Organizing for the future: Nine keys to becoming a future-ready company

To better organize for a postpandemic future, leaders should embrace nine imperatives that collectively explain “who you are” as an organization, “how we operate” and “how we grow”.

The prospect of successful vaccines for COVID-19 has given business leaders everywhere hope that the pandemic may be finally nearing a turning point. And not a second too soon: the organizational adrenaline that helped many companies get things done quickly and well during the pandemic’s early days has, in many cases, been replaced by fatigue.

Yet even as leaders take action to reenergize their people and organizations, the most forward looking see a larger opportunity—the chance to build on pandemic-related accomplishments and reexamine (or even reimagine) the organization’s identity, how it works, and how it grows.

The pressure to change had been building for years. Well before the COVID-19 pandemic, senior executives routinely worried their organizations were too slow, too siloed, too bogged down in complicated matrix structures, too bureaucratic. What many leaders feared, and the pandemic confirms, is that their companies were organized for a world that is disappearing—an era of standardization and predictability that’s being overwritten by four big trends: a combination of heightened connectivity, lower transaction costs, unprecedented automation, and shifting demographics (Exhibit 1). (For more about these forces, see “Organizing for the future: Why now?”) And if incumbents didn’t see the future in themselves they saw it clearly in the competition: digital upstarts that continue to innovate, and win, in bold new ways.

In this article, we’ll synthesize lessons from our experience and from new research on the organizational practices of 30 top companies to highlight how businesses can best organize for the future. While no organization has yet cracked the code, the experimentation underway suggests that future-ready companies share three characteristics: they know who they are and what they stand for; they operate with a fixation on speed and simplicity; and they grow by scaling up their ability to learn, innovate, and seek good ideas regardless of their origin. By embracing these fundamentals—through the nine organizational imperatives that underpin them—companies will improve their odds of thriving in the next normal.

The bad news? Companies have zero time to lose. In an increasingly winner-takes-all business environment in which McKinsey research finds that up to 95 percent of economic profit is earned by the top 20 percent of companies, any organization that isn’t seeking new approaches is on borrowed time.

The good news? Not only do these same top performers offer hints at what a better organization could look like, but companies everywhere are recognizing that the pandemic offers a once-in-a-generation opportunity for change. Indeed, the much-anticipated—and yes, inevitable—transition from today’s COVID-19 crisis mode to the next normal offers senior executives a unique unfreezing opportunity. By seizing the initiative, companies can discover organizational “unlocks” and create new systems that are antifragile,¹ more flexible, more organic, more interconnected, more purposeful—and simply more human.²

Reinvention needed

Ask executives about their company and you can expect to be shown an organization chart. No wonder. The management concepts that the org chart visualizes—coordination, hierarchy, a matrixed organization—are the ones leaders grew up with and know best, as did generations before them. The original org chart hails from 1854, and was introduced to help run the New York and Erie Railroad during the age of the steam locomotive.

Therein lies the challenge. Today’s organizations are set up as traditional hierarchies or matrix organizations with roots stretching back to the industrial revolutions of the 18th, 19th, and 20th centuries. In theory, these structures provide clear lines of authority from frontline employees up through layers of management. In reality, matrix structures have only grown more complex as business has—to the extent that in some companies they are so cumbersome they hardly function.

The takeaway? We shouldn’t expect these old models to be fit for purpose in today’s environment. They are mechanistic by design, built to solve for uniformity, bureaucracy, and control—goals that undercut what companies now prioritize: creativity, speed, and accountability.

The answer isn’t to modify the old models but to replace them with something radically better.

Organizing for the (winner-takes-all) future

To define “radically better” for organizations, we—along with our colleagues in McKinsey’s Organization Practice—embarked on a research effort in 2018 to understand how companies could successfully organize for the future. This work identified nine imperatives, highlighted in Exhibit 2, that we believe separate future-ready organizations from the pack.

Exhibit 3 shows the degree to which 30 top US companies are already making or considering bold moves across the imperatives. These companies—all among the top three in their industry as measured by total economic profit captured between 2015 and 2019—represent the vanguard of an increasingly winner-takes-all world (see sidebar, “The winner takes it all”).

As our colleagues in McKinsey’s Strategy & Corporate Finance Practice demonstrated in their 2018 book, Strategy Beyond the Hockey Stick, companies in the top quintile for economic profit capture almost 90 percent of it. A more recent analysis shows this share has increased to 95 percent—basically all excess returns over the cost of capital.

Clearly, the case for reimagining an organization and taking bold actions has never been clearer. To see how companies can do both, let’s turn to the organizational imperatives and examine the ways in which they help organizations answer three core questions: Who are we? How do we operate? How do we grow?

Who we are: Strengthen identity

In his seminal 1937 essay, “The nature of the firm,”³ the economist and eventual Nobel laureate Ronald Coase argued that corporations exist to avoid the transaction costs of the free market. Yet with transaction costs plummeting (spurred by rising connectivity) this rationale no longer holds up. Why, then, do companies exist?

The answer is identity. People long to belong, and they want to be part of something bigger than themselves. Companies that fixate only on profits will lose ground to organizations that create a strong identity that meets employees’ needs for affiliation, social cohesion, purpose, and meaning.

Future-ready organizations accomplish this in three ways: they get clear on their purpose; they know how they create value and why they’re unique; and they create strong and distinct cultures that help attract and retain the best people.

Imperative 1: Take a stance on purpose

Top-performing organizations know that purpose is both a differentiating factor and a must-have. A strongly held sense of corporate purpose is a company’s unique affirmation of its identity—the why of work⁴ —and embodies everything the organization stands for from a historical, emotional, social, and practical point of view.

Future-ready companies recognize that purpose helps attract people to join an organization, remain there, and thrive. Investors understand why this is valuable, and factor purpose into their decision making: the rise of environmental, social, and governance (ESG)–related funds is just one of the ways they acknowledge that purpose links to value creation in tangible ways.

Nonetheless, few companies harness purpose fully. In a McKinsey survey of employees at US companies, 82 percent said organizational purpose is important, but only half that number said their purpose drove impact. How to bridge the gap? Take action to set the company’s purpose in motion; help make it real for people. This only happens when employees identify with and feel connected to their company’s purpose. While such connections can be encouraged and reinforced through meaningful, symbolic action—for example, Amazon leaves an empty chair at meetings to represent the customer’s role in decisions⁵ —purpose must also be forged in tangible choices and behaviors. Consider CVS Health’s choice to stop selling tobacco products to more fully achieve a purpose of “help[ing] people on their path to better health.”⁶

It’s often said that “where your talents and the needs of the world cross, there lies your vocation.” Indeed, employees aspire further (and even live longer) when their energies are channeled to purpose. McKinsey research finds that people who say they are “living their purpose” at work are four times more likely to report higher engagement levels than those who say they aren’t.

When centered at the heart of work, purpose helps people navigate uncertainty, inspires commitment, and even reveals untapped market potential. Future-ready organizations will clearly articulate what they stand for, why they exist, and will use purpose as the glue to connect employees and other stakeholders in ways that inform their business choices.

In a McKinsey survey of employees at US companies, 82 percent said organizational purpose is important, but only half that number said their purpose drove impact.

Imperative 2: Sharpen your value agenda

While all companies have a strategy for how they create value,⁷ few can show precisely how the organization will achieve it. Future-ready companies, by contrast, avoid this dilemma by creating a value agenda—a map that disaggregates a company’s ambitions and targets into tangible organizational elements such as business units, regions, product lines, and even key capabilities. Armed with such a depiction, these companies can articulate where value is created in the organization, what sets the company apart from the pack, and even what might propel its success in the future.

The key is to use the value agenda to focus the organization’s efforts and instill a sense of what really matters in every employee. When organizations can leverage this clarity—knowing exactly what differentiates them from everyone else—the results are powerful and hard to replicate. Consider how Apple rallies itself behind creating the best user experience. The company’s obsessiveness when it comes to pleasing customers includes obvious things like product design but extends to how products are packaged: the company has a small team dedicated just to packaging to ensure that the experience of opening the box elicits just the right emotional response.⁸

The power of a clear value agenda isn’t only that it helps a company better achieve its strategic priorities today but also that it gives the organization a line of sight into how to shift resources as priorities change. Top-performing companies, after all, reallocate their people aggressively, dynamically, and continuously against their core priorities, recognizing that this activity is both an economic engine and long-term competitive strength. According to McKinsey research, companies that frequently reallocate talent to high-value initiatives are more than twice as likely to outperform peers on total returns to shareholders.

While all companies have a strategy for how they create value, few can show precisely how the organization will achieve it.

Imperative 3: Use culture as your ‘secret sauce’

In addition to having a clear why (purpose) and what (a value agenda), companies that thrive in the next normal will distinguish themselves by their cultures—the how of any organization. Culture is that unique set of behaviors, rituals, symbols, and experiences that collectively describes “how we run things.” Among the most successful companies, culture forms the backbone of organizational health and fuels sustained outperformance over time: companies with strong cultures achieve up to three-times higher total returns to shareholders than companies without them.

Telltale signs of a strong culture of performance include leaders who consistently carry out the behaviors the company aspires to, work practices that stand out and feel fresh to outsiders, and innovative approaches to important moments—everything from employee onboarding to how meetings are run. Amazon, for example, famously enforces its “two-pizza rule” mandating that no team should be larger than two pizzas can feed. The rule supports the company’s idiosyncratic approach to meetings: keep them small, no PowerPoint, and start with silence to give participants time to reread the required premeeting memo (time that CEO Jeff Bezos refers to as “study hall”). These approaches might seem like quirks, but, in fact, they directly support a valuable business goal: helping the company reach faster, better decisions.

Leaders hoping to create a robust performance culture need to start by cooking up their organization’s own unique “secret sauce.” The main ingredient: specific, observable behaviors that employees at all levels of the company adhere to.

Broad themes won’t cut it. Instead, behaviors must be made an integral part of core business activities and specific work tasks, especially for the moments that matter. A global manufacturer, for example, wanted shop-floor workers to view operational discipline as everyone’s job. To promote this, the company encouraged frontline teams to briefly huddle at the start of every shift to review the company’s “golden rules of safety.” Ultimately, the manufacturer created tailored interventions for different groups of employees based on their respective roles, goals, and even particular mindsets that might otherwise have held employees back.

Culture can’t just exist in slogans painted on the walls or in catchy email signature lines. Defined principles and ways of working are critical to creating a cohesive, long-lasting organization. And culture plagiarists be warned—culture is devilishly hard to copy and should ultimately be unique to each organization. When leaders choose—and build—the kind of culture they want the organization to embody, they create a virtuous cycle, attracting the right talent that will thrive in their culture, unlock their value agenda, and “turbocharge” performance.

By Aaron De Smet, Chris Gagnon, and Elizabeth Mygatt

To read the original article: https://www.mckinsey.com/business-functions/organization/our-insights/organizing-for-the-future-nine-keys-to-becoming-a-future-ready-company?cid=other-eml-dre-mip-mck&hlkid=a774e1a8976d4a078406df70a8406fd5&hctky=2147734&hdpid=9fe1acd3-4d35-4780-a0df-208a29693db2