McKinsey Quarterly

Capturing the value of ‘one firm’

| Article

The 1992 US Men’s Olympic basketball team—often referred to as the “Dream Team”—is a fitting analogy for the upside, and downside, of working together as “one firm.” The team included some of the greatest players in the sport (Charles Barkley, Larry Bird, Patrick Ewing, Magic Johnson, Michael Jordan, Scottie Pippen, Karl Malone, and so on). Yet in its first month of practice, the Dream Team lost to a group of college players by eight points in a scrimmage. In the words of Michael Jordan, “We got killed today. ... We’re so out of sync. ... We don’t have any continuity at all.” Scottie Pippen put it more succinctly: “We do not know how to play with each other.” This wake-up call—to operate as one team—was what they needed to come together and ultimately dominate the competition. They scored more than 100 points every game and took home the gold.

The value of working together is intuitive to most leaders. Capturing the full value of operating as one firm, however, is elusive for most. Those who drive integration and standardization from the top down often stifle business-level innovation, entrepreneurship, and client responsiveness, which can further create talent attraction and retention issues. Those who emphasize local autonomy, however, often create massive inefficiencies, competing priorities, and inconsistent client service. This often leaves organizations both competitively vulnerable and held hostage to rainmakers, as the client relationship is largely owned individually rather than institutionally.

The leaders of most large, global firms have endeavored to achieve the best of both worlds through the creation of a matrixed organization. The idea is to capture economies of scale, scope, and skill while creating strong accountability and ownership by pushing decision making down as close to the customer as possible. Unfortunately, matrices usually create another set of issues: lack of decision-right clarity, which drives slow decision making and siloed behaviors aimed at maximizing individual goals; “lowest common denominator” answers as a result of the many committee structures employed; and cost blowouts due to the duplication of support.

In what follows we will further define what it means to operate as one firm, share the latest research into the value of doing so, and—most important—discuss what it takes to overcome entrenched identities and power dynamics to successfully shift to a one-firm operating model, thereby capturing scale benefits while enabling local responsiveness.

What is a one-firm firm?

Historically, leading professional-services firms are considered the gold standard for operating as one-firm firms. Whether Goldman Sachs, McKinsey, or Latham & Watkins, these firms are characterized by, in the words of former Harvard Business School professor David Maister, “a remarkable degree of institutional loyalty and group effort that is clearly an ingredient in their success.” Contrast this standard with a model that emphasizes individual entrepreneurship, autonomous profit centers, internal competition and/or highly decentralized, independent activities. As a senior partner at Goldman Sachs put it, “You learn from day one around here that we gang-tackle problems.”

Maister continues, “One-firm firms place great emphasis on firmwide coordination of decision making, group identity, cooperative teamwork, and institutional commitment.” In practice, this means hearing “we, us, and our” language versus “me, mine, and theirs.” It means there is one brand identity and a “firm way” of doing things (such as the sales process, budgeting, and resource planning and deployment). It means field leaders are constantly making client introductions across natural silos, pulling together cross-business teams to address client needs, and drawing on firm-optimized shared platforms and functional support in doing so.1

The limitation of using elite professional-services firms as a model, however, is that they are often built on the very idea of one firm from the beginning. But changing to a one-firm culture is not impossible, as seen by some of the biggest success stories in business over the past three decades. In the 1990s, Lou Gerstner’s turnaround of IBM was founded on the principle that the company would collaborate as “one IBM” across businesses.2 In the 2000s, Alan Mulally’s turnaround of Ford was based on the “One Ford” plan,3 which he described as “moving from eight people steering and one person rowing to eight people rowing and one person steering.” In the 2010s, Satya Nadella’s turnaround of Microsoft came from building “one company, one Microsoft—not a confederation of fiefdoms.” He emphasized that “Innovation and competition do not respect our silos, so we have to learn to transcend those barriers.”4

Some may assume these examples are outliers, but a look into the highest-performing CEOs of the 21st century shows that’s not the case at all. Lockheed Martin’s Marillyn Hewson explicitly pursued a strategy of “One Lockheed Martin.” For former Shire CEO Flemming Ørnskov, it was “One Shire,” while Sony’s Kazuo Hirai rallied his people around “One Sony.” Ivan Menezes has driven “One Diageo.” Jim Owens coined his strategy “Team Caterpillar.” Likewise, Johan Thijs at KBC uses “Team Blue,” in reference to blue being the color under which all the group’s units in all countries operate. Ronnie Leten rallied his team around, “The Atlas Copco nationality.” At Publicis, Maurice Lévy promoted “The Power of One.” The list goes on and on.

One firm means hearing “we, us, and our” language versus “me, mine, and theirs.” It means there is one brand identity and a “firm way” of doing things.

What is the value of operating as one firm?

Our research shows unequivocally that it pays to be a one-firm firm. We conducted an extensive analysis of our proprietary Organizational Health Index (OHI) data, which gives us an X-ray into how firms are run at a granular level. More specifically, we analyzed employee data from 2,000 organizations across 100 countries regarding 37 discrete management practices and nine effectiveness outcomes.5Beyond Performance 2.0: A Proven Approach to Leading Large-Scale Change, New York, NY: John Wiley, 2019.

To define an organization as being a one-firm firm we analyzed coherence across management practices. To bring to life the methodology, consider two different organizations, each with four operating units. In the first organization, no matter which unit you look at, employees report the same degree of relative emphasis on management practices related to accountability, coordination and control, leadership, innovation, and so on. This is a company operating as a one-firm firm. In the second organization, results from employees in each of the four units show that their unit has a very different prioritization of management practices from the other units. This is a siloed firm, not a one-firm firm. From an analytics standpoint, the first organization (the one-firm firm) has a high cohesion score somewhere in the range of 0.85 to 1.0 out of 1.0, while the second organization has a low cohesion score, somewhere closer to zero than to 1.0.

The data shows, unsurprisingly, that not every successful firm operates as one firm. It also shows, however, that those that do are far more likely to be successful. Firms that have adopted a one-firm operating model are 2.3 times more likely to be in the top quartile of healthy and high-performing organizations (exhibit).

Companies that have adopted a one-firm operating model are 2.3 times more likely to be in the top quartile of high-performing organizations.

Any way you cut the data, the message is clear: for those firms that achieve a one-firm operating model, the rewards are significant.

Most leaders intuitively know this to be true. The real question, however, is how to make it happen.

Not every firm that is successful operates as one firm, but those that do are far more likely to be successful.

How can leaders capture the value of operating as one firm?

Companies wanting to capture the full value of working as one firm should brace themselves for the challenge. After what may be years of freedom and encouragement to operate in fiefdoms, how do you convince all employees that their individual interests are best served by one-firm mindsets and behaviors?

Most leaders are aware of the four change levers that decades of cognitive and behavioral psychology show can effectively reshape the work environment: create a one-firm understanding and conviction, reinforce the one-firm mindset with formal mechanisms, strengthen one-firm confidence and skills, and role model one-firm mindsets and behaviors. However, using each of these levers in concert to make a one-firm transition is a mighty challenge. Drawing on the full weight of our research and experience, let’s look at how leaders can drive a successful transition.

After years of freedom and encouragement to operate in fiefdoms, how do you convince all employees that their individual interests are best served by one-firm mindsets and behaviors?

Create a one-firm understanding and conviction

No change effort can succeed if colleagues don’t understand what is being asked of them and feel it makes sense. In a one-firm transition this requires leaders to:

Create a compelling one-firm strategic direction, and resource it to win. There must be a value agenda—one that spells out, with absolute clarity, the value that can be captured by working together as one firm. For example, at Satya Nadella’s Microsoft, the value comes from becoming a cloud-centric and mobile-first organization and developing open-architecture partnerships. At Ford, under Mulally, it came from vehicle platform consolidation, optimizing product mix, producing customer-oriented products, and improving the balance sheet. At Gerstner’s IBM, it came from transitioning to a broad-based technology integrator: growing IT services, becoming the architect and repository for corporate computing, and guiding technology strategy in the networked world.

Step one in creating a one-firm value agenda is to ground it in a bigger mission and purpose (at Microsoft, for example, it is about empowering every person and every organization on the planet to achieve more). Step two is to articulate practically how operating as one firm creates value specific to the organization. Step three, then, is to articulate a set of strategic initiatives that will enable that value to be captured. The final step is to get the top team fully aligned on moving toward a one-firm firm and to make sure any needed changes to target setting, decision making, and resource allocation will follow. On the latter point, this doesn’t just include financial capital but also human capital—top talent can be deployed full-time to drive the strategic initiatives aimed at capturing one-firm opportunities, and these efforts can be staffed up to ensure they make a difference.

Once the compelling strategic direction is set, it needs to be made readily understandable and communicated broadly throughout the organization. Some leaders hesitate at this point, as they worry that employees who are accustomed to operating autonomously will revolt. Our experience in these situations is that those who have the most success take a “rip the bandage off” approach—yes, there will be change; yes, it will be hard; yes, this is the right thing to do, and we want and need you on board with us to make it happen.

Explicitly redefine the organization’s social contract. A social contract is the implicit agreement among members of an organization to cooperate for collective benefit. In many organizations, the social contract is characterized by individual control and maximization (“my job is to deliver my P&L, your job is to deliver yours, and we’ll cooperate where it helps both of us”). To become a one-firm firm, the contract needs to shift to a focus on client integration and collective optimization (“my job is to bring the fullness of the firm to clients by leveraging our shared capabilities”).

Any communication of the one-firm strategy should be accompanied by making the change in the organization’s social contract, as well as the related “from-to” behavior change expectations and related rewards and consequences, explicit. Doing so gives colleagues time and motivation to reframe how they view themselves and their work so as to enable changes in behavior far ahead (and in anticipation) of formal changes to performance management and rewards. For example, sales leaders need to accept that while they no longer have the same control over pricing, process, and resourcing, they can now spend more time with clients, and the breadth and depth of impact they can have on them will be greatly enhanced. Similarly, senior leaders need to accept a shift from “representing my area on the top team/the firm” to “representing the firm in my area.”

It may sound straightforward, but we must offer fair warning: once the new social contract is made explicit, it is incumbent on leaders to reinforce clear one-firm expectations with timely coaching and feedback, and to enforce related rewards and consequences—even if it means taking action with those who may have been well respected and high performing under the fiefdom culture.

Organizations that have the most success going to a one-firm model take a “rip the bandage off” approach.

Reinforce the one-firm mindset with formal mechanisms

Any major organizational change requires that all colleagues be able to see that the new structure, processes, systems, and incentives support the change. In a one-firm transition, this means leaders must do the following:

Put a purposefully interdependent organization structure in place. It is hard to break down organizational silos if the organization is designed around them. Most firms have a dominant organizing axis, be it product, geography, function, or client segment. Results are driven by the sum of P&Ls from the dominant axis. To become a one-firm firm, a shift needs to be made so that no axis matters more than another; instead, each axis should have a clearly defined yet interdependent role in delivering the P&L of the whole firm.

In practice, this typically means there are at least three equal axes: the first is accountable for integrating clients/customers, the second for building products and capabilities, and the third for optimizing shared services and business enablement. Client/customer integrators have nothing to take to market without the product and capability developers, and product and capability developers cannot get to market without going through the client/customer integrators. Both client/customer integrators and product and capability developers will draw on the shared-services and business-enablement functions, whose mandate is to support them. Ultimately, in a one-firm firm, the individual mandate of all three becomes subservient to the collective mandate to optimize for the whole versus maximizing for any individual part.

Exceptions to this model exist, such as when there are regulatory reasons for further separation or in businesses that are so different from one another that there are few one-firm benefits to be had (for example, one business is B2B, while another is B2C).

Align one-firm targets and incentives; redefine the finance and HR role in the process. As Upton Sinclair once wrote, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Accordingly, the hard work of changing a firm’s incentive system needs to be done during the one-firm shift. Fundamental to doing so is ensuring that colleagues have shared and individual goals that reinforce one another and that are both outcomes based and behavior based (for example, being a consistently collaborative colleague).

Getting this right often calls for a significant change in role for the finance and HR functions. In firms that don’t operate as one firm, finance typically plays a heavily controlling role—much like it would in a holding company—driving the annual target-setting process and then putting tight controls on every P&L to ensure delivery. In one-firm firms, finance can become more sophisticated by providing decision support and forward-looking information on multiple axes, and by creating fair and comparable performance transparency that enables peer-led (versus finance-led) accountability to predominate.

HR often needs to step up to a stronger, more collaborative role with the business than it may have had otherwise, ensuring that the behavioral aspects of target setting and evaluation are well calibrated and consistent across the firm, that purposeful talent rotation is pursued to develop one-firm leaders, and that one-firm cultural reinforcement happens at all steps of the colleague journey (including recruiting, onboarding, placement, development, and advancement).

Strengthen one-firm confidence and skills

For change to be successful, colleagues should be equipped with the skills needed to succeed, and low-risk opportunities should be created to help colleagues build the confidence and capabilities to think and behave in new ways. In a one-firm transition, this requires leaders to do the following:

Foster a culture of trust and connectivity. A new strategic direction, social contract, organization design, and performance management approach are seismic shifts for individuals. Many have little idea how to be successful in this new environment. Four interventions can help aspiring one-firm leaders build a bridge from old ways of working to new.

First, build confidence and conviction by calling out and/or creating potent examples of the 1+1=3 impact achieved when colleagues solve for the firm versus their individual area. Celebrate what you want to see more of, and make it meaningful by showing how it enhances customers, the firm, individual employees, teams, and society.

Second, aggressively reinforce the idea that it is better to try, fail, and learn than to not try at all. This is particularly important on the shared-services front. When corporate functions take on activities previously under local control, early failures may be used as evidence that “this won’t work.” In truth, such failures offer the learning for “how it can work better next time.”

Third, invest in equipping colleagues to work through conflict constructively. This involves increasing self-awareness—understanding one’s own role in creating and resolving difficult situations—and upskilling colleagues in how to have challenging conversations. It also involves fostering an environment of open and constructive feedback, emphasizing both strengths and opportunities for improvement.

Last, it is vital to invest time in getting people across organizational silos together, to better understand the breadth of the firm and to socialize with one another. Greater familiarity will breed more proactive connections and constructive dialogue in pursuit of the one-firm strategic direction.

Build change-management muscle. Firms that have long operated as a federation almost always lack the internal capability to drive rigorous, programmatic, firmwide change. Successfully employing all four change levers simultaneously requires coordination and orchestration at the firm level, including, among other elements:

  • a clear scorecard with leading and lagging indicators of success hardwired into budgets
  • an integrated change road map specifying initiatives, activities, milestones, and resourcing, taking into account interdependencies and risk mitigation concerns
  • clear governance, decision-making processes, and regular monitoring and review mechanisms that enable plans to be adapted over time
  • a powerful, consistent change story with reinforcing, two-way communications mechanisms
  • chosen influence leaders that are equipped and mobilized at all levels of the organization
  • thoughtful orchestration of actions to create coherent journeys for colleague segments—methodically moving through the stages of awareness, understanding, adoption, and commitment

Role model one-firm mindsets and behaviors

If colleagues see their leaders, peers, and staff thinking and behaving differently, they may be inclined to do the same. In a one-firm transition, this requires leaders to do the following:

Communicate with one voice internally and externally. Many firms that don’t operate as one firm are saddled with multiple legacy brands. To become a one-firm firm, it is vital that these brands be retired in favor of one brand. Leaders may become accustomed to a hub-and-spoke management style where work gets done one-on-one, as opposed to in groups. This will need to shift to getting work done in meetings so that everyone is having one conversation, with a strict norm that one can disagree in the room but must commit outside once a decision is made.

Further, any reliance on leaders to cascade information deep into the organization should be forgone, as this rarely succeeds at carrying a one-firm message. Instead, one-firm communication from senior leadership (such as blogs from the CEO, webcasts with the senior team, and live reporting from leadership conferences) can be broadcast to all colleagues, then discussed at local levels in terms of “what is the implication for us, and how do we move forward to strengthen how we work together as one firm?”

Show leadership resolve (push through the pushback). One may think the best way to create a one-firm firm is through a highly consultative, collaborative, and empowering process.

Paradoxically, this doesn’t work. Instead, the shift needs a handful of leaders at the top who are maniacally committed to the cause and willing to “break glass” to get there. Challenges come in many forms, everything from early pilots not delivering fully on desired results to important leaders departing and sometimes taking their relationships with them to an overwhelming sense of “people do not want this” driven by their fear of losing control or not being successful in the new model. Those who succeed never question “if” one firm will happen; they constantly refine and sharpen “how” they are getting there.

In the short term, the one-firm shift rarely makes for a popular leader. Alan Mulally’s colleagues “bristled” at changes he instituted with his One Ford plan, but Mulally’s attitude was a resolute “buy in or leave the team.” In the long run, however, the pain of transition gives way to a deep and ever-increasing pride in belonging to a one-firm firm whose impact far exceeds the sum of its parts.

The shift needs a handful of leaders at the top who are maniacally committed to the cause and willing to “break glass” to get there.

What making the one-firm transition looks like in practice

While operating as one firm is powerful and well correlated to success, it should not be considered a panacea. Such cultures, once in place, can become self-congratulatory. Setting up mechanisms for internal self-criticism is vital. The idea of “ten on a scale of ten” for operating as one firm on behalf of clients is best kept unattainable. The closer one gets, the more the bar can be raised to new levels. One-firm firms can miss disruptive trends that more individualistic firms may identify earlier. This drawback can be mitigated by ensuring that growth-stage opportunities are scanned for and incubated by a formal management mechanism—one that operates against time horizon expectations that are different from those of the core business.

So what does one firm look like at a real company? Greg Case’s leadership of what his firm refers to as “Aon United” is an instructive example. When he took over the global broker, it was operated as a federation of acquisitions. Leaders were protective of their client relationships and looked to solve for their individual P&Ls.

“Our team inherited a wonderful set of assets from a truly iconic founder, but everyone viewed themselves as an individual entrepreneur, everybody wanted to do their own thing, and we’d all underperform as a result,” recalls Case. The ideal of Aon United was that if Aon’s employees put its clients at the center of all they did and supported one another and worked together as a global firm on their clients’ behalf, they’d gain and retain more of their clients’ business and be able to innovate and scale faster to meet clients’ needs.

To foster understanding and conviction, Case continually reinforces the Aon United narrative in quarterly earnings announcements, emphasizing it as one of the firm’s competitive advantages. What was once an umbrella for sixty sub-brands has become a single global brand: Aon.

He’s also made a number of changes to the firm’s formal mechanisms. The client service model, which had previously been left to local leadership, has been standardized. Operations have been consolidated to gain synergies. Senior leaders’ compensation is tied to a single, firm-level P&L. Leaders are expected to spend a day a week helping colleagues outside their own area to succeed. The restructured organization is more akin to a helix than a matrix—certain colleagues may report to two bosses, but for very different, clearly defined purposes that reinforce constructive interdependence.

Aware of his role-model status, Case virtually never uses “I, me, or my” but instead favors “we, us, and ours” and is quick to give others credit when good things happen. He reinforces the teamwork mantra of “You are either serving a client, or you are helping a colleague serve a client” and spends time working directly with client service teams to ensure that the best of the firm strengths and capabilities is being delivered. Every member of his top team (configured to represent every region, solution line, and function) has formally committed to a clear set of Aon United behavioral commitments and receives 360-degree feedback on their adherence to the high one-firm standards.

To build skills and confidence, the firm trained almost 10,000 leaders in multiday workshops focused on self-reflection and on what it means to “Lead Aon United,” as well as 5,000 colleagues in the field on what it means to “Deliver Aon United” to clients. It also created an online repository of educational materials to help colleagues understand the full breadth of the firm and embedded related skill building into all management development programs.

Case is the first to admit it’s been a “difficult and challenging path” and that there’s more opportunity ahead. Still, it’s been a fruitful journey. During the five-year intensive push on Aon United from 2016 to 2021, Aon’s market cap doubled from $28 billion to $65 billion, organic growth lifted from 4 to 9 percent, operating margin increased from 21 to 30 percent, and colleague engagement increased from 60 to 80 percent.

Much has been learned since David Maister’s initial research into one-firm firms. The value of operating as such has been proved both inside and outside professional services, and that value stands to be captured by leaders willing to do what it takes to grab it. If you’re such a leader, we encourage you to reflect on the following:

  • To what extent are we operating as one firm today?
  • What is the value at stake of making a shift further toward one firm?
  • What’s holding me/us back from capturing this value?
  • Is now the time to tackle those barriers?

With today’s management science, the answers to these questions need not be guesswork, and Dream Team levels of competitiveness are within reach of those leaders with the resolve to make it happen.

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