The State of Organizations 2023 - Flipbook - Page 29
C H A P T E R 3 : M A K I N G C H A N G E AT S C A L E
A
ny one of the ten organizational
shifts we have highlighted in this
report is a complex undertaking
in its own right. All ten together
amount to a supreme challenge
for business leaders and their teams, especially
in the current uncertain times, as economies and
companies are buffeted by economic volatility,
geopolitical tensions, and fundamental changes in
lifestyle and attitudes on work resulting from the
COVID-19 crisis.
Under the circumstances, it isn’t surprising that some
leaders feel disoriented, as the results of our State
of Organizations Survey highlight. The organizational
landscape has changed, and leaders may feel unsure
about how to capture new growth opportunities and
thrive in this unsettled world. In this section, we focus
on an integrated, four-part approach aimed at making
change at scale.
The first of the four parts is calibrating the ambition—
that is, developing a clear perspective that is
appropriate for the organization. This could be a
question of fine-tuning to flatten structures and
clarify roles and responsibilities better, or it could be
a more radical transformation. Second, there needs
to be a strong focus on cultivating the talent and on,
third, investing in the leadership that will take the
organization forward. And the final part is integrating
all the parts to ensure that change at scale can
take place with an organization that is prepared to
adapt to new situations, new challenges, and new
opportunities.
This integrated approach will be essential for a
company’s future health and prosperity, as well as its
ability to capture sustained value. McKinsey research
has consistently shown that an organization’s health
predicts its financial performance. Specifically,
our latest analysis finds that companies with topquartile organizational health in 2017 achieved TSR
(as measured between 2017 and 2022) three times
higher than the TSR of middle-quartile organizations.
Meanwhile, companies with bottom-quartile
organizational health saw their TSR drop by nearly 20
percent in that same period (Exhibit 25).
Organizational health is more than just culture or
employee engagement. It’s a company’s ability to get
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The State of Organizations 2023
everyone aligned on a common vision, execute the
vision effectively, and renew itself through innovation
and creative thinking. It’s critical for mobilizing
employees in the face of near-constant crises,
implementing new process steps or technologies,
and attracting and retaining talent.
[A hed] Calibrating the ambition
Companies that have successfully transformed their
operating models have been able to boost customer
satisfaction scores, work more efficiently, make
decisions faster, and raise employee engagement
scores. But such transformations can be incredibly
difficult to achieve. Consider that only 23 percent
of organizational redesigns are implemented
successfully, 44 percent tend to stall, and 33 percent
fail. CEOs can increase the odds of succeeding with
operating-model transformations by applying a
structured approach to change.
The critical first step is to calibrate the ambition
by developing a clear perspective on exactly what
changes are required for the organization to compete
more effectively. This calibration is the foundational
step that will set the course for what follows.
As part of this process, CEOs must identify the value
that may be trapped in their organizations because of
certain elements of the operating model. Functional
groups that isolate themselves from others,
computing systems that are incompatible, overly
complicated procurement and other administrative
processes—all of these can prevent organizations
from capturing speed and productivity gains and
financial outcomes that could create more value.
Organizational
health is more
than just culture
or employee
engagement.
With a sense of the scope of change required and the
key priorities identified, CEOs can determine how to
unlock value, deciding on one of two approaches:
— Tune up the existing operating model. Under
this approach, a CEO might look at ways to
capture straightforward sources of value without
remaking the whole operating model. Some
organizations, for instance, have rationalized
certain core business activities to remove any
redundancies, cleaned up their organizational
charts and executive committee structures, and
clarified who has which decision rights in certain
functions and business units.
— Reimagine the existing operating model. Under
this approach, a CEO may want to take steps to
transform the organization radically. The CEO
will need to present a compelling case for the
changes being proposed and a detailed overview
of their implications across the organization. If
senior leaders agree with the case, the CEO can
begin to create a blueprint for the new operating
model, taking a system view of the operating
model and then determining how to rewire its
parts rather than considering piecemeal changes.
In this way, the CEO can help cement the
connections across all elements of the operating
model—strategy, structure, process, people, and
technology. Speed can be important here. In
our experience, the most successful operatingmodel transformations tend to complete their
main phases in fewer than 18 months. These
organizations get a running start—for instance, by
moving the first 100 people to cross-functional
teams early in the transformation to signal
individual and organizational commitment to the
change. In all cases, the CEO and other senior
leaders must model the behaviors and mindset
changes that they want to see and dedicate
sufficient time to the transformation.
The right operating model can frame up new valuecreating possibilities. It can also be a factor in
organizations’ ability to cultivate talent.
Cultivating talent
Long before the COVID-19 pandemic, digitization
and globalization were already changing how
organizations operated and the skill sets that they
March 2023
needed to compete with peers. Finding, developing,
and retaining talent now and for the future has
become a challenge—but not an insurmountable one.
Based on the findings in this report, CEOs and chief
HR officers can take three concrete steps to balance
short-term and long-term needs and manage the
talent crunch: value the employees, fill the gaps, and
build a deep bench.
Value the employees
Whether trying to meet the needs of existing
employees or those of potential joiners, a CEO
and other senior leaders must continually review
and sharpen their organization’s employee
value propositions. It’s important to tailor these
propositions for different individuals and types of
23%
of organizational redesigns
are implemented
successfully, while
44%
33%
ten to stall, and
fail.
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