The State of Organizations 2023 - Flipbook - Page 78
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 setting the direction to
calibrate 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. The
second and third parts are “must dos,” regardless
of the type of transformation undertaken: there
needs to be a strong focus on cultivating the talent
and on investing in the leadership that will take the
organization forward. Indeed, McKinsey research
has shown that 72 percent of transformations fail
because of management performance that doesn’t
support the change (33 percent) and resistance from
employees (39 percent).1 The fourth part is the task
of integrating all these aspects 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.2 Specifically, our latest analysis finds
that companies with top-quartile organizational
health in 2017 achieved TSR (as measured between
2017 and 2022) three times higher than the TSR
of middle-quartile organizations. Meanwhile,
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The State of Organizations 2023
companies with bottom-quartile organizational
health saw their TSR drop by nearly 20 percent in
that same period (Exhibit 24).
Organizational health is more than just culture or
employee engagement.3 It’s a company’s ability to
get 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.
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.4 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.5 CEOs can increase the odds of
succeeding with operating-model transformations
by applying a structured approach to change.
Setting the direction and calibrating
the ambition
The critical first step is to set the direction and
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
Organizational
health is more
than just culture
or employee
engagement.