The State of Organizations 2023 - Flipbook - Page 9
Exhibit 1
Exhibit 3
Many business leaders say they feel that their organizations are unprepared to
react to future shocks and disruptions.
Obstacles to strengthening resilience range from a lack of resources to limited
organizational buy-in.
Organizational preparedness to anticipate and react to external shocks and disruptions,
% of respondents (n = 442)1
Challenges to strengthening resilience in organizations, % of respondents (n = 442)1
Not at all
3
1
A little
To some extent
Rather well
Very well
12
35
34
16
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:
How well is your organization prepared to anticipate and react to external shocks and disruptions?
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
1
Issues to address
Research by Jennifer Chatman and her colleagues at
Haas School of Business at University of California,
Berkeley, points to a clear link between organizations
fostering a culture of adaptability and achieving
superior economic performance. The research
shows a 28 percent increase in revenue over the
course of three years among high-tech companies
that had established adaptable cultures. Meanwhile,
McKinsey analyses indicate that the top quartile of
businesses exhibiting healthy, resilient behaviors are
more than 40 percent less likely than those in the
bottom quartile to go bankrupt (Exhibit 2).
Given these findings, investing in resilience
through adaptability would seem to be a no-regrets
move. So what accounts for organizations’ lack
of preparedness?
The State of Organizations Survey respondents
we asked about resilience identify several
barriers to strengthening it in their companies
(Exhibit 3). Number one is having limited funds
to develop surplus capacity and contingency
solutions. One-third of respondents cite unclear
priorities for targeting resilience. Another
one-third say initiatives are being launched in
organizational silos, limiting their effectiveness.
An additional one-third of our survey respondents
identify limited willingness and a lack of
excitement—what Professor Chatman and her
colleagues might refer to as a “low-adaptability
culture”—as impediments to building resilience
in their organizations.
Exhibit 2
Organizations with healthy, resilient behaviors were better able than those
with poor organizational health to withstand major disruptions in 2020–21.
Share of organizations likely to go bankrupt over next 2 years,1 by level of organizational health, %
Top
quartile
Middle
quartiles
30
48
Bottom
quartile
73
100
6
43
33
33
33
Limited funds
available
Unclear priorities
and direction
Isolated
initiatives
Limited organizational
buy-in
27
Dramatic differences
between hierarchy
levels and functions
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:
Which challenges do you see to strengthening resilience in your organization? Multiple responses were allowed. 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
Finding the right formula
To address the challenges cited by our survey
respondents, leaders can start by thinking
systematically about ways to build up their
organizations’ resilience. They will need to take care
to review and revise these elements on an ongoing
basis rather than only when external forces or global
crises force them to do so.
Organize for speed of response
The way that organizations are set up is a key
determinant of their ability to act quickly and
effectively when a crisis strikes or a market turns.
McKinsey research shows that, compared with
peers in slow-moving companies, leaders in
fast-moving organizations report 2.1 times higher
operational resilience, 2.5 times higher financial
performance, 3.0 times higher growth, and 4.8
times higher innovation.
A range of initiatives can help speed up the ways
of working within an organization. Such initiatives
include forming smaller, cross-functional teams
that pursue their own ideas (and get a budget for
it); using inspiring role models to embody specific
ideas in a meaningful and visible way; offering a
well-tailored change narrative; and eliminating
unnecessary meetings, events, and travel to allow
people to focus on what really matters.
Give power to your people
Successful companies increasingly ask employees
to apply their own judgment and drive their
organization’s success actively. To move faster,
companies might consider removing managerial
layers (such as by redrawing organizational charts).
Dynamically staffing certain individuals and teams
for high-priority projects could also improve speed,
as could conducting more frequent performance
reviews (for instance, quarterly instead of annually).
Develop a culture of continuous learning
An organization is only as resilient as its people.
That’s why it’s so critical for business leaders to
encourage adaptability among employees and equip
them with tools that allow them to work as quickly
as situations dictate. McKinsey research suggests
that employees who are more adaptable tend to
have an edge in managing change and adversity.
It’s important to find and promote adaptable
leaders who don’t just react when faced with, say, a
natural disaster, a competitor’s moves, or a change
in team dynamics. They take the time to coach
team members through the change. They catalyze
new behaviors, and they develop capabilities that
can help set the conditions for both a short-term
response and long-term resiliency.
By 2020 Altman Z-score (formula that uses profitability, leverage, liquidity, solvency, and activity ratios to determine if a company is headed for bankruptcy).
Source: Corporate Performance Analytics by McKinsey; Organizational Health Index by McKinsey, 238,489 respondents, April 2020–21
The State of Organizations 2023
March 2023
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