likely than an average firm in our sample to remain in the bottom quintile of profitability in nine out of ten years,while People-Focused Companies were only 1.1 to 1.3times as likely.They also demonstrated greater resilience during the pandemic,growing their
87、 revenue twice as fast as Typical Performers(6 percent versus 3 percent)from 2019 to 2021.4 On the cusp of a new era?McKinsey Global Institute,October 2022.4.3xmore likely than the average company to maintain top-tier financial performance for 9 out of 10 yearsP+P Winners were2xfaster than Performan
88、ce-Driven Companies during the pandemicP+P Winners grew revenues6McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageCONSISTENCY:OUTPERFORMANCE CONSISTENCY:UNDERPERFORMANCE1Averaged over 201019.2Compounded annual growth rate;pre-COVID-19 covers 2
89、01019;peak pandemic covers 201921.3Likelihood of companies in the category having stayed in the top quintile of fnancial metric for at least 9 out of 10 years between 2010 and 2019,relative to an average company in the sample.4Likelihood of companies in the category having stayed in the bottom quint
90、ile of fnancial metric for at least 9 out of 10 years between 2010 and 2019,relative to an average company in the sample.Rank based on the inverse of the likelihood.5Values represent statistically signifcant diferences with respect to corresponding values of P+P Winners(at confdence interval of 95 p
91、ercent with p-value 0.05).6Likelihood is signifcantly diferent from 1(at confdence interval of 95 percent with p-value 0.05).Note:Numbers are rounded.All values are sectorally reweighted.Source:McKinseys Corporate Performance Analytics;S&P Global;McKinsey Global Institute analysisEconomicproft/reven
92、ue4.2Economicproft/revenue9%Return oninvested capital28%Return oninvested capital4.3Pre-COVID-1910%Peakpandemic8%People+Performance WinnersRanking of company categories across six performance metricsRank:TopBottomPROFITABILITYRESILIENCE:REVENUE GROWTHEconomicproft/revenue1.1Economicproft/revenue5%Re
93、turn oninvested capital9%Return oninvested capital1.3Pre-COVID-197%Peakpandemic6%People-Focused CompaniesPROFITABILITY,RESILIENCE:REVENUE GROWTH,Economicproft/revenue3.0Economicproft/revenue9%Return oninvested capital28%Return oninvested capital2.7Pre-COVID-197%Peakpandemic54%Performance-Driven Comp
94、aniesPROFITABILITYRESILIENCE:REVENUE GROWTH(LIKELIHOOD),CONSISTENCY:OUTPERFORMANCE(LIKELIHOOD),Economicproft/revenue1.5Economicproft/revenue14%Return oninvested capital6%Return oninvested capital1.5Pre-COVID-196%Peakpandemic3%Typical PerformersPROFITABILITY,RESILIENCE:REVENUE GROWTH,(LIKELIHOOD),CON
95、SISTENCY:UNDERPERFORMANCE (LIKELIHOOD),Web Exhibit 2Companies that emphasize human capital development are more consistent and resilient than their sector peers.7McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageAlong with consistency and resil
96、ience,P+P Winners also seem to have a superior ability to build scale.Their average economic profit is$1.1 billion,well above the$400 million average for Performance-Driven Companies.Many of them rank among the worlds“superstar”firms.Previous McKinsey research on companies identified about 600 super
97、stars among 6,000 of the worlds largest public and private firms with revenues greater than$1 billion.In this group,the top 10 percent of firms capture 80 percent of the economic profit.Furthermore,the gap between superstar and median firms has widened over the past two decades.Relying on technologi
98、cal advantage,productivity,and market power,many superstars are giants in their markets,with marginal costs of expansion.5 P+P Winners are 3.6 times more likely than an average firm in our sample to be superstars,while Performance-Driven Companies have a smaller likelihood(1.9 times)of ranking among
99、 the superstars.While investing in talent provides a meaningful performance edge,it is not sufficient to propel a company into the top tier.Both P+P Winners and People-Focused Companies emphasize human capital development,but P+P Winners are more effective at translating their investment into profit
100、ability.Over the prepandemic decade(201019),P+P Winners posted an average economic profit of 9 percent of revenue,while People-Focused Companies averaged negative 5 percent.They also have sharply higher ROIC(28 versus 9 percent),faster revenue growth(10 versus 7 percent),higher total returns to shar
101、eholders(13 versus 8 percent),and more robust EBITDA margins(28 versus 14 percent).Although human capital development metrics indicate that People-Focused Companies are doing the right things when it comes to helping their employees learn and grow,something is lacking when it comes to channeling the
102、ir efforts toward effective business outcomes.They seem to be missing some crucial elements of organizational capital that would harness their employees potential more fully.In addition to development opportunities and a positive workplace environment,employees need effective management to be as pro
103、ductive as possible.(The following chapter will explore the management practices and leadership styles that set P+P Winners apart.)P+P Winners generate greater payoffs for employees,which helps their talent attraction and retentionOur previous research on human capital found that people were most li
104、kely to move into higher lifetime earnings brackets if they spent time early in their careers working for organizations that devoted more time to training,created internal pathways for people to advance,and had healthier and more effective working environments.6 We consider companies to be top perfo
105、rmers in human capital development overall if they have top-quintile metrics in at least one out of these three areas.7 P+P Winners as well as People-Focused Companies stand out here.By definition,P+P Winners and People-Focused Companies provide more training for their employees than other companies
106、.But the size of the gap is remarkable.P+P Winners provided 74 hours of annual training per employee on average,equivalent to a four-credit semester-long university course;some offer as much as 140 hours annually.Compared to this,Performance-Driven Companies offer just 19 hours per employee on avera
107、ge.Beyond formal training programs,P+P Winners also emphasize informal on-the-job coaching.In McKinseys Organizational Health Index surveys,employees from 44 percent of these companies(and from 49 percent of People-Focused Companies)ranked talent development among the top 15 management practices in
108、their workplaces.It is a lower priority for many Performance-Driven Companies;only 33 percent of their employees rank it among the top 15 practices.5 Superstars:The dynamics of firms,sectors,and cities leading the global economy,McKinsey Global Institute,October 2018.6 Human capital at work:The valu
109、e of experience,McKinsey Global Institute,June 2022.7 Human capital input metrics data available for 1,793 companies,with training hours data available for 808 companies,internal moves data available for 782 companies,and OHI data available for 479 companies,with some overlaps(see the technical appe
110、ndix for further details).3.6xmore likely than the average company to be“superstars”P+P Winners are74hours of annual training per employee provided by P+P Winners on average 8McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageCompanies that prio
111、ritize human capital development help employees grow by making promotions and internal transfers more readily available;those that do not create internal opportunities and pathways often force their employees to leave if they want to find a better fit or boost their earnings.In a June 2021 Gallup su
112、rvey of 15,000 US workers,61 percent said that the opportunity to learn new skills is an extremely or very important factor in deciding whether to stay at their current job.8 Forty-two percent of total employee moves at P+P Winners involve internal mobility.9 By creating opportunities for people to
113、keep learning and reinventing themselves,these companies are better able to build their employees skills.Our previous research found that people enhance the value of their human capital over a working life by adding skills obtained through varied work experience.Changing roles,whether internally or
114、externally,fuels this process.Similarly,a report by the Burning Glass Institute also found that companies hiring and mobility practices have a profound impact on the careers of their employees,including the speed with which they earn promotions and their ability to secure better jobs on leaving.10 P
115、+P Winners are,therefore,engines of upward mobility for the employees who pass through them.Thirty-five percent of their workers go on to move into higher earning quintiles over their lifetimes relative to their starting pointsa share that is 1.3 times higher than that of Performance-Driven Companie
116、s.Similarly,33 percent of workers in People-Focused Companies are upwardly mobile,compared to 29 percent for Typical Performers(Exhibit 3).Work makes up much of a life,so in addition to the training and long-term trajectory an employer provides,the day-to-day experience of a job is a major determina
117、nt of employees happiness,life satisfaction,and even health.11 P+P Winners also deliver on this front.They have a better reputation among employees.Their employees are more likely to describe their work environments as positive,with a net promoter score of 20 percent,similar to People-Focused Compan
118、ies(19 percent).Both are ahead of Performance-Driven Companies(16 percent)and Typical Performers(14 percent).12 P+P Winners are also four times more likely than an average firm to feature in Fortunes Best 100 Companies to Work For;Performance-Driven Companies are only 1.7 times more likely than the
119、average firm to make the list.8 The American upskilling study:Empowering workers for the jobs of tomorrow,Gallup and Amazon,2021.9 This refers to internal role changes as a share of total employee moves(a metric that includes internal moves plus hires,quits,and separations).10 The American Opportuni
120、ty Index:A corporate scorecard of worker advancement,The Burning Glass Institute,Harvard Business School,and Schultz Family Foundation,October 2022.11 See,for example,Jarrod M.Haar et al.,“Outcomes of work-life balance on job satisfaction,life satisfaction and mental health:A study across seven cult
121、ures,”Journal of Vocational Behavior,volume 85,issue 3,December 2014;and Berrin Erdogan et al.,“Whistle while you work:A review of the life satisfaction literature,”Journal of Management,volume 38,issue 4,January 2012.In addition,a recent McKinsey Health Institute analysis of the modifiable drivers
122、of health found that productive activityincluding workis often tied to better health outcomes.12 We define a net promoter score as the share of people who express an overall positive sentiment about a companys work environment minus the share of people who express an overall negative sentiment on su
123、rveys from McKinseys proprietary Organizational Data Platform,which draws on licensed data from several sources.35%of employees who work for P+P Winners go on to move into higher earning brackets P+P Winners deliver a better workplace experience,and they are engines of upward mobility for the employ
124、ees who pass through them.9McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageFor companies,one of the biggest potential benefits from focusing on people is the ability to retain talented employees.P+P Winners had moderate levels of attrition,in
125、dicating that these companies strike a balance between generating payoffs for employees and applying consequence management principles(Exhibit 4).By contrast,attrition rates were roughly fivepercentage points higher at Performance-Driven Companies and Typical Performers from 2017 to 2019.This often
126、has real financial and operational costs(see Box 2,“Attrition:Good,bad,or ugly?”).Not only do employees leave Performance-Driven Companies voluntarily at a greater rate,but these firms also fire more frequently,which seems to indicate that they are doing a less-than-optimal job of hiring candidates
127、who will be a good fit.Even during the Great Attrition sparked by the pandemic,which affected all companies,P+P Winners were better able to retain their people.Their attrition levels rose to 11 percent from 2020 to 2021,but this was still lower than the 15 percent turnover experienced by Performance
128、-Driven Companies.Interestingly,attrition is lowest of all among People-Focused Companies.While this seems positive at first blush,these companies could examine whether they need greater accountability and whether they are challenging employees to grow.They may be people-friendly places to stay but
129、may lack enough flow to inject fresh ideas and energy.Share of employees on track to move into higher earning quintiles,by company,%People+Performance WinnersPeople-Focused CompaniesPerformance-Driven CompaniesTypical Performers2040801.31.1352733MinimumSpread of value by companyMean25th percentile75
130、th percentileMaximum29Based on projected lifetime earnings of employees,which are the sum total of the nominal salaries an individual receives over a 30-year working life.This combines estimates based on salaries of roles held by a person during the observed work history plus projections for the rem
131、aining years of that persons working life,applying historical rates of wage growth to the fnal observed role(assumes no further moves).Means represent statistically signifcant diference with respect to corresponding values of P+P Winners(at confdence interval of 95 percent with p-value 0.05).Note:Sa
132、mple sizes with data on employee earnings outcomes:People+Performance Winners=31;Performance-Driven Companies=43;People-Focused Companies=30;Typical Performers=84.Averages are sectorally reweighted.Source:McKinseys proprietary Organizational Data Platform,which draws on licensed,de-identifed public
133、professional profle data;McKinsey Global Institute analysisEmployees of People+Performance Winners are more likely to be upwardly mobile over their careers.Web Exhibit 35 p.p.difference in total attrition between P+P Winners and Performance-Driven Companies before the pandemicAlmost10McKinsey Global
134、 Institute|Performance through people:Transforming human capital into competitive advantageExhibit -15-1011121413.41Economic profitability(average EP/revenue from 201019)8.57.9113.51P+P Winners seem to occupy a sweet spot of moderate turnover with healthy returns.5-15-5-100105.0
135、6.68.118.815-510-15-1004.613.05.813.2Total attrition201719 average,%Voluntary attrition201719 average,%Involuntary attrition201719 average,%1 Values represent statistically significant difference with respect to corresponding values of P+P Winners(at confidence interval of 90 percent with p-value 0.
136、1).Note:Sample size for total attrition:Typical Performers=121,Performance-Driven Companies=46,People-Focused Companies=32,P+P Winners=25.Sample size for voluntary attrition:Typical Performers=136,Performance-Driven Companies=52,People-Focused Companies=36,P+P Winners=31.Sample size for involuntary
137、attrition:Typical Performers=125,Performance-Driven Companies=47,People-Focused Companies=34,P+P Winners=26.All values are sectorally reweighted.Source:Refinitiv;McKinseys Corporate Performance Analytics;S&P Global;McKinsey Global Institute analysisPeople-FocusedCompaniesP+PWinnersPerformance-Driven
138、CompaniesTypicalPerformersBox 21 B.Latha Lavanya,“A study on employee attrition:Inevitable yet manageable,”International Journal of Business and Management Invention,volume 6,issue9,September 2017.2“Great Attrition or Great Attraction?The choice is yours,”McKinsey Quarterly,September 2021.See also“T
139、he Great Attrition is making hiring harder.Areyou searching in the right talent pools?”McKinsey Quarterly,July 2022;and“Gone for now,or gone for good?How to play the new talent game and winback workers,”McKinsey Quarterly,March 2022.Attrition:Good,bad,or ugly?Attrition rates can deliver important si
140、gnals to companies.But determining what level is optimaland calculating the true cost of employee turnoveris more nuanced than it may seem on first reading.1The costs and risks associated with attrition are highly dependent on the state of the job market.An organization may be willing and able to ab
141、sorb high levels of turnover when labor is abundant.But in an environment of labor scarcity,that can suddenly turn problematic,as it did for many companies in the Great Attrition.2 Turnover is also problematic for roles that require highly specialized skills or a specific geographic commitment.Corpo
142、rate leaders may need to adjust their talent attraction and retention strategies based on whether they see structural shortages 11McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageBox 2(continued)persisting beyond the Great Attrition,perhaps dr
143、iven by demographic changes and long-term business strategy and skill requirements.3Part of finding a level of attrition that is sustainable involves assessing the cost of turnover.However,few studies exist on this topic,and no single rule of thumb applies.The cost of replacing a knowledge worker wi
144、th specialized skills is far higher than the cost of replacing a frontline fast-food worker,for example.One study of turnover in the retail industry found that a 10 percent rise in turnover would be as costly as a 0.6 percent wage increase for the entire workforce.4 Turnover involves hard costs,such
145、 as severance;administration;recruiting;covering the vacant position with temporary help or overtime;and onboarding when a replacement is found.Depending on the dynamics of the talent market and the seniority levels involved,companies may be able to fill a role while offering a lower salaryor they m
146、ay find themselves paying a premium.Beyond those quantifiable effects are hidden costs,including a potential hit to morale and productivity for the team members who remain as well as a lower-productivity learning curve for the replacement hire.Companies should consider the often-hidden opportunity c
147、osts of operating short-staffed or letting institutional knowledge depart.5While no company likes to see valued employees go,some turnover is expected and healthy.When people know that its time for a change of scenery,it can be beneficial for them to move on or retire before they become stale or dis
148、contented,even if they have been solid performers.In fact,if someone who has grown with the company lands an offer for a more senior position with another employer,their success is worth celebrating.When it comes to involuntary attrition,companies that retain poor performers for too long not only ac
149、cept lower productivity but also risk frustrating their strong performers,who may have to carry extra workload to compensate.Letting underperforming employees go,if handled fairly and compassionately,sends a message to the broader organization about expectations and accountability.3 Helen Tupper and
150、 Sarah Ellis,“Its time to reimagine employee retention,”Harvard Business Review,July 2022.4 Peter Kuhn and Lizi Yu,“How costly is turnover?Evidence from retail,”Journal of Labor Economics,volume 39,number 2,2021.5 Kevin Mendonsa et al.,“Predicting attrition:A driver for creating value,realizing stra
151、tegy,and refining key HR processes,”SMU Data Science Review,volume3,number 2,August 2020.6 Mitchell Hoffman and Steven Tadelis,“People management skill,employee attrition,and manager rewards:An empirical analysis,”Journal of Political Economy,volume 129,number 1,2021.See also“Employee burnout:Are yo
152、u solving the right problem?”McKinsey Health Institute,May 2022.7“Present company included:Prioritizing mental health and well-being for all,”McKinsey Health Institute,October 2022.Departures,whether voluntary or involuntary,make room for new hires to bring dynamism and different skill sets to the o
153、rganization.When no one leaves,there is no room for this kind of infusion to take place.The variations in attrition rates across the company categories described in this research are striking.Performance-Driven Companies have high rates of both voluntary and involuntary attrition.This is not necessa
154、rily detrimental if the jobs that are turning over do not require highly specialized skills and are designed to enable new hires to ramp up quickly.But these companies do need to periodically reassessand one major motivator for doing so is the fact that attrition seems to be linked to resilience.Whi
155、le some companies can sustain higher attrition rates in normal times,those that stay loyal to their employees may be rewarded in return during times of crisis.Indeed,more people-oriented companies had better performance during the pandemic.As noted earlier,P+P Winners and People-Focused Companies ha
156、d relatively low attrition levels of 8.0 to 8.5 percent before the pandemic struck;they went on to achieve 6 to 8 percent revenue growth during its peak.By contrast,Performance-Driven Companies and Typical Performers had relatively high attrition levels of about 13.5 percent before the pandemic,and
157、revenue growth of only 3 to 4 percent from 2019 to 2021.Examining the underlying causes of attrition can help identify whether it is sustainable or notand what companies may want to do about it.Working conditions or burnout could drive high attrition.The people management skills of a direct supervis
158、or can be a major factor causing employees to leave a particular office or unit.6 In a recent McKinsey Health Institute survey,many respondents linked mental-health struggles to the feeling of always being on call,unfair treatment,unreasonable workload,low autonomy,and lack of social support.Data su
159、ggests that improving workplace factors could be several times more predictive of employee well-being than providing access to resources alone.7 Alternatively,hiring criteria may be inadequate to the task of identifying candidates who are more likely to succeed over the long term.Companies can benef
160、it from digging into what is driving their attrition numbers.12McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantage Morsa Images/Getty Images2.How organizational capital activates human capital Human capital is necessary to win,but its not suffic
161、ient.The P+P Winners described in the previous chapter achieve results not only through hiring and developing talented people but also by creating the right conditions to unleash their potential.It takes effective management,systems,and culture to turn a collection of talented individuals into a coh
162、esive team.Every year,contending baseball teams set out with a single-minded mission:to go after a championship.Its up to the general manager to assemble the right human capitalin this case,players.His scouting department is continually on the lookout for raw young talent as well as underutilized pl
163、ayers who can be acquired from other teams.He also decides when to offer big free-agent contracts to established superstars.The sum total of these efforts should be a roster with complementary skills and a balanced mix of seasoned veterans and hungry rookies.While an enormous payroll is a clear adva
164、ntage,it is notoriously difficult to simply buy a championship.Some free-spending teams crash and burnand once in a while,low-budget teams defy expectations and create alchemy by combining the right people and approach.Successful major-league teams sustain pipelines of talent over the longer term wi
165、th minor-league affiliates and training camps geared to help players develop their skills.At the big-league level,the manager runs day-to-day operations and sets the tone.He juggles lineups to deploy the right mix of players against specific opponents on a given day.He maintains team norms,morale,an
166、d discipline over a grueling season.Everyone must buy into the organizations approach to preparation,playing time,the use of analytics,and game strategy.Individual players get pointers to improve their form in daily batting and fielding practice sessions.The clubhouse and home ballpark provide an en
167、ergizing environment where every detail supports performance.So it goes with companies.Like sports teams,some click on all cylinders and run like well-oiled machines,while others sputter and fail to live up to their potential.Part of the difference comes down to the talent and drive of the individua
168、ls involved.But another critical differentiator is organizational capitalthat is,the processes,accumulated knowledge,norms,and layers of leadership that define the way people work.Every workplace is unique because every employer has its own organizational capital.Organizational capital is hard to me
169、asure and easy to take for granted.Yet it is crucial for realizing the value of investment in human capital since it choreographs individual efforts.This chapter looks at what goes into organizational capitaland how P+P Winners take a distinctive approach to it.14McKinsey Global Institute|Performanc
170、e through people:Transforming human capital into competitive advantageAn underappreciated asset for companies,organizational capital comprises the systems that make people productive Companies have multiple types of capital at their disposal to help achieve their business goals.An organizations huma
171、n capital is the cumulative knowledge,skills,attributes,experience,and health of its workforce.Workers in turn create value by interacting with their employers other forms of capital,both tangible and intangible.Physical capital is perhaps the most straightforward and easily quantified.Employees may
172、 work in a factory,for example,or use specialized machinery.Beyond this type of tangible asset,companies also have intangible capital.13 Broadly,this category includes innovation assets and intellectual property;digital and analytics assets(such as software,databases,and customer-facing digital plat
173、forms);and brands.It also includes organizational capital,or the practices and systems that define“the way a company works.”Organizational capital is perhaps the most elusiveand humanof all intangible assets,since it relates to how people work,their relationships with and within the workplace,and th
174、eir development.14 Each company has its own culture and mix of management practices;this organizational capital belongs to the company and stays with it.Yet,as previous MGI research showed,workers gain valuable knowledge and experience from interacting with it,and they carry these new capabilities w
175、herever they go for the remainder of their career.The value of their human capital increases,and they are frequently able to command higher wages in the next role.From the workers perspective,organizational capital determines both the quality of their immediate day-to-day experience and their potent
176、ial for longer-term development and earnings,among other things.Work is at the center of peoples lives and well-being.The pandemic highlighted the importance of“good work”that is,the access to good-quality,safe,and secure workand the value of human skills.15 From the companys perspective,organizatio
177、nal capital is one of the crucial mechanisms for realizing the value of investment in human capital.16 It choreographs individual efforts and coordinates and channels it into productive activity and financial outcomes(Exhibit 5).Many components go into organizational capital.It encompasses everythin
178、g from training programs and talent-management and capability-building systems to workflows,department and team structures,business processes,employee communications,norms,culture,and leadership.These systems constitute the interpersonal fabric of a company,determining whether it is thriving and pro
179、ductive or whether it wastes resources.17 Organizational capital is the invisible infrastructure of the workplace;it is the glue that makes the whole entity greater than the sum of its parts.Although it does not explicitly show up on corporate balance sheets,it is key to maximizing returns on human
180、capital and on the physical,financial,and other intangible assets a company holds.18 In short,people need operating principles in order to be productive.13 Getting tangible about intangibles,McKinsey Global Institute,June 2021.14 The term“organization capital”was used by Edward Prescott and Michael
181、Visscher in a 1980 article that emphasized the information that resides with a firm and its ability to match people with effective teams.See Prescott and Visscher,“Organization capital,”Journal of Political Economy,volume 88,number 3,1980.15 The good work monitor,Institute for the Future of Work,Jan
182、uary 2021.16 John F.Tomer,Organizational capital:The path to higher productivity and well-being,Prager,1987.17 Oliver Ludewig and Dieter Sadowski,“Measuring organizational capital,”Schmalenbach Business Review,volume 61,October 2009.18 Baruch Lev and Suresh Radhakrishnan,“The valuation of organizati
183、onal capital,”in Measuring capital in the new economy,Carol Corrado,John Haltiwanger,and Daniel Sichel,eds.,University of Chicago Press,2005.15McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageOrganizational capital manifests itself in every co
184、rner of a company.Most large organizations pour considerable effort into crafting and reinforcing mission statements.They may have formal onboarding programs for new employees and periodic training courses for existing employees.Many undertake initiatives to make their workforce more motivated and c
185、ohesive.They establish performance standards,performance management processes,and internal career pathways.Technologies and communication platforms that help employees share information and do their jobs more efficiently are part of the equation.So are design choices in physical offices,which can pr
186、omote collaboration or concentration.Crucially,organizational capital includes the art of matching the right people to the right tasks and providing them with guidance and structurewhich means that frontline and middle managers play a crucial role in executing the overarching vision on a day-to-day
187、basis.Organizational capital can be measured through widely varying approaches.By our estimates,organizational capital,measured as the capitalized value of expenditure on building a companys systems and processes,is roughly equal to the value of physical capital in the sample of companies we studied
188、(See Box 3,“Measuring organizational capital”).Exhibit 5Organizational capital is one of the key activators of human capital in the workplace.1 Part of intangible capital.Source:McKinsey Global Institute analysisEducationEarly childhood developmentWork experienceKnowledge,skills,attributes,experienc
189、e,and healthassets that individuals own and bring to their employers.Stock of property,plant,and equipment.“How an organization works”or company-specific management practices,systems,and culture,which are the companys assets.Innovation assets and intellectual property,digital and analytics assets,an
190、d brands.16McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageBox 31 Baruch Lev and Suresh Radhakrishnan,“The valuation of organizational capital,”in Measuring capital in the new economy,Carol Corrado,John Haltiwanger,and Daniel Sichel,eds.,Univ
191、ersity of Chicago Press,2005.2 Sandra E.Black and Lisa M.Lynch,“How to compete:The impact of workplace practices and information technology on productivity,”Review of Economics and Statistics,volume 83,issue 3,2001;and Nicholas Bloom and John Van Reenen,“Measuring and explaining management practices
192、 across firms and countries,”Quarterly Journal of Economics,volume 122,issue 4,2007.3 Supriyo De and Dilip Dutta,“Impact of intangible capital on productivity and growth:Lessons from the Indian information technology software industry,”Economic Record,volume 83,number 51,2007.4 Claudia Tronconi and
193、Giuseppe Vittucci Marzetti,“Organizational capital and firm performance:Empirical evidence for European firms,”Economics Letters,volume 112,number 2,2011.5 Ibid.;and Andrea Eisfeldt and Dimitris Papanikolaou,“Organizational capital and the cross-section of expected returns,”Journal of Finance,volume
194、 68,issue4,2013.Measuring organizational capital Attempts to measure organizational capital have followed three main approaches.The first focuses on the cost of creating organizational capital.Some studies have used the overhead costs of establishing systems and processes that enable people to work
195、together as the measure of organizational capital.These costs are estimated using proxies from the companys profit-and-loss statement,typically the selling,general,and administrative(SG&A)expenditure.1 SG&A expenses include components that go into building organizational systems and talent developme
196、nt.Spending on training,onboarding,recruiting,and building digital and other tools that enable employees to collaborate are included,as are location and infrastructure expenditure.The second approach attempts to identify the different components of organizational capital using nonmonetary and survey
197、-based approaches.Studies have gathered information from companies about their managerial practices.2 In this chapter,we apply this approach by using McKinseys Organizational Health Index(OHI)diagnostic and other firm-level measures to identify the distinctive organizational signatures associated wi
198、th each of our four company categories.Another measurement approach attempts to capitalize the value of investment in building systems and putting in place management practicesthat is,to capitalize SG&A expenses.3 This approach assumes that the effect of this expenditure is not short-lived but inste
199、ad has an enduring impact.Its value depreciates over time but at a slower pace than physical and other intangible capital,as organizational practices are more ingrained,firm-specific,and harder to imitate.4 The rate of depreciation depends upon the attrition of employees from the company as well as
200、the obsolescence of skills possessed by employees over time.Studies have typically assumed a 10 to 15 percent depreciation rate over time,implying a useful life of seven to ten years.5 In this research,we create a rough approximation of organizational capital by capitalizing SG&A expenditure,excludi
201、ng compensation as well as sales and marketing expenditure(where included).For companies in our sample,we find that organizational capital is estimated at 70 percent of revenue.For comparison,physical capital(measured as plant,property,and equipment assets from corporate balance sheets)is about 60 p
202、ercent of revenue.These estimates vary by sector.In the energy,materials,and utilities sectors,for example,physical capital is 140 percent of revenue,while organizational capital is about 50 percent.In the healthcare sector,organizational capital is estimated at 75 percent of revenue,while physical
203、capital is approximated at 32 percent of revenue.For any company,however,organizational capital accounts for a significant outflow of expenditure,making it vital to think about how to utilize it meaningfully.17McKinsey Global Institute|Performance through people:Transforming human capital into compe
204、titive advantageP+P Winners generate superior returns on their human and organizational capital investmentsApplying one of the approaches described in Box 3,we estimated investment in organizational capital by using SG&A overhead expenditure as a proxy.We also estimated investment in human capital a
205、s the compensation paid out to employees.We find that P+P Winners not only invest in human and organizational capital but also do a better job of translating those investments into top-line impact to benefit the company.Since companies in the sample spend an average of 33 percent of revenue on compe
206、nsation and organizational overhead combined,it is vital to make these substantial investments as productive as possible.P+P Winners generate roughly 30 percent higher revenue growth for every dollar invested in compensation and organizational overhead than Performance-Driven Companies(not controlli
207、ng for other drivers of revenue growth).In other words,P+P Winners follow a strategy in which they channel their talent effectively,with systems,management practices,culture,and leadership that enable them to execute successfully against business priorities.By contrast,Performance-Driven Companies,w
208、hich roughly match the financial returns of P+P Winners,derive their advantage from other types of capital(Exhibit 6).19 They generate similar revenue growth for every additional dollar of physical capital and double the revenue growth for every dollar of other intangible capital(estimated as R&D an
209、d sales and marketing expenditures,which amount to 12.5 percent of revenue).At a time when the cost of top talent is rising,Performance-Driven Companies may stand to gain by making their investments in compensation and organizational overhead more productive.This is a clear avenue remaining open for
210、 them to achieve even higher financial performance.19 In addition,we used a regression approach to quantify the sensitivity of revenue growth to the different investment drivers discussed above.We then identified“high-efficacy”companies with disproportionately high revenue growth compared to growth
211、in human and organizational capital investment,controlling for all other drivers(see the technical appendix for more details).We found that 24 percent of P+P Winners were high-efficacy companies,compared to 17 percent of Performance-Driven Companies.Exhibit 6P+P Winners and Performance-Driven Compan
212、ies focus on generating higher returns fromdifferent forms of capital.1 Organizational overhead is estimated as selling,general,and administrative(SG&A)expenditure,excluding compensation,sales and marketing expenditure,R&D expenditure where included.2 Values represent statistically significant diffe
213、rences with respect to corresponding values of P+P Winners(at confidence interval of 95 percent,with p-value 0.05).Note:Sample size for revenue growth per dollar increase in organizational expenditure and human capital:Performance-Driven Companies=220;P+P Winners=109.Sample size for revenue growth p
214、er dollar increase in physical capital:Performance-Driven Companies=341;P+P Winners=163.Sample size for revenue growth per dollar increase in other intangible capital:Performance-Driven Companies=260;P+P Winners=131.All values are sectorally reweighted.Source:McKinseys Corporate Performance Analytic
215、s;S&P Global;McKinsey Global Institute analysis.human capital(compensation)a an nd d o or rg ga an ni iz za at ti io on na al l o ov ve er rh he ea ad d,1 1$.physical capital(PPE),$.other intangible capital(R&D and sales and marketing),$Revenue growth per$increase in.+31%2.63.41.81.9-5%-51%3.98.0Per
216、formance-Driven Companies2P+P Winners18McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageOrganizational capital is unique to each employerand its effectiveness varies widelyA distinctive set of organizational practices can be a source of compet
217、itive advantage that boosts financial performance.20 However,developing and executing it requires investment and energy.Neglected or poorly designed organizational capital can hinder productivity,waste resources,and harm a companys reputation.Toxic workplaces tolerate unnecessary stress within the s
218、ystem and drive people away;well-run workplaces tend to attract talented people and give them space to innovate.Organizational capital determines the employee experience,which also makes it important to job satisfaction,life satisfaction,and individual well-being.21 Employers can take highly diverge
219、nt approaches in pursuit of productivity,with positive or negative implications for the employee experience.In the baseball example described at the beginning of this chapter,different organizational practices could be equally successful.One team may thrive because its manager is highly disciplined,
220、while another may succeed because its manager keeps the clubhouse loose.Similarly,one company may insist on rigid hours;another may offer flexibility as long as goals are met.Some employers set tough quotas or install surveillance software to monitor every keystroke;others operate on a culture of tr
221、ust.Sometimes even good intentions to create a collegial workplace can have ambiguous results.A startup that brings in a ping-pong table and beer tap may fail unless its performance management practices are as good as its perks.A company that opts for an open office plan to spur collaboration may fi
222、nd that employees cannot perform with the noise and distractions.Each employer chooses its own combination of management practices and injects its own philosophy and personality into individual elements.Execution also matters.One study found that higher productivity does not stem from adopting a par
223、ticular practice but from how that practice is implemented.22 To give just one example,teams in one company may waste time in meetings,while those in another stick to agendas and use meetings to make clear decisions.In addition to business processes,institutional knowledge is an important element of
224、 organizational capital.23 This includes knowing how things have been done in the past as well as the ongoing integration of new knowledge.Organizations that excel at accumulating,integrating,and sharing knowledge efficiently build a strong basis for innovation.24 Theyalso tend to provide employees
225、with the kind of learning environments that in turn build human capital.Working in this type of setting is especially beneficial for individuals near the beginning of their careers,since they add knowledge and capabilities that they carry with them as they move to other organizations.25 20“Organizat
226、ional health:A fast track to performance improvement,”McKinsey Quarterly,September 2017.See also Mariagrazia Squicciarini and Marie Le Mouel,Defining and measuring investment in organizational capital:Using US microdata to develop a task-based approach,OECD Science,Technology and Industry working pa
227、pers number 2012/05,September 2012.21 This time its personal:Shaping the“new possible”through employee experience,McKinsey&Company,September 2021.22 Sandra E.Black and Lisa M.Lynch,“How to compete:The impact of workplace practices and information technology on productivity,”The Review of Economics a
228、nd Statistics,volume 83,issue 3,August 2001.23 Andrew Atkeson and Patrick J.Kehoe,“Modeling and measuring organization capital,”Journal of Political Economy,volume 113,number 5,October 2005.24 Antonio Carmona-Lavado,Gloria Cuevas-Rodriguez,and Carmen Cabello-Medina,“Social and organizational capital
229、:Building the context for innovation,”Industrial Marketing Management,volume 39,issue 4,May 2010.25 Victoria Gregory,Firms as learning environments:Implications for earnings dynamics and job search,Federal Reserve Bank of St.Louis,January 2021.Developing and executing a distinctive set of organizati
230、onal practices takes investment and energy.19McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageP+P Winners share a distinctive organizational capital signatureMcKinseys Organizational Health Index(OHI)diagnostic has been applied to thousands of
231、 companies over the years.It is a survey-based tool that aggregates the views of employees and managers on a set of nine key organizational outcomes and 37 management practices.26 While it is often used to take the temperature of organizations and diagnose problems,OHI data,when consolidated across
232、companies,also offers a rare look at their inner workings.Itshould be noted,however,that the resulting picture shows where companies have spikes.Itdoes not mean that companies completely reject or neglect the practices that do not show up in the set of top priorities;rather,it shows what they emphas
233、ize.When we overlay OHI data onto our company categorizations,clear differences emerge(Exhibit 7).The mix of individual practices chosen by each type of company adds up to a distinct organizational fabric.While Performance-Driven Companies are challenging,goal-oriented environments that focus on opt
234、imizing resources,People-Focused Companies are more caring,encouraging,and nurturing.P+P Winners tend to balance these two aspects,emerging as both challenging and nurturing.They are also more collaborative than firms in the other categories.In addition to hiring and developing talented individuals,
235、they build the kind of organizational capital that enables them to succeed.This dual focus creates its own virtuous cycle,since this kind of energizing environment becomes attractive to people in the future.26 How OHI works,McKinsey&Company, 7P+P Winners possess a distinctive organizational signatur
236、e.Source:Organizational Health Index by McKinsey;Refinitiv;McKinseys proprietary Organizational Data Platform,which draws on licensed,de-identified public professional profile data;McKinsey Global Institute analysisOrganizational elements prioritized by each category of company,based on Organization
237、al Health Index surveys and other metricsPerformance-Driven Companies People+Performance(P+P)Winners“Challenging,top-down,goal-oriented”“Challenging,collaborative,nurturing”Typical PerformersPeople-Focused Companies“Caring,encouraging,nurturing”No clear patterns observedTransparent performance expec
238、tations and incentivesSupport for entrepreneurship and initiative-takingSense of belonging and recognitionClear top-down visionDefined performance goals and focus on efficiencyExternal orientation to customers,competitorsWidespread ownership and alignment with visionEmpowering and challenging leader
239、ship styleCompany-wide innovation and collaborationInclusive work environmentEffective on-the-job coaching and training20McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageLooking in more detail at the overall set of 37 management practices exam
240、ined in OHI surveys,we see that the leaders of P+P Winners give employees autonomy to make their own decisions and challenge them to achieve more.These companies motivate through financial and nonfinancial incentives and career opportunities.They also have cultures of innovation and collaboration as
241、 well as entrepreneurial,challenging,inclusive work environments.(See the technical appendix for more detail on specific practices.)Survey respondents from P+P Winners often pointed to employee involvement in setting company direction and to consultative leadership,which gives employees some autonom
242、y and weighs their opinions on important decisions.They also reported having room for creativity and entrepreneurship,with managers encouraging employees to experiment and protecting them from day-to-day pressures to allow them do so.Finally,P+P Winners emphasize knowledge sharing and bottom-up inno
243、vation,with clear processes and systems for employees to contribute ideas and work together.Notably,this type of employee empowerment is paired with challenging leadership and transparent performance standards and consequences.P+P Winners motivate employees who perform well with rewards and advancem
244、ent opportunities.This combination seems to strike a balance between giving employees autonomy and providing structure,expectations,and guardrails to channel their efforts effectively in support of business goals.27 P+P Winners are well run,and they spend wisely on human capitalin a way that yields
245、returns for the company and for its people as well.In addition,P+P Winners are standard setters when it comes to inclusivity(Exhibit 8).They have the lowest gender pay gapsin contrast to Performance-Driven Companies,which have the profitability to rectify these disparities but instead have the large
246、st pay gaps.P+P Winners are also more likely to host employee affinity groups,with the aim of supporting diverse talent and making their workplaces more inclusive;companies at any level of profitability should be able to do this.Perhaps most striking,P+P Winners are far more likely than companies in
247、 other categories to provide childcare support,which is a powerful mechanism for attracting and retaining working parents.Because this can be a costly benefit,the most profitable companies are best positioned to offer itbut Performance-Driven Companies are least likely to do so.P+P Winners have some
248、 areas of overlap with the other categories of companiesand some key areas where they depart from the rest.Their challenging and consultative leadership style,interestingly,is shared by Performance-Driven Companies,which seems to indicate that it is crucial for top-tier financial results.But Perform
249、ance-Driven Companies diverge from P+P Winners in a number of crucial ways.They do create a unified vision throughout the organization,but the vision and decisions tend to flow from the top down.Motivating employees,creating a positive work environment,and encouraging new ideas tend to take a back s
250、eat to rigorous management of employee output and an external focus on customers,competitors,and the marketplace(see Exhibit 7).The combined emphasis on performance contracts(written performance goals that clearly define what employees are expected to deliver),outsourcing expertise,and professional
251、standards speaks to a somewhat transactional relationship with workers.This approach is based on a view of the company as an optimal allocator and manager of inputs that maximize outputand it is a valid one that obviously yields results,since Performance-Driven Companies are in the top quintile of f
252、inancial performance.But this choice may come under pressure as industries,technologies,and labor market dynamics change,requiring more organic responses from within organizations.27 This lines up closely with the execution edge“recipe”(or mix of management practices)identified in previous McKinsey
253、research based on Organizational Health Index results.See“The hidden value of organizational healthand how to capture it,”McKinsey Quarterly,April 2014.21McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantagePerformance-Driven Companies are more ex
254、ternally focused on customers and markets than P+P Winners.While“customer focus”does not appear as a priority practice for P+P Winners,it does not mean that they are not geared to addressing customer needs.However,they are more likely to use internal innovation to anticipate what customers need and
255、create solutions for them,while Performance-Driven Companies focus externally on gathering customer feedback and addressing opportunities detected through market intelligence.This difference could possibly explain why Performance-Driven Companies are better at riding the upside of business cycles.Ye
256、t their lack of focus on enabling internal innovation and change means that they may be more exposed to volatility on the downside.People-Focused Companies emphasize many of the same“feel-good”practices as P+P Winners.The areas of overlap include employee involvement,creating a positive work environ
257、ment,and motivating employees through performance incentives and growth opportunities.People-Focused Companies also emphasize talent development through on-the-job coaching even more than P+P Winners.They have an added focus on risk management(encouraging employees to escalate issues at the right le
258、vel),personal ownership(creating a sense of belonging),and inspirational leaders(who find ways to make work more meaningful for their employees and provide praise and recognition).But P+P Winners go beyond nurturing their employees in their more challenging leadership style that pushes people out of
259、 their comfort zones and encourages them to experiment.People-Focused Companies appear to be less results-oriented.These companies are also missing an innovation engine,unlike P+P Winners,with their focus on enabling knowledge sharing and collaboration throughout their organizations.Exhibit 8P+P Win
260、ners focus on inclusivity.P+P WinnersPeople-Focused CompaniesPerformance-Driven Companies4329921911Gender pay gapCents earned by women to$1 earned by men,202021 averageProvides childcare support Share of companies reporting“yes,”%,2020Hosts employee resource groups Share of com
261、panies reporting“yes,”%,2020Typical Performers9127221 Values represent statistically significant differences with respect to corresponding values of P+P Winners(at confidence interval of 95 percent with p-value 0.05).Note:Sample size for gender pay gap:P+P Winners=42,Performance-Driven Companies=71,
262、People-Focused Companies=28,Typical Performers=96.Sample size for childcare support and employee resource groups:P+P Winners=146,Performance-Driven Companies=322,People-Focused Companies=197,Typical Performers=759.All values are sectorally reweighted.Source:Refinitiv;McKinsey Global Institute analys
263、isAverage of Typical Performers and Performance-Driven Companies1.1x1.8x1.9x22McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantage Peopleimages/Getty ImagesBecause it is not measured,organizational capital is not always actively managed.It is eas
264、y for firms to become complacent and stick to“the way we have always done things.”But letting this source of competitive advantage stagnate can be a real risk to performance.This is especially true at a time when disruptive technologies and demographic shifts are upending business dynamics,and labor
265、 markets are recalibrating after the profound shock of the pandemic.Even thriving companies need to establish new kinds of connective tissue,norms,and expectations for remote and hybrid work.Guiding principles,working norms,frontline managers,and support systems have to be in place so that talent ca
266、n execute.If these elements are ineffective,resources go to waste,resulting in lost potential.Management practices should add up to a recognizable corporate fabric that engages employees at all levels.Unsurprisingly,this has never been easy for companies spanning multiple units and geographies,and r
267、emote and hybrid work is now exacerbating the challenge.But it is possible for companies to implement more effective management practicesand unleash more of the potential within their people in the process.This chapter offers a brief overview of the key questionsthe why,what,and howinvolved in takin
268、g on this challenge(Exhibit 9).Corporate leaders need a deeper focus on the nuances of organizational capital.Humancapital is not merely a labor input;people are any companys core asset.Theworkplace should work for people,with coaching to help them develop,structures for support,and workflows that r
269、emove frustrations.Employees know what works on the front lines,and their voices and viewpoints should inform any redesign.28 Beyond improving the employee experience,these principles can enhance competitiveness and adaptability in a fast-moving world.28 Josh Bersin,Irresistible:The seven secrets of
270、 the worlds most enduring,employee-focused organizations,Ideapress Publishing,2022.3.A blueprint for leaders:How to transform organizational capital Companies can implement more effective management practicesand unleash more of the potential within their people in the process.24McKinsey Global Insti
271、tute|Performance through people:Transforming human capital into competitive advantageOther types of companies can make real gains by emulating P+P Winners Should all companies aspire to be P+P Winners?The answer is an unambiguous yes for the Typical Performers and People-Focused Companies in our dat
272、a set(and it is worth noting that the majority of firms we analyzed fit into the Typical category).Both of these groups have ample scope to improve;their financial performance lags well behind that of the other two groups.People-Focused Companies in particular need to address the leadership,cultural
273、,and strategy issues holding them back from converting their investment in human capital into productivity and innovation.The halo effect of investing in people development is not enough on its own to produce top results without the right organizational capital in place.Typical Performers have even
274、further to go in developing employees to prepare them to execute.Aspiring to be a P+P Winner has not historically been a clear-cut imperative for Performance-Driven Companies,however.While investing more resources into developing people is positive for employees and society,these companies are alrea
275、dy top-tier financial performers.Their innate characteristics may also make it more challenging to implement a more people-centric model.Performance-Driven Companies may drive results through a more standards-based,top-down model,with an external focus on customers and market opportunities(as oppose
276、d to the bottom-up innovation and employee empowerment that P+P Winners enable).P+P Winners and Performance-Driven Companies look very similar in average financial performance over a long cycle historically.Yet this is an incomplete picture.Performance-Driven Companies experience more bumps and pain
277、 getting to the same destination.In a scenario where market trends are in their favor,these companies seem to be able to capture the upside well,but in periods of uncertainty,they lack the stability of P+P Winners.Not prioritizing human capital development seems to increase the exposure of Performan
278、ce-Driven Companies to volatility and risk in turbulent times.This susceptibility is especially aggravated when there is a shortage of talent.Exhibit 9Blueprint:How can you transform your organizational capital?To outperform in a time of economic uncertainty and talent shortages through:Greater cons
279、istency and resilience Lower talent attritionCompany-wide policiesTransparent performance expectations and incentivesInternal talent growth and developmentInclusive work environmentLeadership behaviorsEmployee involvementAutonomyBottom-up innovation and collaborationFinancial metrics:eg,training spe
280、nd,organizational overhead and compensation relative to revenue growth,gender pay gap Operational measures:eg,attrition,internal promotion rate,inclusivity policies,diversity ratiosExperience-based indicators:eg,employee sentiment,organizational healthWhy become a P+P Winner?What to change?How to tr
281、ack progress?Source:McKinsey Global Institute analysis25McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageIn the past,a more transactional relationship with employees may have been shaped by a belief that it is easy to access the labor market.P
282、erformance-Driven Companies have historically filled and refilled certain types of jobs externally,and they are willing to outsource certain types of specialized functions.It may require a massive,difficult cultural change to focus more deeply on developing and nurturing people if that approach is n
283、ot baked into their DNA.But now,in the wake of the pandemic,building resilience is the need of the hour.Companies everywhere have struggled with attrition and hiring;in some cases,vacancies have hampered operations and customer service.This may be a moment for leaders of Performance-Driven Companies
284、 to reassess their organizational fabric.Even with inflation and the possibility of a slowdown clouding the picture,some tightness in the labor market may be structural rather than cyclical.In light of higher worker expectations and ongoing labor shortages,companies may need to prioritize employee r
285、etention and cultivate the skills they needparticularly if they are going to need more digital,interpersonal,and critical thinking skills to achieve business objectives in the future.Even high-performing companies can benefit from periodically examining whether their organizational practices give em
286、ployees the balance of support and challenge that will empower them to work more productively.P+P Winners show that it is possible to support employees aspirations without undercutting performance.Other companies can change specific systems and behaviors to move toward the P+P Winner style of organi
287、zational capitalAs described earlier in this research,P+P Winners are characterized by reward-basedperformance management,bottom-up innovation and collaboration,consultative and challenging leadership,and a creative,competitive,and inclusive work environment that tends to attract and retain talent e
288、ven in challenging times.But how can other types of companies emulate this in practice?In some cases,positive change in these areas could be spurred by changes to company-wide policies and systems.In others,it will take behavior change from leaders.While C-suite executives can articulate the vision
289、and set the example,frontline and middle managers are key actors since they set the tone for individual teams,have greater visibility into whats working,and can be the biggest influence on the employee experience.Company-wide systems and policiesTransparent performance expectations and incentives.Co
290、mpanies can benefit from periodically reassessing how expectations are outlined for employees and how their performance is evaluated.In companies where these areas are muddy,a solid first step could be better articulating the key performance indicators associated with various roles.For some types of
291、 sales or manufacturing jobs,for instance,targets can be carefully calibrated with financial goals and perhaps formalized in performance contracts.However,it is also important to consider whether a performance evaluation system is geared to all of the roles in the company or whether it forces an ill
292、-fitting process onto staff in creative or support roles.Different types of jobs may need entirely different evaluation metrics.Taking performance management from good to great,however,requires something more than establishing top-down targets and leaving employees to hit them on their own,with fear
293、 of failure as the prime motivator.P+P Winners clarify both expectations and incentives and take a more dynamic approach to achieving them.Ongoing coaching and continuous feedback are key to helping employees resolve challenges and adapt the way they work as needed.The best results come from manager
294、s staying engaged and giving feedback in the moment,always with an eye toward goalsand encouraging employees to achieve more than they thought possible.26McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageWhile companies have to be able to addre
295、ss underperformance,they also need mechanisms for recognition.To promote healthy competition across teams or geographies,financial incentives could be powerful motivators;it may be worth reassessing whether bonus structures could be more effective or whether they should be expanded.In addition to fi
296、nancial rewards,a multitude of gestures can make people feel appreciated.Some involve public recognition,such as calling out a job well done in group meetings or internal newsletters or handing out company awards.Others can be more personal,such as a direct thank-you email or a one-on-one lunch.One
297、leading global technology corporation introduced peer bonuses and outstanding management awards while rolling out a review process with specific,transparent metrics for performance.Another software company abolished annual performance reviews and ranking employees on a bell curve in favor of a conti
298、nuous performance evaluation system with regular check-ins for employees and managers todiscuss professional aspirations.Internal talent growth and development.Companies that do not emphasize human capital development often hire people into the openings they have at any given momentand once people a
299、re slotted into those roles,there is not often a clear way for them to stretch beyond them.When these companies need a different type of expertise or skill set,their impulse is to go outside to find it,whether through new hires or outsourcing.In a sense,they think of human capital as an asset that f
300、lows in and out of the company.But they are leaving some latent potential untapped by not recognizing that the value of each individuals human capital can be enhanced over time.Many people who are already within the company have the capabilities to do more and to master different things.Developing p
301、eople is not always easy,and it may not come naturally to companies that have not historically emphasized training and growth.But creating room for trusted employees who already know the companys practices to grow and add new skills can have an immense upside.Approaches can involve sending people to
302、 external classes or establishing formal training programs.One global consumer company offers its employees vocational courses,with some receiving more than 10,000 applicants annually.It is equally important to ensure that people stepping into new roles have engaged on-the-job coaching.Each role wit
303、hin the organization should have clearand clearly communicatedpaths toward future roles,defined by the skills required to be qualified.Employees should be able to identify their next opportunities early in their tenure and co-create development plans with their leaders.29 One way to do this in a lar
304、ge organization is to create an internal talent platform where employees can access learning modules,establish new proficiencies,and find their next internal role.Some top companies have mentorship programs for employees in different career stages,and some host talks and connectivity events to provi
305、de career development and networking opportunities.Mobility is about experience,not only promotions.Lateral moves can also enable people to recharge,expand their skills,or find a position that is a better fit.Yet most organizations undervalue lateral movement or make it difficult.Rotational programs
306、 are often geared to recent graduates who are management trainees,but companies can design internal mobility options for a broader pool of employees.Stints in different departments or geographies can keep midcareer workers learning and feeling energized.An inclusive work environment.It is well estab
307、lished that diverse teams produce better business results,in part by bringing in a broader range of ideas and helping organizations break out of groupthink.30 For many companies that are lagging on measures of diversity,improvement starts with a more expansive approach to hiring,casting a wider net
308、in recruitment and giving greater consideration to candidates who may not fit the mold of the past.As it becomes the norm for large companies to report on diversity metrics and pay gaps,the imperative to make hiring reflect the broader community is becoming more urgent.29“A call to action:Provide em
309、ployees with room to grow,”McKinsey Organization Blog,February 14,2022.30 See,for example,Diversity wins:How inclusion matters,McKinsey&Company,May 2020;Paul Gompers and Silpa Kovvali,“The other diversity dividend,”Harvard Business Review,JulyAugust 2018;and Women matter:Gender diversity,a corporate
310、 performance driver,McKinsey&Company,2007.27McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageBut hiring is only a preliminary step.Many companies now have diversity targets for hiring in their general workforces and their leadership ranks.What
311、 sets the P+P Winners apart is not just their commitment to diversity but also their commitment to making their workplaces more inclusive.It is not enough to bring more diverse hires on board;it is important to deliver a positive workplace experience and put measures in place to retain and advance d
312、iverse talent over time.Affinity groups,for example,can help people connect with a supportive community.Offering targeted mentorship,ensuring that project teams are diverse,being thoughtful about workplace accommodations for disabilities,and recognizing a wider set of holidays are other ways to make
313、 the workplace inclusive.Companies can also reduce pay gaps across different groups of employees.A global tech firm began publishing regular gender pay gap reports measuring current status of the pay gap,historic progress,future targets,and initiatives for reaching these goals.If retention is an iss
314、ue for a certain demographic,the underlying causes should be explored and addressed.To ensure that women are not derailed as they move from the early to the middle stages of their careers,for example,companies can offer generous paid parental leave and childcare benefits.Some P+P Winners go even fur
315、ther,with daycare facilities on site and dependent-care assistance programs.During the pandemic,a global consumer company offered a range of virtual childcare services for all age groups of children,summer and skill camps,coaches for new parents,and one-on-one child minders.Shifts in leadership beha
316、viorP+P Winners focus on developing outstanding leaders.Bosses and supervisors play an outsize role in determining employees job satisfaction,which in turn affects their well-being.31 Sadly,three-quarters of respondents in one recent survey said that the most stressful aspect of their job was their
317、immediate boss.32 Frontline and mid-level managers are a particularly important leveland people often need training to step into these roles.One way to ensure effective leadership and stop a leaders bad tendencies from harming morale or effectiveness is creating a system of 360-degree feedback.Emplo
318、yee involvement.Leadership matters for driving results.All leadership styles are not created equal,however.A top-down style can be effective,but employees should not feel that major directives are dropped on them from above,with a disconnect between the vision and the realities they face on the grou
319、nd.P+P Winners ensure that employees feel involved in bringing the specifics of a companys vision to lifean approach that can give them more of a sense of ownership,increasing the likelihood of creating loyalty and value.This does not necessarily imply an overreliance on crowdsourcing or the total a
320、bsence of top-down decision making.But it is a more engaged style of leadership that makes room for employees to have a voice.The most effective leaders listen as much as they talk,recognizing that good ideas(and the next generation of leadership)often come from those on the front lines.They conscio
321、usly follow an approach that enables employees to speak up,not only to involve them in establishing the companies vision and offer ideas but also to state frankly when things are not working.Autonomy.Operational discipline is important,and companies where it is lacking may be able to harvest low-han
322、ging fruit by tightening up processes and accountability.But there is a balance to be struck.Focusing solely on how employees can become more efficient at what they did yesterday may close off avenues for growth and improvement.Some companies that have taken lean principles to extremes have found th
323、emselves less able to respond when market conditions change.P+P Winners insist on efficiency,but they allow some room for trying new things.They take a more expansive approach,aiming to empower a workforce that is trained to think and capable of adapting.31“The boss factor:Making the world a better
324、place through workplace relationship,”McKinsey Quarterly,September 2020.32 Mary Abbajay,“What to do when you have a bad boss,”Harvard Business Review,September 2018.28McKinsey Global Institute|Performance through people:Transforming human capital into competitive advantageLeaders in P+P Winners give
325、 team members the autonomy to make and execute decisions without excess bureaucracy or micromanaging.A consumer electronics giant,for example,undertook a massive transformation of its organizational structure,adopting a flat structure with only three management layers that gave its employees more le
326、eway in decision making.Its focus on team targets and accountability,with tight and fast feedback loops through digital systems,enabled speedy execution,with product iterations often released in less than a week.Bottom-up innovation and collaboration.Innovation is one of the key differentiators that
327、 sets P+P Winners apart.They promote a culture of“intrapreneurship”that makes it possible for people to collaborate and share expertise and ideas across functions.This is not a simple matter of putting out a suggestion box.Beyond creating forums for new ideas,leaders allocate resources to pilots and
328、 full-fledged execution.A dedicated innovation unit,for example,with a rotating group of cross-functional experts and an agile,test-and-learn launch model,could bring new products to test markets and commercialization.All of this should happen within the broader context of the companys identity and
329、vision for the future.How can companies embark on a transformation and manage the process?Changing entrenched systems and long-established ways of doing things is never easy.One way to think about approaching this task is to follow a five-step road map:aspire,assess,architect,act,and advance.Researc
330、h has shown that the odds of managing change effectively are greatly increased if an organization starts by setting an aspirationin this case,articulating how much more employees could achieve and how much more the organization could deliver to them in return.33 With a larger vision in mind,companie
331、s then need to clarify their true starting points by diagnosing the current state of the organizations health.This assessment can happen through surveys,interviews,and focus groups.Asking employees about issues that may have gone unquestioned for years,such as the mix of benefits or meeting and comm
332、unication norms,could reveal areas that are ripe for change.Even if its painful,it is important to dig deeper on areas of employee discontent and to focus intently on whether frontline managers are actually equipped to lead and coach people.With hard data and unvarnished opinions in hand,companies c
333、an then create a blueprint to build greater employee empowerment,a culture of innovation,and a more engaging workplace.It should feature sequenced milestones,with real thought about how to set up and drive priority initiatives,keeping in mind that traditional hierarchies may not be the best drivers of change.Its important to be prepared for a long-term,continuous process,however.Cultures can be st