10 Shifts That Are Transforming Organizations

A new report from McKinsey & Company identifies the most significant ways in which organizations are changing — and how leaders can respond.

Author: Barbara Palmer       

people stacking puzzle pieces

In its new report, McKinsey & Company offers suggestions for how organizations can put together the pieces of the new business landscape.

In unsettled and volatile times, short-term efforts to strengthen organizational resilience dominate the agenda at many companies, according to a new report by global consulting firm McKinsey & Company. But business leaders also are facing a range of organizational shifts that have significant long-term implications for structures, people, and business processes, the consultants write in “The State of Organizations 2023: Ten Shifts Transforming Organizations.”

McKinsey surveyed more than 2,500 business leaders around the world to identify the top 10 most significant trends and provided suggestions on what organizations can do to navigate them.

1. External shocks are the new normal: Increase speed and strengthen resilience. Only half of the leaders said that their organizations are well-prepared to predict and react to external shocks. Among the things that increase resilience are continuous learning cultures, employees empowered to act on their own judgments, and adaptable leaders who coach team members through changes.

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2. Hybrid is here to stay: Embrace remote work, but not at the expense of teamwork. Nine out of 10 organizations surveyed have adopted hybrid work, allowing employees to work remotely at least some of the time and four out of five employees who have worked in a hybrid model over the past two years want to keep doing so. One key to success is providing structure and support around both in-person and remote work and making sure that both on-site and off-site colleagues feel that they are on an equal footing. “Companies need to balance the increased potential of a globally dispersed workforce,” the report said, “with the relational fabric and sense of community that employees crave.”

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3. The skills shortage is ongoing: Match talent to the highest-value roles. As organizations continue to face talent shortages, organizations should focus on finding ways to match key talent to the highest-value roles. It’s not a new idea, “but it’s the right one in this era of hybrid work models, increased employee mobility, and skill shortages,” the report said.

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4. AI will supercharge operations: Integrate applied AI into organizational culture. AI can “drastically” improve work life, by boosting productivity, employee engagement, and performance. As organizations embrace the opportunities offered by AI, “they need to focus,” the report said, on “embedding its use in corporate culture by hiring and developing AI-savvy leaders and being thoughtful about AI-related risks and ethical concerns.”

5. Attitudes toward work have changed: Know the new rules around attracting and retaining employees. Nearly two out of five respondents in a recent survey conducted in seven countries said that they are planning to leave their jobs in the next three to six months. Employees are looking for a combination of money, work–life balance, professional development, and purpose, along with reasonable performance expectations.

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6. Organizations are lagging in institutional capabilities: Plug the gaps in core activities. Across all sectors, companies announce new technological or digital elements in their strategies but can’t successfully integrate them — only five percent of respondents say their organizations already have the capabilities they need. Insufficient resources and inconsistent commitment are often behind the lack of an integrated set of people, processes, and technology.

7. Change comes from the top: Cultivate leaders who both inspire their teams and think about the future. Only one-quarter of respondents say their organizations’ leaders are engaged, passionate, and inspiring. In the survey, human-centered leadership values came out on top, including acting as a role model, presenting a compelling vision of the future, and spending time developing people.

8. DEI is a competitive advantage: Link DEI strategy with business strategy. Organizations are focusing on diversity, equity, and inclusion (DEI), but in many cases not making meaningful progress. More than seven out of 10 respondents say their organizations express transformative DEI aspirations but less than half say their organizations have the infrastructure to support them. For success, leaders to be more systematic early on, identifying the objectives and defining their desired level of impact.

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9. Mental health matters: Invest in interventions that address root causes. Global levels of mental health and wellbeing nosedived during the pandemic and have remained low. The impact on organizations includes attrition, absenteeism, lower engagement, and decreased productivity — employees who face mental-health and wellbeing challenges are four times more likely to leave their organizations. Globally, nine out of 10 organizations offer some form of wellbeing program, but one-off and incremental fixes aren’t enough. Organizations will need to address the root causes of mental-health and wellbeing challenges in a systematic way.

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10. Uncertain times demand efficiency: Boost it by empowering employees and streamlining organizational structure. More than a third of survey respondents listed efficiency as a top three organizational priority. But increasing efficiency is about more than managing immediate crises or getting the same work done with fewer resources. Being efficient often means placing more trust in your organization and empowering employees. Two out of five respondents cited overly complex organizational structure as a root cause of inefficiency — “complexity is often paired with unclear roles and responsibilities, leading to confusion, slow decision making, and duplication” of efforts.

Find the full report at convn.org/organizational-shift.

Barbara Palmer is deputy editor of Convene.

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