Is Your Organization Future-Ready?

As leaders take steps to re-energize their people and organizations for the post-pandemic world, the most forward-looking see a larger opportunity: The chance to build on pandemic-related accomplishments to re-examine (or even reimagine) the organization’s identity, how it works and how it grows.

Well before the pandemic, senior executives routinely worried their organizations were too slow, too siloed, too bureaucratic. What many feared — and the pandemic confirmed — is that their companies were organized for a world that is quickly disappearing — an era of standardization and predictability that is being overwritten by four big trends: a combination of heightened connectivity, lower transaction costs, unprecedented automation and shifting demographics.

In this article, we will synthesize lessons from new research on the 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 — and the nine organizational imperatives that underpin them — companies will improve their odds of thriving going forward.

Reinvention Needed

Today’s organizations are set up as traditional hierarchies 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 front-line employees up through layers of management. In reality, these 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. The answer isn’t to modify the old models but to replace them with something radically better. Here’s how to do that.

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 purpose is a company’s unique affirmation of its identity — the why of work — 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 talent to the organization, remain there and thrive. And investors understand why purpose is so valuable and factor it into their decision-making. The rise of environmental, social and governance (ESG)–related funds is just one way they acknowledge that purpose links to value creation in tangible ways. Nonetheless, few companies harness purpose fully. In a survey of employees at U.S. companies, 82 per cent agreed organizational purpose is important, but only half said their organization’s purpose drove impact.

Future-proof companies

take data very seriously.

How to bridge the gap? Take action to set your company’s purpose in motion and help make it real for people. This only happens when employees feel connected to their company’s purpose. 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 decisions. But purpose must also be forged in tangible choices and behaviours. Consider CVS Health’s choice to stop selling tobacco products to more fully achieve its purpose of “help[ing] people on their path to better health.” When centred at the heart of work, purpose helps people navigate uncertainty, inspires commitment and even reveals untapped market potential.

IMPERATIVE 2: SHARPEN YOUR VALUE CREATION AGENDA. While all companies have a strategy for creating value, few can show precisely how they will achieve it. Future-ready companies avoid this dilemma by creating a ‘value agenda’ — a map that disaggregates ambitions and targets into tangible elements such as business units, regions, product lines and key capabilities. Armed with such a depiction, these companies can articulate exactly where value is created and what sets them apart from the pack.

The key is to use the value agenda to focus your efforts and instill a sense of what really matters in every employee. When organizations can leverage this clarity, the results are powerful and hard to replicate. Consider how Apple rallies itself behind creating ‘the best user experience.’ The company’s obsessiveness with pleasing customers includes obvious things like product design but extends to how products are packaged: They have a small team dedicated solely to packaging to ensure that the experience of opening the box elicits a positive emotional response.

IMPERATIVE 3: MAKE YOUR CULTURE YOUR ‘SECRET SAUCE’. In addition to having a clear why (purpose) and what (a value agenda), companies that thrive in the future will distinguish themselves by their cultures — the how of the organization. Culture is that unique set of behaviours, rituals, symbols and experiences that collectively describe ‘how we do things.’ 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 those without them.

Telltale signs of a strong culture include leaders who consistently carry out the behaviours 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 a ‘two-pizza rule,’ mandating that no team should be larger than two pizzas can feed. This 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 pre-meeting memo (time that CEO Jeff Bezos refers to as ‘study hall’). These approaches might seem like quirks, but, in fact, they directly support a concrete business goal: helping the company reach faster, better decisions.

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.

IMPERATIVE 4: RADICALLY FLATTEN YOUR STRUCTURE. As the business environment has become more complex and interconnected, many companies have mirrored these changes in their structures, creating an ever-more convoluted matrix. Unwittingly, they are betting on organizational complexity to solve market complexity. This is a losing bet. Future-ready organizations, by contrast, structure themselves in ways that make them fitter, flatter, faster and far better at unlocking value. Their goal isn’t to eradicate hierarchy so much as make it less important. They flatten their organization and adopt the simplest profit and loss structure possible, reinforcing business objectives with clear, strong performance management and other mechanisms.

Consider Haier, the China-based multinational maker of appliances and consumer electronics that shifted away from traditional hierarchical structure and towards emergent, agile teams. Employing one of the more intriguing approaches we’ve come across, Haier has no layers, no traditional bosses and no middle management; yet the company is anything but a free-forall. Instead, thousands of independent ‘microenterprises’ collaborate over networks of platforms and people to accomplish the company’s goals. Haier’s microenterprises come in three forms: transforming units that aspire to reinvent existing products; incubating units that create entirely new products; and node units that support the others with component products and services.

Another intriguing approach is the ‘helix organization.’ In this model, reporting is split into two separate, parallel lines of accountability — one focused on stability, the other on speed. To achieve the former, a function-oriented capabilities manager oversees an employee’s long-term career path and skills development. For the latter, a market-facing ‘value manager’ sets priorities and provides day-to-day oversight, ensuring that people can be deployed as flexibly as needed to meet priorities. This model allows for nimble reallocation of people while avoiding the confusion of traditional dual reporting.

The vision of the future that these examples suggest is one in which organizational structure no longer focuses on boxes and lines. Instead, it centres on connectivity — on who works on what with whom. Future-ready organizations require models that are designed, nurtured and grown around people and activities. Advances in digital technology mean that bosses in the years ahead can become true coaches and enablers — not micromanagers — across larger spans of control (1:30 ratios of manager to employee are imaginable, versus much smaller ratios). When companies have a strong identity informing their priorities and ways of working, responsibilities and clear decision rights can empower front-line staff to make decisions in real time.

IMPERATIVE 5: TURBOCHARGE DECISION-MAKING. A recent McKinsey survey found that organizations that make decisions quickly are twice as likely as slow decision-makers to make high-quality decisions. Organizations that consistently decide fast and well are, in turn, more likely to outperform their peers. However, only one in three survey respondents said their organizations consistently make fast, high-quality decisions.

Achieving quality and speed in tandem requires a system that properly allocates decisions to the right executives, teams, individuals or even algorithms. The top team needs to focus its time and energy on the core business decisions that only it can make. Other leaders, meanwhile, should spend more time deciding on resource and talent allocation for those initiatives. Most of Alibaba’s operating decisions are made by small teams informed by machine learning and creative applications of data. The fact is, many decisions and processes require less than half the steps executives imagine are necessary.

The COVID-19 crisis forced companies to turbocharge decision-making out of necessity. For example, Sysco, the largest U.S. food distribution company, pivoted its core business in only a few weeks to provide services to the retail grocery sector by leveraging its supply-chain expertise. As an executive at another company confided during the early days of the pandemic, “We are making a month’s worth of decisions every day.” Such examples suggest that companies do have the muscles to accelerate decision-making: Now they must strengthen and flex those muscles, embedding what they’ve learned from the crisis into redesigned decision-making processes.

IMPERATIVE 6: TREAT TALENT AS SCARCER THAN CAPITAL. The world of work is changing fast. Some jobs are being replaced by automation while others, facilitated by technology platforms, are becoming more globally dispersed. These changes are leading many companies to rethink their talent strategy. Top companies will anchor the effort to a bedrock principle: Our talent is our scarcest resource. Then they’ll zero in on three core questions: What talent do we need? How can we attract it? And how can we manage talent most effectively to deliver on our value agenda?

Answering the first question will be devilishly hard for companies that haven’t yet taken the time to create a value agenda. Our research shows that a substantial amount of value in organizations is linked to as few as 25 to 50 roles, many of which aren’t at senior levels. Leaders must know what those roles are. If they don’t, they risk wasting top talent on roles that can’t deliver outsized value.

Creating an attractive destination for top talent means fostering an inclusive employee experience. This influences whether employees stay and thrive, which in turn affects the company’s bottom line. A recent McKinsey global survey found that 39 per cent of respondents had turned down a job or decided not to pursue one because of an organization’s perceived lack of inclusion. And other research finds that companies in the top quartile for racial/ethnic diversity and gender diversity at the executive level are 36 and 25 per cent more likely to have above-average profitability, respectively, than companies in the bottom quartile. When it comes to performance management, senior executives can learn from companies such as Netflix, which prioritizes having ‘stars’ in every position and at every level. While

this statement might sound like an empty motto, for Netflix it serves a valuable need: The company’s highly autonomous culture would suffer with the wrong people in place. To decrease the odds of this happening, Netflix actively counsels out ‘adequate’ performers.

IMPERATIVE 7: ADOPT AN ECOSYSTEM VIEW. In 2014, Tesla made the seemingly radical decision to open source its patents and encourage other companies to use its intellectual property. In retrospect, this is a brilliant model of the ecosystem-oriented decisions that all future-ready companies must make. Tesla recognized that it couldn’t grow without partners that would build charging stations and offer services to create the infrastructure to support electric vehicles. By putting itself at the centre of a burgeoning ecosystem, it laid the groundwork for its own explosive growth. Futureproof organizations will take such examples to heart, recognizing that traditional understandings about what an organization is and where its boundaries lie are being upended. The old thinking was all about gaining leverage and controlling the supply chain. Increasingly, however, value is created through networks where partners share data, code and skills; and where communities of businesses create value and antifragility together.

Future-ready organizations view partners as extensions of themselves. These relationships feature porous boundaries and high levels of trust and mutual dependence to share value and let each partner focus on what it does best. For example, Amazon encouraged the formation of new delivery start-ups by launching a last-mile delivery program that offered top-performing employees seed money, leased vans and training. While these delivery-system partners are self-employed, Amazon views them as both an extension of their logistics ecosystem and a new form of homegrown partnership.

Partnerships should be cultivated for the long term to better develop the anti-fragility that helps partners weather shocks. For example, Johnson & Johnson’s JLABS provides support and resources on compliance, markets, science and other topics to promising start-ups. By doing so, it supports and develops relationships with entrepreneurs on the fragile front lines of innovation. Instead of transactional, win–lose relationships, such models embrace partnerships motivated by shared success.

IMPERATIVE 8: BUILD DATA-RICH TECH PLATFORMS. Future-proof companies take data very seriously. For them, data isn’t simply about reporting what is happening in the business or answering a business question; data is the business. The rise of Netflix is a case in point, as demonstrated by its transformation from a small, mail-in provider of DVDs to a multifaceted global platform streaming service and content creator. Netflix achieved its growth by leveraging its user data in the powerful algorithms that created its recommendation engine. This recommender system now accounts for 80 per cent of time customers spend streaming Netflix content.

Future-ready companies understand that data can continually empower decisions and the value agenda in unexpected ways. To make the most of data, organizations must tackle a complex set of tasks: They must create compelling approaches to data governance, redesign processes as modular applications, tap the benefits of scalable cloud-based technology and support all of this through variable-cost technology budgets that are reallocated dynamically. By seizing upon data’s ability to connect and scale, these companies will be able to develop new products, services and even businesses in fast release-and upgrade cycles — much as Tesla updates its products air several times a year.

IMPERATIVE 9: ACCELERATE LEARNING. Capitalizing on new approaches to data requires modern ‘DevOps skills,’ as well as other capabilities that will be new to most leaders. This underscores the urgency of this final imperative — the one that helps make all the others go. Companies need to get learning right to fuel their talent engine and create an empowered workforce that is fluent in the art of ‘fail fast, learn, repeat.’

High-performing companies promote a mindset of continuous learning that encourages and supports people to adapt and reinvent themselves to meet shifting needs. Getting to this level requires instilling a growth mindset, curiosity and an openness to experimentation and failure. Microsoft CEO Satya Nadella describes it as ‘hypothesis testing’: “Instead of saying ‘I have an idea,’ what if you said, ‘I have a new hypothesis — let’s go test it and see if it’s valid.’ And if it’s not valid, move on to the next one.” This approach, and the company’s push to shift its collective mindset from ‘know it all’ to ‘learn it all,’ is emblematic of a future-ready organization.

Experiment-and-learn environments not only encourage accelerated personal growth for employees, they can fuel innovation, as evidenced by Google’s famous ‘20 per cent time’ policy that encourages employees to work on their own ideas for Google 20 per cent of the time. This approach contributed to the creation of Gmail and Google Maps, amongst others. The real value in such programs is that they signal to the organization that learning, experimentation and innovation are part of everyone’s job, not something that gets done by a specialized group. Forward-looking companies will develop learning jour journeys that have a mix of core and individualized content, delivered when people need it and at requisite scale. And in keeping with the lessons learned during the pandemic, these programs must work in today’s virtual working environments.

In closing

The COVID-19 pandemic and its aftermath have upended life as we knew it. The resulting pain, grief and economic dislocation will be felt long into the future. The first priority for leaders must be to lead with empathy and compassion as they revitalize and re-energize exhausted teams and organizations. As leaders move from a mindset of coping back to one of competing, the best will seize this unique ‘unfreezing’ opportunity to imagine and create new modes of organization that are more flexible, more integrated, more resilient — and ultimately, more human.

Aaron De Smet is a Senior Partner in McKinsey’s New Jersey office. Chris Gagnon is a Senior Partner in the firm’s Austin office, and Elizabeth Mygatt is an Associate Partner in the Boston office. The authors wish to thank the following colleagues for their contributions to this article: Selin Neseliler, Richard Steele and Jessica Zehren.

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