Beyond Performance | Scott Keller

Summary of: Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage
By: Scott Keller

Introduction

In ‘Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage,’ Scott Keller explores the importance of maintaining organizational health alongside financial and business performance. The book emphasizes the significance of adapting to new market dynamics, evolving to stay competitive, and the pitfalls of focusing purely on short-term gains at the expense of long-term organizational well-being. Drawing from research conducted by McKinsey & Company, Keller presents a framework consisting of the ‘5As,’ which are essential for achieving success in both performance and organizational health.

Toyota’s Failed Bid for Glory

In 2005, Toyota aimed to become the world’s top automaker by exceeding General Motors (GM), and its 39% profit jump in 2006 put it on track. However, to support this growth, the firm needed to build new relationships with non-Japanese suppliers, which proved challenging. The firm lacked senior engineers to train and oversee suppliers, causing difficulty in maintaining high-quality standards. This led to a fall in its organizational health and performance, with a recall of certain models due to safety issues in 2010. The company’s bid for short-term profit increases had a detrimental effect on its long-term success.

Sustainable success through organizational health

A successful business is more than just executing financial goals. Organizational health, defined as an organization’s ability to align, execute, and renew itself, is crucial for sustained exceptional performance. In fact, companies that prioritize organizational health are almost three times more successful than those that only prioritize performance. Leaders must balance their instincts with data and analysis to make sound business decisions. To thrive in the long run, companies must evolve and adapt to new challenges while simultaneously pursuing top results. Those that cannot handle change will become extinct. The average lifespan of firms on the S&P 500 index has decreased drastically, from 45 years in 1955 to 17 years in 2009. Healthy organizations possess critical attributes such as evolution, agility, adaptability, and flexibility, making them viable in both the short and long term.

Corporate organizational health

McKinsey & Company’s research revealed that long-term corporate success heavily relies on organizational health. The authors surveyed 500 organizations, 600,000 respondents, and 6,800 top executives to develop their recommendations. Their main conclusion is that half of any company’s success over time depends on its long-term health. Public expectations of long-term profitability determine up to 80% of a firm’s market value, so neglecting long-term health will lead to failure. The authors conducted direct interviews with 30 CEOs and executives, reviewed their research, and presented their findings for scholarly review. The Change Leaders Forum further assessed their conclusions.

Leadership and Organizational Health

Leaders can enhance the health of their organizations by following a well-designed process that integrates performance and health. The process involves answering five crucial questions: determining the destination, assessing readiness, identifying necessary actions, managing the journey, and maintaining momentum. These questions form the “5As,” also known as the five frames of performance and organizational health. Addressing these challenges sets a direction for ongoing profitability and a lasting culture, leading to a thriving organization. Although not a checklist, these frames help leaders understand and improve the health of their organization while also enhancing its performance.

Building a Strong and Flexible Organization

To create a robust and adaptable organization, it’s essential to establish a clear vision for change and strategic objectives. Research and gather hard facts about market dynamics, competition, and future opportunities. Set goals that are ambitious but achievable for medium-term flexibility and change to achieve solid performance and sustainability. Involve all firm leaders in goal-setting, both for organizational health and performance goals. It’s crucial to be explicit about health goals, just as with performance goals, and avoid wishful thinking while defining a strong organization within the existing framework.

Improving Organizational Performance

To improve organizational performance, evaluate your company’s opportunities and resources to achieve its goals. Ensure your firm has the necessary “strategic capabilities” to meet performance objectives. Examine the strategic capabilities of successful companies like IBM’s “consultative sales force” and Coca-Cola’s brand. Explore your employees’ mindsets to determine why they behave the way they do. Inspire positive thinking about the firm to improve performance and organizational health. Use focus groups to uncover your employees’ thoughts and opinions. With a focus on strategic capabilities and a positive corporate culture, your firm can achieve its vision and goals.

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