Financial payoff from “soft” management

by Erin McCune on September 5, 2007

in Management, Uncategorized

The latest McKinsey Quarterly describes research demonstrating that initiatives to address “soft” management issues—such as talent, culture, and values—may have a direct financial payoff. An analysis of hundreds of global companies has identified a strong correlation between organizational and financial performance. There seems to be an especially strong link between the bottom line and efforts to invest in skills, improve reporting relationships, increase the flow of ideas, and measure performance and risk.

The article identifies 9 key areas that support organizational excellence:

  1. Accountability – Reporting relationships and performance measurement ensure that people are accountable for business results.
  2. Capabilities – Internal skills and talent are sufficient to support the company's strategy and create competitive advantage.
  3. Coordination, control – Business performance and risk are measured and reported.
  4. Direction – People understand and are aligned with where the company is heading and how to get there.
  5. Environment, values – The quality of employee interactions (eg culture, workspace design) fosters a shared understanding of core values.
  6. External orientation – The company has constant 2-way interactions with customers, suppliers, partners, or other external groups to drive value.
  7. Innovation – The company generates a flow of ideas and embraces change so that it can sustain itself, survive, and grow over time.
  8. Leadership – Leaders at all levels shape and inspire the actions of employees to drive better performance.
  9. Motivation – Employees are inspired to perform and encouraged to stay with the company.

Read the article:

The Link Between Profits and Organizational Performance
McKinsey Quarterly
September 2007

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