The State of Organizations 2023 - Flipbook - Page 11
fast as their low-performing peers in generating new
products and services.
Third, inefficient organizations with complex structures
often lack role clarity for their employees. McKinsey
has consistently found that improving role clarity
improves accountability, an outcome that is a critical
component of Organizational Health Index score. In
fact, organizations with high accountability scores
have a 76 percent probability of achieving top-quartile
organizational health—more than triple the expected
rate. What’s more, the independent effects of role
clarity are so powerful that they affect Organizational
Health Index scores directly—one of only four
management practices (among 37) that do so.
Issues to address
Inefficiency is a difficult nut for organizations to
crack. In our experience, when senior leaders try to
simplify their organizations to increase productivity
and effectiveness, they bump up against
governance and operational issues that often
directly affect people. Respondents to the State of
Organizations Survey point to seven root causes of
inefficiency in their organizations (Exhibit 4).
Issues in setup
The ways that companies self-organize and selfmanage—and the structures that they put behind
these efforts—can make it difficult for them to
achieve and sustain productivity improvements. If
an organization’s governance model is unwieldy
(for example, with meetings that don’t necessarily
involve the most relevant stakeholders), efficiency
may suffer. According to one estimate, 72 percent of
the average CEO’s work time is spent in meetings.
Challenges to increasing efficiency in organizations, % of respondents (n = 838)1
Inefficiencies in day-to-day operations
There are some day-to-day operating basics
affecting people that very few companies manage
to get right all the time, which can end up creating
significant inefficiencies. Without standardized
processes, employees might waste a lot of time
improvising procedures for routine work. A 2022
McKinsey Global Survey found that the top reason
for automating such tasks was concern about
the effectiveness of organizations’ business
processes. Isolated thinking and unilateral decision
making can lead to duplication if separate teams or
business units unknowingly build or redefine similar
processes to the detriment of them all. Survey
respondents point to overly complicated approval
processes as a root cause of inefficiency.
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A related obstacle is having too many meetings and,
by extension, having too many lengthy meetings.
Survey respondents point to seven root causes of organizational inefficiency.
Root causes for lack of simplicity within organizations, % of respondents (n = 461)1
Governance basics
Complex
structure
1
10
Operating basics
34
Unwieldy
governance
model
23
Too many
meetings; too
much time
spent on lowvalue activities
23
Slow approval
mechanisms
40
Unclear
roles and
responsibilities
32
Redundant
activities
28
Unclear
processes
All respondents were asked to select the top 3 trends for their organizations. For these data, an additional question was posed to a subset of respondents:
What are the root causes for a lack of simplicity in your organization? Multiple answers were allowed.
Source: McKinsey State of Organizations Survey, >2,500 leaders in organizations with ≥1,000 employees across industries in Canada, China, France, Germany,
India, Spain, UK, and US, May–June 2022
The State of Organizations 2023
Survey respondents say they don’t have enough resources to increase
organizational efficiency.
Too many layers with the wrong spans of control can
unwittingly encourage rework situations in which
one or more colleagues within an organization or
across multiple organizations are duplicating some
tasks and dropping the ball on others. Failing to
provide clear roles and responsibilities that state an
employee’s principal activities, required targets, and
evaluation methods also leads to confusion, slow
decision making, and duplication.
Exhibit 4
41
Exhibit 5
41
39
Insufficient
resources to
drive effort
Organizational
resistance
37
Limited capacity
and capabilities of
HR team
31
22
Unclear number
and priority of
opportunities
Lack of buy-in
from senior
managers
All respondents were asked to select the top 3 trends for their organizations. For these data, an additional question was posed to a subset of respondents:
What challenges do you see in increasing the efficiency of your organization? The response options displayed are the top options selected and represent a
sufficient number of responses to be meaningful.
Source: McKinsey State of Organizations Survey, >2,500 leaders in organizations with ≥1,000 employees across industries in Canada, China, France, Germany,
India, Spain, UK, and US, May–June 2022
Every superfluous minute spent in a conference
room or on videoconference represents a potentially
lost business opportunity. And as every anxious
project manager knows, slow responses can create
critical delays and potential cost overruns.
— Go deep. If going bold can be summarized as
making your aggressive cost control objectives
clear from the very start, going deep means looking
beyond interim targets and imbuing a cost control
approach in your organization’s working philosophy.
Obstacles to progress
Respondents to the State of Organizations Survey
highlight a range of obstacles that they continue to
encounter as they try to tackle the inefficiencies in
both setup and day-to-day operations (Exhibit 5).
Organizational resistance and lack of buy-in from
senior managers can feature among the obstacles
arising from structures and procedures, whereas
insufficient resources and limited HR capabilities
are more day-to-day blockers.
— Keep change simple. Avoid overly complex
concepts that are more often than not
dangerous stumbling blocks for successful
implementation. By setting a solid baseline
plan that focuses on the most promising levers
and value pools, an organization can be aligned
toward the common aspiration.
Finding the right formula
For many executives, the quest for higher efficiency
may seem daunting, and it might be challenging
to find the right starting point and approach.
However, based on hundreds of organizational
transformations, we see some consistent principles
for successfully embarking on the intended
efficiency journey and making the change stick:
— Go bold. Don’t be afraid to embrace radical
change right out of the gate. Slow and
steady doesn’t always win the race. In fact,
when making and sustaining general and
administrative cost reductions, incremental
change can be a recipe for failure.
March 2023
— Role model from the top. All transformative
efforts need to be supported at all levels of the
organization, but backing by an organization’s
CEO and others in the C-suite is first and
foremost. Their active involvement through
sponsorship, as well as credible participation
through receiving targets and being affected
themselves (for example, through bonus schemes
and cuts in central functions), is needed.
— Ensure that the transformation sticks. Rigorously
track the program’s impact to ensure that value
is consistently captured and deviations from the
plan are detected early in the process. Monitored
impact must be broken down into clear streams
with dedicated impact owners. Tracking change
impact and acting upon the data should be
anchored in an organization’s ways of working and
supported by a dedicated transformation team.
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