The State of Organizations 2023 - Flipbook - Page 10
CHAPTER 1: TEN DEEP DIVES
A renewed
efficiency drive
The focus of measures to reduce organizational
complexity and inefficiency is shifting from structure
and processes to people.
W
hat’s changing?
Organizational inefficiencies can be magnified when
times are tough. Redundant processes or confusion over
roles and responsibilities can impede business leaders’
quick decisions and actions, limiting their own and their
organizations’ efficiency. But boosting efficiency is
about more than managing immediate crises. Getting it
right offers substantial value opportunities.
Yet today’s organizations continue to be plagued by
overly complex structures that lead to inefficiency, our
survey reveals. Only about one-third of respondents
say their organizational structures are simple enough
that they don’t affect the business significantly. The
remaining roughly two-thirds say their companies are
either complex or very complex and, therefore, are
more likely to experience business inefficiencies.
McKinsey research shows, for example, that decision
making takes up a huge proportion of managers’ time—as
much as 70 percent of it for some C-suite executives.
The opportunity costs are staggering. For the average
Fortune 500 company, they typically equal more than
half a million days of managers’ time, or $250 million a
year in salaries. A McKinsey survey of more than 1,200
managers across a range of global companies shows that
there is a strong correlation between quick decisions and
good ones, suggesting that a commonly held assumption
among executives—namely, “we can have good decisions
or fast ones but not both”—is flawed.
While efficiency itself is a perennially important
topic, the aspects relating to people have increased
in relevance. Root causes of inefficiency highlighted
by our survey include unclear roles, redundant
activities, and too many meetings. Improving
efficiency requires going beyond focusing on
structure and process to take a people-centered
approach in decision making. In other words,
organizational leaders must first listen to employees
about the obstacles to efficiency that they are
experiencing and then collaborate with them to
come up with solutions.
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The benefits of getting it right
In today’s uncertain business
landscape, companies are
pulling efficiency measures
out of the closet once again.
Companies across industries, from tech platforms and
delivery services to retailers, are laying off employees
in an attempt to become more efficient. About half
of the more than 2,500 leaders that participated in
McKinsey’s State of Organizations Survey believe
that their companies may be negatively affected by
external market factors in the next few years. And
more than 30 percent of respondents say efficiency is
one of their top three organizational priorities.
First, our experience shows that an organization’s
addressable cost base can be reduced significantly
through measures such as dismantling hierarchies,
simplifying structures, and more clearly allocating roles and
responsibilities to speed up decision-making processes.
Second, being more efficiently organized helps an
organization focus and build up speed in those areas
that matter, such as product and business model
innovation. McKinsey research shows that being able
to move fast is strongly correlated with economic
performance. A McKinsey survey revealed that during
the first 12 months of the COVID-19 pandemic, topdecile economic performers innovated nearly twice as
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