- Businesses are now determining the most effective ways to maintain productivity, collaboration, and employee engagement within hybrid work environments.
- A McKinsey survey shows that AI has made a major impact on efficiency.
- Organizations that are actively seeking out new talent are now competing with the gig economy because many potential employees no longer view a traditional 9–5 job as the only good source of income.
Global management consulting firm McKinsey & Company published a new report last week called, “The State of Organizations 2023: Ten shifts transforming organizations” which surveyed more than 2,500 business leaders around the world to find out how organizations are navigating today’s challenges.
Through careful research and analysis, the organization was able to identify what it calls ten of the most important organizational shifts that businesses are addressing in 2023.
Shifts identified in the McKinsey report are driven by factors including economic volatility, geopolitical instability, rapid technological advancements, and the residual effects of the COVID-19 pandemic. The report shows that many organizations around the world are adapting to these kinds of societal and economic changes to remain competitive and resilient in 2023 — and beyond.
According to the report, “The shifts include complex questions about how to organize for speed to shore up resilience, find the right balance between in-person and remote work models, address employees’ declining mental health, and build new institutional capabilities at a time of rapid technological change, among others.”
The ten shifts identified are:
1. Increasing speed, strengthening resilience
Decisions that require individuals and organizations to respond quickly have become a standard in the global business market. Giving those in an organization the tools to respond to volatility both quickly and efficiently is one of the major necessary shifts identified by the research.
According to the report, “Compared with peers in slow-moving companies, leaders in fast-moving organizations report 2.1 times higher operational resilience, 2.5 times higher financial performance, 3.0 times higher growth, and 4.8 times higher innovation.”
The report stated that successful companies ask employees to apply their own judgment when situations arise. Developing a resilient culture allows individuals and teams to improve speed and overall make organizations more resilient when a crisis occurs.
2. “True hybrid:” The new balance of in-person and remote work
The pandemic has accelerated the adoption of remote work, and businesses are now determining the most effective ways to maintain productivity, collaboration, and employee engagement within hybrid work environments.
According to the McKinsey report, “About 90 percent of organizations have embraced a range of hybrid work models that allow employees to work from off-site locations for some or much of the time.”
As one of the major organizational shifts in 2023, McKinsey research emphasizes that striking the right balance between in-person and remote work can attract talent and boost overall productivity.
3. Making way for applied AI
Another massive shift impacting organizations is the introduction of artificial intelligence (AI) solutions. Organizations around the world are learning how to integrate AI solutions into their company’s current workflow.
McKinsey’s research found that organizations using AI-driven solutions are evolving the way businesses manage talent, processes, and organizational structures.
It’s no secret that AI has made a major impact on efficiency.
According to the report, “Companies that have seen the biggest bottom-line returns from applied AI—those that attribute at least 20 percent of EBIT to their use of AI—are more likely to have set themselves up for success by aligning AI and business strategies.”
While productivity seems to be a major boost to organizations that utilize AI, the report also states that there are some concerns among employees within organizations. Employees might fear job security, and others might not trust the work produced by AI solutions — claiming that AI solutions have in the past produced inaccurate results.
According to the report, “AI-first organizations focus not just on the technologies behind AI but also on the operating models, culture, talent, leadership, and capabilities required to get the most from their AI investments.”
4. New rules of attraction, retention, and attrition
Another shift is that organizations are placing an emphasis on attracting and retaining talent; companies can gain a competitive edge if they focus on both people and performance.
This trend shows that many employees are “redrawing the boundaries between their work and personal lives.”
Employees in 2023 are seeking “flexible work hours,” “remote work opportunities,” and “tasks that have purpose and meaning” — among others.
Organizations that are actively seeking out new talent are now competing with the gig economy because many potential employees no longer view a traditional 9-5 job as the only good source of income.
Placing an emphasis on developing and retaining talented individuals has long-term effects that allow organizations to flourish in tough labor markets.
5. Closing the capability chasm
Another shift for organizations is figuring out how to maintain a competitive advantage by building “institutional capabilities.” New technologies like AI are becoming more prevalent in organizations. McKinsey states that building a company with institutional knowledge of, and capabilities for, using new tools to redefine business strategies is crucial to adapt moving forward.
Adapting to this shift involves employees developing new skills and institutional knowledge as industries and technologies change.
According to the report, “Organizations are having a hard time acquiring employees to fill capability gaps because they often lack the ecosystem-style approach that’s needed to make the necessary, and lasting, changes to their capability programs.”
6. Walking the talent tightrope
Figuring out how to retain talented employees while balancing budgets is a shift that McKinsey calls, “walking the tightrope.”
Factors that play strongly into this shift are the current state of the labor market, inflation rates, and the post pandemic recovery.
The report states that “5 percent of employees deliver 95 percent of an organization’s value—and that companies that reallocate high performers to the most critical roles on a quarterly basis are 2.2 times more likely to outperform direct competitors than are those that revisited roles less frequently.”
Organizations must set a value agenda that clearly lays out which business units generate the most value for the organization, and which generate the least. From there, organizations can act as a “matchmaker” where leaders can match talent to critical roles. An organization that doesn’t have a value agenda could lead to limited clarity on aspiration and required talent/capabilities, according to the report.
7. Leadership that is self-aware and inspiring
This shift might not be surprising to business leaders. Good leadership has been a key detail for organizations since the beginning of recorded history. The report states that “organizations can only be as resilient as their leaders, who need to lead themselves as well as their teams.”
Only 25 percent of the McKinsey survey’s respondents — in the state of organizations survey — said that they considered their organization’s leadership culture to be one that inspires employees to the best extent possible.
The survey’s respondents revealed 6 human-centered aspects of leadership that they consider the most important: Role modeling, inspiring others, developing people, setting expectations, fostering team discussions, and communicating efficiently.
8. Making meaningful progress on diversity, equity, and inclusion
Diversity, Equity, and Inclusion (DEI) is another organizational shift that has become increasingly significant to many businesses over the years.
“Forty-three percent say their organizations have focused on creating more transparency in promotions and pay processes. And 43 percent say their organizations have taken measures to tackle bias and discrimination in the workplace,” according to the report.
The McKinsey report recommends that integrating DEI objectives early in an organization’s strategy development can be key to addressing this shift. Boosting DEI initiatives within a business means that leaders will take a careful look at “philanthropy, operations, and core business strategy.”
By doing so, leaders can develop a DEI action plan, which in turn may provide ample opportunities to uncover growth areas and nurture inclusive environments that contribute to talent retention.
9. Mental health: Investing in a portfolio of interventions
Prioritizing mental health and well-being is another impactful shift with implications for an organization’s employees. Research shows that there is a direct relationship between overall health and well-being and productivity.
“The World Health Organization estimates that 12 billion working days are lost annually around the world to depression and anxiety, at a cost of $1 trillion per year in lost productivity,” according to the report.
Employees who were respondents to McKinsey’s Great Attrition research survey said that the level of support that organizations offer for mental health and well-being is a top factor in their decision to leave or stay.
Addressing mental health issues within an organization involves leadership taking a long-term view of health and well-being programs. The report gives one example of a communication company that requires its managers to have one-on-one meetings with employees every week, with 10 percent of that time reserved for topics outside of the spectrum of work-related topics.
10. Efficiency reloaded
More than one-third of leaders who participated in McKinsey’s State of Organizations Survey listed efficiency as one of their top three organizational priorities in the coming years.
The major shift challenges companies by forcing them to figure out where to invest their valuable time and resources.
Organizations looking to revamp their efficiency might start adapting to this shift by eliminating excessive meetings and committees.
The report states that “more than 40 percent of respondents say their organizational structures are simply too complex and affect their businesses significantly.”
Eliminating organizational structures that make roles and responsibilities unclear, or that lead to slow decision-making can be a great place to start addressing this need.
By addressing these issues, businesses can build more resilient and adaptable organizations that are better prepared to thrive in the ever-evolving global landscape of 2023.