People & Organizational Performance Practice
All change:
The new era of perpetual
organizational upheaval
To flourish at a time when massive shifts are shaking their organizations,
business leaders need to focus on the “superpowers” of speed, technology,
talent, and leadership.
by Homayoun Hatami, Dana Maor, and Patrick Simon
June 2023
“Everything, everywhere, all at once.” Yes, it was
this year’s Best Picture at the Academy Awards. But
it’s also the way CEOs are feeling about the massive
changes shaking their organizations, last year, this
year, and most probably next year too.
The changes are wide in scope, ubiquitous across
functions and organizations, and indeed happening
all at once. Like the movie, they are fast-paced,
confusing—and demand answers. And they keep
coming: How can organizations strike the right
balance between in-person and remote work in
the postpandemic era? Harness the powers of
generative AI to boost organizational efficiency and
productivity while managing the risks? Deal with
“quiet quitting” and the desire for self-authorship?
Create new institutional capabilities that will
give a competitive advantage? And these are just
the changes we know about today. What is
lurking around the next corner?
In short, we have entered a new era. Call it the age
of perpetual organizational upheaval. It demands
new approaches to organizational management to
replace models designed for a less complex, less
unstable bygone age. In other words, it’s time for
organizations to step up from structure and
streamlined processes to more dynamic, flexible,
and intuitive approaches.
The way in which companies navigate these ongoing
shifts—either seizing the opportunities they offer or
being weighed down by the challenges they present—
is emerging as a determining success factor. Such
questions are now front and center for many CEOs,
and they are looking for solutions.
That is why McKinsey’s launched its first State
of Organizations report, published in April 2023,
which highlighted the ten organizational shifts
business leaders deem the most significant. Here,
we take a concise look at those shifts and
the four “superpowers” that can help CEOs find
appropriate responses.1
1
2
Organizations are now standing in
the way of the CEO
Our research into the organizational upheaval now
taking place is backed up by a survey of 2,500
business leaders in countries across Asia, Europe,
and North America. Two-thirds of them tell us that
their organizations are overly complex and inefficient,
while only about half say their organizations are well
prepared for the change that is needed. Rather than
facilitating delivery of mission and strategy,
organizational structures are standing in their way.
With upsets coming from all directions—whether
they be supply chain disruptions, surging inflation,
or spikes in interest rates and energy prices—
companies need to focus on being prepared and
ready to act at all times. The key is not just to
bounce out of crises, but to bounce forward—
landing on their feet relatively unscathed and racing
ahead with new energy.
Some of the organizational shifts emerged as
legacies of COVID-19, especially the conundrum
over remote work. Since the pandemic, 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, depending on the nature of their work,
business, industry, and geography. But it’s raising
huge questions: How can companies provide
structure and support to all employees regardless
of where they are? How do they address the
potential risks to company culture and the sense
of belonging, as well as to collaboration
and innovation?
The pandemic exacerbated other trends, including
the continuing skills mismatch in the labor market,
which the onward march of technology is intensifying.
It threw a harsh light on the challenge of workplace
motivation—sometimes referred to as the “great
attrition,” with workers leaving their jobs, or quiet
quitting, essentially downscaling their efforts
on the job. And it exacerbated issues of employee
“What’s your superpower? How companies can build an institutional capability to achieve competitive advantage,” McKinsey, March 21, 2023.
All change: The new era of perpetual organizational upheaval
An organization’s health correlates to its
financial performance: when companies
invest in health, capability building, and
people, performance benefits.
mental health. Then there’s institutional capability
building, which is so critical in a time of technological
ferment. We see many companies announcing
tech or digital elements in their strategies without
necessarily having the right institutional capabilities
in place to integrate them.
Four superpowers that can help CEOs
The confluence of shifts taking place make these
organizational matters a strategic issue that
requires a strategic, top-level response. CEOs need
to step in; the company’s well-being depends
on it. McKinsey research has consistently shown
that an organization’s health correlates to its
financial performance: when companies invest
in health, capability building, and people,
performance benefits.
Here, we focus on four superpowers that will help
CEOs address the organizational upheavals around
them: the competitive advantage of speed, the
power of harnessing technologies that augment
human capabilities, the importance of focusing
on “forgotten” talent, and a new style of leadership
that is more self-aware and in tune with the times.
The need for speed
Speed is a true superpower for any company and
the only way to be prepared for a world of rapid
change.2 McKinsey research shows that, 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.3 Amazon, for one, was
built on speed, with fast decision making based
on short memos, work concentrated in small “pizza”
teams, and a mantra of getting big fast.
Achieving speed means giving power back to
the people, allowing them to take decisions, and
removing levels of hierarchy between top
management and the front lines. Ways to do that
can include forming smaller, cross-functional
teams that pursue their own ideas (and get a budget
for it); providing clarity on who makes which
decisions and how; using inspiring role models
to embody specific ideas in a meaningful and
visible way; offering a well-tailored change narrative;
and eliminating unnecessary meetings, events,
and travel to allow people to focus on what really
matters. Companies leading the way, such as
Allianz, Haier, Microsoft, and Nucor, are developing
new architectures that feature collaborative
networks of self-managing teams that operate in
rapid cycles and focus on creating value for
their stakeholders.4
Speed needs to be applied not for its own sake but
with some clear end-goals in mind. A key question
to ask is, what value is currently being trapped—and
2
McKinsey Organization Blog: “The age of speed: How to raise your organization’s metabolism,” blog post by Patrick Guggenberger and Patrick
Simon, March 25, 2019.
3
A aron De Smet, Elizabeth Mygatt, Iyad Sheikh, and Brooke Weddle, “The need for speed in the post-COVID-19 era—and how to achieve it,”
McKinsey, September 9, 2020.
4
For more details, see Aaron De Smet, Arne Gast, Johanne Lavoie, and Michael Lurie, “New leadership for a new era of thriving organizations,”
McKinsey, May 4, 2023.
All change: The new era of perpetual organizational upheaval
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where? The bottlenecks could be functional groups
that isolate themselves from others, computing
systems that are incompatible, and overly compli­
cated procurement and other administrative
processes, among others. Fixing these bottlenecks
will depend on whether the existing operating
model requires only a tune-up or a full-scale
rethinking. CEOs should take a system view of how
to cement the connections across all elements of
the operating model—strategy, structure, process,
people, and technology. In other words, they should
come up with a new organizational architecture—
and quickly. In our experience, the most successful
operating-model transformations tend to complete
their main phases in fewer than 18 months.
Human and machine: When technology
augments our capabilities
Ever since OpenAI dropped its ChatGPT generative
AI (gen AI) algorithm in December 2022, gen AI
has dominated discussions in boardrooms and
manage­ment suites. ChatGPT and other large-scale
language models have an uncanny ability to trawl
through huge amounts of data to create content in
response to a user prompt. For businesses, the
potential applications include crafting personalized
marketing, social media, and technical-sales
content, generating task lists for efficient
operational execution, and, in risk and legal, pulling
from vast amounts of legal documentation to
answer questions.5
By approximating human behavior closely, gen AI
could potentially replace some roles. Yet its greatest
power may be when it works with human input and
intervention, essentially augmenting people’s
capabilities and enabling them to get work done
faster and better. That’s actually been the bigger
story of technology for the past few hundred years,
from the steam engine to the personal computer.
Technological change requires organizational
change. Even before the advent of gen AI, applied AI
was carving out a role as a useful tool that could
be harnessed to build better organizations. Some
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companies have deployed AI to create sustainable,
long-term talent pipelines, for example, using
AI-enabled software to match job candidates’
behavioral attributes to open positions. AI can
drastically improve ways of working, such as when
a fully integrated system manages budgeting,
invoicing, time tracking, and meeting scheduling—
or even orders lunch for employees when they
scan into the building.
With all of these efforts, a key question remains open:
What does it take to embed AI and other advanced
technologies into corporate culture? From what we
have seen, it requires building a perpetual learning
culture. Organizations need to be sufficiently flexible
to redesign roles and adjust the workforce as the
technologies advance in order to make the most out
of them. Companies that report the highest returns
from AI to date are nearly three times more likely than
others to use a variety of capability-building
programs such as experiential learning, selfdirected online courses, and certification programs
to develop technical employees.
Focusing on ‘forgotten’ talent
Of the most important changes highlighted in our
State of Organizations 2023 report, about two-thirds
relate to talent issues. That’s perhaps inevitable:
without the right talent in the right places with the
right motivation and incentives, organizations will
struggle in the best of times, and any new organiza­
tional model will likely not work. A relentless focus
on talent is the only way to bridge a huge capability
chasm, since only 5 percent of our survey
respondents say their organizations have the
capabilities they need.
Much of the literature on talent tends to focus on
frontline and high-potential employees. But it is
critically important not to neglect the others—the
ambitious and hard-working people up and down
the organization, especially in middle management,
who also need to be motivated but are all too
often forgotten.
See Michael Chui, Roger Roberts, and Lareina Yee, “Generative AI is here: How tools like ChatGPT could change your business,” McKinsey,
December 20, 2022.
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All change: The new era of perpetual organizational upheaval
To keep motivation throughout the company strong,
it’s not enough for CEOs and their teams to focus
their retention and incentive efforts on today’s top
performers; they will need to review and sharpen
employee value propositions and tailor them for
everyone. That means focusing on the things people
at different levels of the organization care about,
especially those in middle management: working in
a great company (the organization’s culture, values,
societal impact); being supported by great leadership;
having a great job (access to coaching, mentorship,
and learning opportunities); and achieving great
rewards (recognition for a job well done). At the
Danish toy maker Lego, for example, all employees—
from hourly factory workers to salaried executives—
can take universal parental leave of 26 weeks.
AI can come in handy with motivational issues too:
business leaders can use advanced analytics
and organizational data to spot patterns and
identify the employees at risk of leaving—
and then develop specific interventions tailored
to retain them.
A new style of leadership
Just who is a “leader,” anyway? At companies such
as Decathlon, the world’s largest sporting goods
retailer, or Mars, a US consumer goods giant, the
definition of leader is very wide—often including
anyone who takes an initiative to lead. And elsewhere,
for those who fit more traditional definitions of
leadership, the boundaries are shifting. Leaders
need to move from being managers seeking
incremental improvements to becoming visionaries
with the courage to craft a purpose and imagine
and pursue the future. Personal authenticity is now
a “must.” Today’s expectation is for leaders to
show up at work not just as professionals but also
as humans. The siloed hierarchies of the past are
falling away, replaced by networks of autonomous
teams working together in a coordinated rather
than controlled environment. Deep strategic
thinking, exploration, and social connection are the
new management watchwords of our era.6 At Mars,
for example, when the company was revamping
its pet care division, it went several levels down to
junior managers and asked them to help shape
the future organization. “The organization chart of
the 1850s that had hierarchy at its core is no longer
relevant,” says CEO Poul Weihrauch. “We need to
build for communities, not for hierarchies.”
The superpower here is to make leadership and
change personal. Ultimately, employees will only
change if they want and decide to do so. To
To keep motivation strong, it’s not
enough for CEOs to focus their retention
and incentive efforts on today’s top
performers; they will need to review and
sharpen employee value propositions
and tailor them for everyone.
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“New leadership for a new era of thriving organizations,” May 4, 2023.
All change: The new era of perpetual organizational upheaval
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encourage them, organizations must give leaders
and employees alike the space to explore a
proposed change and understand how it relates to
their own values and behaviors. Lego, for example,
has a “Leadership Playground” model to ensure
everyone is heard, contributing, respected, and
valued. In this playground, anyone can volunteer to
lead groups focused on employee health and
well-being, innovation, and creativity. Finally, selfreflection is a critical tool: leaders need to ask
of themselves and others, “What did we do—or not
do—to create the current environment, and what’s
our role in changing it?”
There’s a lot to contemplate here—but that’s
inevitable given the everything, everywhere, all at
once era that organizations are now living through.
CEOs won’t win any Oscars for managing this
upheaval. By making speed, technology, talent, and
leadership competitive superpowers, they can work
to improve their company’s organizational health
and build the resilience they’ll need for the changes
that are sure to be around the next corner.
Homayoun Hatami is the managing partner for global client capabilities and a senior partner based in McKinsey’s Paris office,
Dana Maor is a senior partner in the Tel Aviv office, and Patrick Simon is a senior partner in the Berlin office.
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All change: The new era of perpetual organizational upheaval