“Everything, everywhere, all at once.” Yes, it was this year’s Best Picture at the Academy Awards. But it’s also the way CEOs are feeling about the massive changes shaking their organizations, last year, this year, and most probably next year too.
The changes are wide in scope, ubiquitous across functions and organizations, and indeed happening all at once. Like the movie, they are fast-paced, confusing—and demand answers. And they keep coming: How can organizations strike the right balance between in-person and remote work in the postpandemic era? Harness the powers of generative AI to boost organizational efficiency and productivity while managing the risks? Deal with “quiet quitting” and the desire for self-authorship? Create new institutional capabilities that will give a competitive advantage? And these are just the changes we know about today. What is lurking around the next corner?
In short, we have entered a new era. Call it the age of perpetual organizational upheaval. It demands new approaches to organizational management to replace models designed for a less complex, less unstable bygone age. In other words, it’s time for organizations to step up from structure and streamlined processes to more dynamic, flexible, and intuitive approaches.
The way in which companies navigate these ongoing shifts—either seizing the opportunities they offer or being weighed down by the challenges they present—is emerging as a determining success factor. Such questions are now front and center for many CEOs, and they are looking for solutions.
That is why McKinsey’s launched its first State of Organizations report, published in April 2023, which highlighted the ten organizational shifts business leaders deem the most significant. Here, we take a concise look at those shifts and the four “superpowers” that can help CEOs find appropriate responses.1
Organizations are now standing in the way of the CEO
Our research into the organizational upheaval now taking place is backed up by a survey of 2,500 business leaders in countries across Asia, Europe, and North America. Two-thirds of them tell us that their organizations are overly complex and inefficient, while only about half say their organizations are well prepared for the change that is needed. Rather than facilitating delivery of mission and strategy, organizational structures are standing in their way.
With upsets coming from all directions—whether they be supply chain disruptions, surging inflation, or spikes in interest rates and energy prices—companies need to focus on being prepared and ready to act at all times. The key is not just to bounce out of crises, but to bounce forward—landing on their feet relatively unscathed and racing ahead with new energy.
Some of the organizational shifts emerged as legacies of COVID-19, especially the conundrum over remote work. Since the pandemic, about 90 percent of organizations have embraced a range of hybrid work models that allow employees to work from off-site locations for some or much of the time, depending on the nature of their work, business, industry, and geography. But it’s raising huge questions: How can companies provide structure and support to all employees regardless of where they are? How do they address the potential risks to company culture and the sense of belonging, as well as to collaboration and innovation?
The pandemic exacerbated other trends, including the continuing skills mismatch in the labor market, which the onward march of technology is intensifying. It threw a harsh light on the challenge of workplace motivation—sometimes referred to as the “great attrition,” with workers leaving their jobs, or quiet quitting, essentially downscaling their efforts on the job. And it exacerbated issues of employee mental health. Then there’s institutional capability building, which is so critical in a time of technological ferment. We see many companies announcing tech or digital elements in their strategies without necessarily having the right institutional capabilities in place to integrate them.
Four superpowers that can help CEOs
The confluence of shifts taking place make these organizational matters a strategic issue that requires a strategic, top-level response. CEOs need to step in; the company’s well-being depends on it. McKinsey research has consistently shown that an organization’s health correlates to its financial performance: when companies invest in health, capability building, and people, performance benefits.
Here, we focus on four superpowers that will help CEOs address the organizational upheavals around them: the competitive advantage of speed, the power of harnessing technologies that augment human capabilities, the importance of focusing on “forgotten” talent, and a new style of leadership that is more self-aware and in tune with the times.
The need for speed
Speed is a true superpower for any company and the only way to be prepared for a world of rapid change.2 McKinsey research shows that, compared with peers in slow-moving companies, leaders in fast-moving organizations report 2.1 times higher operational resilience, 2.5 times higher financial performance, 3.0 times higher growth, and 4.8 times higher innovation.3 Amazon, for one, was built on speed, with fast decision making based on short memos, work concentrated in small “pizza” teams, and a mantra of getting big fast.
Achieving speed means giving power back to the people, allowing them to take decisions, and removing levels of hierarchy between top management and the front lines. Ways to do that can include forming smaller, cross-functional teams that pursue their own ideas (and get a budget for it); providing clarity on who makes which decisions and how; using inspiring role models to embody specific ideas in a meaningful and visible way; offering a well-tailored change narrative; and eliminating unnecessary meetings, events, and travel to allow people to focus on what really matters. Companies leading the way, such as Allianz, Haier, Microsoft, and Nucor, are developing new architectures that feature collaborative networks of self-managing teams that operate in rapid cycles and focus on creating value for their stakeholders.4
Speed needs to be applied not for its own sake but with some clear end-goals in mind. A key question to ask is, what value is currently being trapped—and where? The bottlenecks could be functional groups that isolate themselves from others, computing systems that are incompatible, and overly complicated procurement and other administrative processes, among others. Fixing these bottlenecks will depend on whether the existing operating model requires only a tune-up or a full-scale rethinking. CEOs should take a system view of how to cement the connections across all elements of the operating model—strategy, structure, process, people, and technology. In other words, they should come up with a new organizational architecture—and quickly. In our experience, the most successful operating-model transformations tend to complete their main phases in fewer than 18 months.
Human and machine: When technology augments our capabilities
Ever since OpenAI dropped its ChatGPT generative AI (gen AI) algorithm in December 2022, gen AI has dominated discussions in boardrooms and management suites. ChatGPT and other large-scale language models have an uncanny ability to trawl through huge amounts of data to create content in response to a user prompt. For businesses, the potential applications include crafting personalized marketing, social media, and technical-sales content, generating task lists for efficient operational execution, and, in risk and legal, pulling from vast amounts of legal documentation to answer questions.5
By approximating human behavior closely, gen AI could potentially replace some roles. Yet its greatest power may be when it works with human input and intervention, essentially augmenting people’s capabilities and enabling them to get work done faster and better. That’s actually been the bigger story of technology for the past few hundred years, from the steam engine to the personal computer.
Technological change requires organizational change. Even before the advent of gen AI, applied AI was carving out a role as a useful tool that could be harnessed to build better organizations. Some companies have deployed AI to create sustainable, long-term talent pipelines, for example, using AI-enabled software to match job candidates’ behavioral attributes to open positions. AI can drastically improve ways of working, such as when a fully integrated system manages budgeting, invoicing, time tracking, and meeting scheduling—or even orders lunch for employees when they scan into the building.
With all of these efforts, a key question remains open: What does it take to embed AI and other advanced technologies into corporate culture? From what we have seen, it requires building a perpetual learning culture. Organizations need to be sufficiently flexible to redesign roles and adjust the workforce as the technologies advance in order to make the most out of them. Companies that report the highest returns from AI to date are nearly three times more likely than others to use a variety of capability-building programs such as experiential learning, self-directed online courses, and certification programs to develop technical employees.
Focusing on ‘forgotten’ talent
Of the most important changes highlighted in our State of Organizations 2023 report, about two-thirds relate to talent issues. That’s perhaps inevitable: without the right talent in the right places with the right motivation and incentives, organizations will struggle in the best of times, and any new organizational model will likely not work. A relentless focus on talent is the only way to bridge a huge capability chasm, since only 5 percent of our survey respondents say their organizations have the capabilities they need.
Much of the literature on talent tends to focus on frontline and high-potential employees. But it is critically important not to neglect the others—the ambitious and hard-working people up and down the organization, especially in middle management, who also need to be motivated but are all too often forgotten.
To keep motivation throughout the company strong, it’s not enough for CEOs and their teams to focus their retention and incentive efforts on today’s top performers; they will need to review and sharpen employee value propositions and tailor them for everyone. That means focusing on the things people at different levels of the organization care about, especially those in middle management: working in a great company (the organization’s culture, values, societal impact); being supported by great leadership; having a great job (access to coaching, mentorship, and learning opportunities); and achieving great rewards (recognition for a job well done). At the Danish toy maker Lego, for example, all employees—from hourly factory workers to salaried executives—can take universal parental leave of 26 weeks. AI can come in handy with motivational issues too: business leaders can use advanced analytics and organizational data to spot patterns and identify the employees at risk of leaving—and then develop specific interventions tailored to retain them.
A new style of leadership
Just who is a “leader,” anyway? At companies such as Decathlon, the world’s largest sporting goods retailer, or Mars, a US consumer goods giant, the definition of leader is very wide—often including anyone who takes an initiative to lead. And elsewhere, for those who fit more traditional definitions of leadership, the boundaries are shifting. Leaders need to move from being managers seeking incremental improvements to becoming visionaries with the courage to craft a purpose and imagine and pursue the future. Personal authenticity is now a “must.” Today’s expectation is for leaders to show up at work not just as professionals but also as humans. The siloed hierarchies of the past are falling away, replaced by networks of autonomous teams working together in a coordinated rather than controlled environment. Deep strategic thinking, exploration, and social connection are the new management watchwords of our era.6 At Mars, for example, when the company was revamping its pet care division, it went several levels down to junior managers and asked them to help shape the future organization. “The organization chart of the 1850s that had hierarchy at its core is no longer relevant,” says CEO Poul Weihrauch. “We need to build for communities, not for hierarchies.”
The superpower here is to make leadership and change personal. Ultimately, employees will only change if they want and decide to do so. To encourage them, organizations must give leaders and employees alike the space to explore a proposed change and understand how it relates to their own values and behaviors. Lego, for example, has a “Leadership Playground” model to ensure everyone is heard, contributing, respected, and valued. In this playground, anyone can volunteer to lead groups focused on employee health and well-being, innovation, and creativity. Finally, self-reflection is a critical tool: leaders need to ask of themselves and others, “What did we do—or not do—to create the current environment, and what’s our role in changing it?”
There’s a lot to contemplate here—but that’s inevitable given the everything, everywhere, all at once era that organizations are now living through. CEOs won’t win any Oscars for managing this upheaval. By making speed, technology, talent, and leadership competitive superpowers, they can work to improve their company’s organizational health and build the resilience they’ll need for the changes that are sure to be around the next corner.