Leading Off: A leader’s guide to effective operating model transformations

ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

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Brought to you by Alex Panas, global leader of industries, & Axel Karlsson, global leader of functional practices and growth platforms

Welcome to the latest edition of Leading Off. We hope you find our insights useful. Let us know what you think at Alex_Panas@McKinsey.com and Axel_Karlsson@McKinsey.com.

—Alex and Axel

Many leaders are reimagining how their organizations work in the face of technological advances, changing customer preferences, and other disruptions. But finding—then implementing—the right operating model to create value is a complex, ever-evolving challenge that requires companies to radically rethink their processes. This week, we look at how leaders can navigate operating model redesigns and avoid typical pitfalls to set up their organizations for success.

An IDEA

An image linking to the web page “How to get your operating model transformation back on track” on McKinsey.com.

Steer clear of six mistakes

Operating model makeovers may have different names and approaches, but their goal is the same: to shrink the gap between strategy and performance. To achieve this objective, leaders should mind six common pitfalls that often hold these transformations back, say McKinsey’s Ákos Légrádi, Deepak Mahadevan, Olli Salo, Tom Welchman, and David Kincsem. For example, some companies fail to establish clear transformation targets and instead cite general aspirations, such as “greater focus on value” or “becoming AI and digital first.” “The best transformations present a combination of operating model metrics (for example, efficiency and speed) and concrete, quantified business benefits (for instance, margin improvements from reduced costs driven by digitalization),” the authors say. Other frequent mistakes include pursuing technology and data changes separately from organizational changes and failing to address culture and leadership issues. To learn more about operating model transformations and McKinsey’s “Organize to Value” approach, register for a webinar with Senior Partners Alexis Krivkovich and Brooke Weddle on Tuesday, September 30 .

A BIG NUMBER

63%

That’s the share of respondents who said their companies’ operating model redesigns met most of their objectives and improved performance, according to a global, cross-industry survey of 2,000 executives. While failure rates remain high, they are improving. In a 2014 survey on the topic, just 21 percent of executives said their redesigns led to better performance, note McKinsey Senior Partner Brooke Weddle and her coauthors. The completion rates of transformations have also improved: 79 percent in 2025, according to the latest survey’s respondents, up from 51 percent in 2014 .

A QUOTE

“Today’s leaders know that they need to abandon timeworn industry playbooks and instead organize themselves to embrace new, agile ways of working that can deliver real value now.”

That’s McKinsey’s Arsen Storozhev, Jason Inacio, Olli Salo, Ruben Schaubroeck, and their coauthors on lessons that telecom companies have learned in pursuing agile transformations. Their interviews with executives from six telcos around the world revealed that while these firms reorganized in different ways to fit their own needs, their agile transformations shared some common features. “To build a company fully geared to deliver value, each company shifted from a legacy of functional silos, complex processes, and unproductive busywork to a team-based, goal-oriented model,” the authors say.

A SPOTLIGHT INTERVIEW

An image linking to the web page “Keep it simple and keep moving: An interview with Claudia Toussaint” on McKinsey.com.

When designing an operating model transformation, organizations need to identify their top priorities for change as well as what should stay the same. That’s one of the key lessons from the recent operating model redesign at Xylem, a global water technology company, according to Claudia Toussaint, the company’s chief people and sustainability officer. In an interview with McKinsey’s Brooke Weddle, Toussaint says the transformation focused first on culture and was intentional about retaining its purpose-driven ethos and reputation as a sustainability leader. Xylem’s top executives also held one another accountable for modeling the right behaviors to lead their teams through the transition. “Calling people out ended up being more about ‘I’m calling you in,’” Toussaint said. “This simple turn of phrase creates a way for a leader to show up differently. You can’t just put it on a piece of paper; you have to put in the time and do the work as a leadership team.”

RESIST TEMPTATION TO TINKER

An image linking to the web page “How the right operating model can fix a strategy that falls short” on McKinsey.com.

Since org charts were first put to paper 170 years ago, they’ve been an easy target for change when companies’ strategies fall short. “It sits right in front of the CEO—it’s the people around the table—and it feels very addressable,” says McKinsey Partner Richard Steele. But tinkering with org charts is not enough to launch an effective operating model transformation. “Starting with structure creates a raft of other problems that need to be addressed,” Steele notes in an episode of the McKinsey Talks Talent podcast. “You have all the same business problems as the day before, but now you have to explain the structure change, plus get used to playing in a new formation.” To decide which transformation approach is right for their organization, Steels says leaders should make a solid business case that is based on facts and focused on creating value.

Lead by transcending transformation missteps.

— Edited by Eric Quiñones, senior editor, New Jersey

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