Chris Gagnon: Hi, Diane. It’s great to be here.

Elizabeth Mygatt: Hi, Diane. Happy to be here today.

Diane Brady: Chris, when we talk about organizing for the future, which is a subject you’ve both been looking at quite a bit lately, can you tell me a little more about what we mean by that?

Chris Gagnon: Sure, I’d love to. And to do it, we’ll take a little spin back in history. The most important thing McKinsey’s ever written on organization was the 7-S framework. The article that first introduced the 7-S framework to the world was called “Structure is not organization.” It had a wonderful image of the Magritte painting of a pipe that said, “This is not a pipe.”

The point that Tom Peters and Bob Waterman [the article’s authors] were making was that an org chart is a very, very incomplete description of how an organization works. An organization is a system. They had, at the time, seven things that each started with an S, and that remains a useful way to describe organizations.

But a lot has changed since the 1970s. We’re seeing increasing experimentation and boldness in organizational models across the elements of the system. So we decided to take a new look at what are the elements of a system beyond its structure today.

COVID-19 and the acceleration of change

Diane Brady: So Liz, when I think about the future, so much of what we write these days is cast in a prepandemic, postpandemic fashion. How much of your research is related to COVID-19 versus just the way the world’s going?

Elizabeth Mygatt: A lot of this research we began well before COVID-19. But what we have seen is that COVID-19 has accelerated changes that were already under way. So for example, people were already seeking greater flexibility in their work. Automation and new technologies were already changing the way we worked and the skills we needed. We were stressed and overwhelmed to start with. And we were already experiencing meaningfully different shifts in millennials and Gen Zers. What we’re seeing is four macrotrends that really inform how organizations have to evolve differently. They’re around increasing connectivity, which is really undermining traditional power structures.

Certainly, COVID-19 forced a 100 percent operating-model environment and proved that remote- and hybrid-operating models could increase productivity—and indeed, could work better than anyone had ever anticipated. Meanwhile, you have lower transaction costs enabling people to collaborate better outside large organizations than within them, as well as unprecedented automation. In fact, COVID-19 really demonstrated that every business can now be a technology business, right? And then finally, we saw societal-expectation shifts, where the role of business in society is changing as a new generation rises. In fact, that new generation is also changing it. They’re expecting to be promoted more quickly to find purpose and meaning in their work, are willing to vote with their feet and shift organizations.

All of these things were evolving before the pandemic hit and were changing and informing how organizations had to respond. COVID-19 has accelerated and reinforced many of those.

Chris Gagnon: We’re fortunate: we get to talk to organizations all over the world. This may be a slight exaggeration, but let me say, nobody really loves their operating model. People use different words. They describe it as too bureaucratic or too slow or too siloed. But it’s hard to change. Inertia’s an enormous force here.

While the pandemic accelerated experimentation, the underlying dynamic before COVID-19 is the important one; 30 years ago, if you looked around for bold org experiments, self-organizing teams, or open-book management, or whatever it is, you saw them in small companies. Today, you find them more often in the biggest winners in the world: the Amazons, the Facebooks, the Netflixes, the Bridgewater Associates, the Haiers.

And it’s really important to remember that we’re in a winner-take-all world. It used to be that being kind of an average or above-average performer in most industries meant you got to make good money. Today, all the returns accrue to the top 20 percent or so of companies. So if that’s what the top 20 percent of companies are doing—if they’re inventing a better way—and you want to be in that winners’ group, this is the question that’s got to be tackled.

Competing in a winner-take-all world

Diane Brady: When you talk about that winner-take-all society that we’re in right now, so much of it is anchored in technology and the advantages that they might have on data and with regard to AI. That’s only one of the aspects you look at in terms of organizing for the future. Can you give me some sense as to what’s important? If I’m a company that isn’t Amazon or Google, can I even compete in this environment now?

Chris Gagnon: Of course you can. Listen, every company has to include technology. Technology is there to enable people. But I’ll tell you, what’s really important is people. An organization is designed to organize people and their work and their efforts. Almost all the things that we discuss as keys or imperatives can be enabled by technology, but they’re designed to help people perform. At the heart of this thinking is humanism, not just technology.

Elizabeth Mygatt: As we get into the imperatives, you’ll see most of them are about people: who we are, how we show up, how we see ourselves as part of a larger organization, how we collaborate. How we make decisions, how we show up as talent, and how we use the talent we have.

What we’re seeing is that the organizations that get this right are really experimenting and innovating boldly in how they set up people to be successful and to feel successful and empowered in their work and as part of the broader purpose. But then, in parallel, how do you think about technology and automation facilitating that and amplifying it?

So it’s very much two sides of the same coin. And we certainly see many technology companies doing very, very well. But part of why they’re doing well is because of the way they are deploying and organizing and delighting and inspiring the people in their organizations.

Taking a stance on purpose

Diane Brady: Let’s get into what we can learn from some of these successful companies, whether they’re next-generation companies or companies that have just pivoted in this environment. The first imperative is one that I have heard a lot about—which seems logical but difficult to do—which is to take a stance on purpose. Who does that well and why?

Elizabeth Mygatt: I might actually pull us back one minute before we dive into purpose because we actually thought about the imperatives in three buckets or categories.

Diane Brady: Sure. Let’s do that.

Elizabeth Mygatt: I think about addressing the first three as identity imperatives. Purpose is certainly at the core of that. It guides our decisions from the board room to the front line. We see over 80 percent of employees reporting it as important to have a purpose, but less than half report their company’s purpose actually driving impact. So the essence of why we exist is really, really important. Increasingly, we’re seeing that organizations need to take a resonant stance on purpose.

In addition to the why is a bit of the what and the how. When we think about how is value created, how is an organization’s mission advanced? Really get clear on how you set up your organization around the stuff you need to be really good at in a differentiated way so that your focused value agenda mobilizes resources to focus on matters with the capabilities and the talent required to actually be successful and outperform the competition. Value—and getting clear on your value agenda—is also a really key piece of this.

And then, finally, culture. How do you run the place? What is the secret sauce? Every organization has a culture. What we are seeing is that many of the leading organizations have a culture that’s distinctly different. It’s not for everyone. But it has distinctive elements that are going to draw the kind of talent and capabilities they need to advance what they’re trying to do.

Chris Gagnon: On the subject of purpose, we heard very different things from leaders. There are some leaders who believe that they have a personal, social mission, and it becomes that of the organization. It’s really parallel to shareholder value. That’s actually a pretty small group. There’s another group, though, that says, “Boy, if all we stand for is creating shareholder value, we won’t get our fair share of talent.” We need to be more explicit about what our objective functions are across those.

I find value, personally, one of the most fascinating things here. One of the great mysteries of the past 50 years has been the success of private equity. In fact, private equity regularly buys and sells companies to and from the public markets and outperforms with them. You try to figure out why. All the rationales break down. They don’t necessarily invest more. They don’t necessarily get executives with better resumes. The only thing that holds up is they are crystal clear about their value-creation plan.

I don’t want to say something as high minded as “strategy.” I want to be mathematical. For example, “We bought a company for $2 billion. We’re going to make it worth $5 billion. And here’s where the $3 billion is going to come from.” And it’s a list of things, ten or 12 long, that human beings can understand. And boy, if you want human beings to perform, one of the best things you can do is be clear with them about what you’re trying to accomplish. And then they can fill in how they do their jobs to make that happen in the best way.