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

January 21, 2021

Here is an excerpt from an article written by  Aaron De Smet, Chris Gagnon, and Elizabeth Mygatt for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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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that helped many companies get things done quickly and well during the pandemic’s early days has, in many cases, been replaced by fatigue.Yet even as leaders take action to reenergize their people and organizations, the most forward looking see a larger opportunity—the chance to build on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.

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Here is a direct link to the complete article.

Aaron De Smet is a senior partner in McKinsey’s New Jersey office, Chris Gagnon is a senior partner in the Austin office, and Elizabeth Mygatt is an associate partner in the Boston office.

The authors wish to thank Selin Neseliler, Richard Steele, and Jessica Zehren and for their contributions to this article

This article was edited by Tom Fleming, deputy editor in chief in the Chicago office.

 

 

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