Read about the 10 shifts here, and download the full report from McKinsey.

Organizations today face ten significant shifts. Here’s what to do about them.
The State of Organizations 2023: Ten shifts transforming organizations
 | Report
By Patrick Guggenberger, Dana Maor, Michael Park, and Patrick Simon
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The State of Organizations 2023

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Business leaders around the world are currently addressing not only economic volatility, geopolitical instability, and the lingering effects of the COVID-19 pandemic but also a range of organizational shifts that have significant implications for structures, processes, and people. 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,1 and build new institutional capabilities at a time of rapid technological change, among others.

To help CEOs and their leadership teams consider such questions, we have launched McKinsey’s The State of Organizations 2023 report. The report is an account of an ongoing research initiative that seeks both to pinpoint the most important shifts that organizations are grappling with and to provide some ideas and suggestions about how to approach them.

As part of the research, we conducted a survey of more than 2,500 business leaders around the world.2 Only half say their organizations are well prepared to anticipate and react to external shocks, and two-thirds see their organizations as overly complex and inefficient. We also spoke with business leaders to gather inspiring stories and best practices from beacons—organizations that have been able to adapt to recent economic and operational disruptions and forge new paths. Finally, we developed four points to consider in addressing the ten organizational shifts, leveraging the survey results, the quantitative research with executives, and insights from our work in the field and through existing McKinsey research.

The ten most significant shifts facing organizations today

Through the State of Organizations Survey, conversations with CEOs and their teams, and the findings of recent McKinsey research, we have identified ten of the most important organizational shifts that businesses need to address today. These shifts are both challenging and harbingers of opportunity, depending on how organizations address them.

1

Increasing speed, strengthening resilience. Half the respondents in our survey say their organization is unprepared to react to future shocks. Those able to bounce forward—and quickly—out of serial crises may gain significant advantages over others.

A pair of overlapping circles, one representing the TSR generated by less-resilient companies, and one 50 percent larger circle representing the increase in TSR provided by resilient companies. The exhibit headline says, “In the 2020–21 economic recovery, resilient companies generated TSR 50% higher than their less resilient peers’.”

2

‘True hybrid’: The new balance of in-person and remote work. Since the COVID-19 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.[3] It’s important that organizations provide structure and support around the activities best done in person or remotely.

A series of five horizontal bars representing five employees. The top four bars are highlighted to support the headline text, which says, “More than 4 of 5 employees who have worked in hybrid models over the past 2 years want to retain them.”

3

Making way for applied AI. AI is more than just a potential opportunity to boost a company’s operations; it can also be used to build better organizations. Companies are already using AI to create sustainable talent pipelines, drastically improve ways of working, and make faster, data-driven structural changes.

A pair of overlapping squares, one representing the average number of AI capabilities used by organizations in 2018, at 1.9, and one considerably larger square representing the average number of AI capabilities used by organizations in 2022, at 3.8. The exhibit headline says, “Organizations used an average of 3.8 AI capabilities (for example, natural-language generation, computer vision) in 2022, double the 1.9 used in 2018.”

4

New rules of attraction, retention, and attrition. People are revising their attitudes both to work and at work. Organizations can respond by tailoring employee value propositions to individualized preferences in ways that can help close the gap between what today’s workers want and what companies need.

A pair of nested circles. The larger circle represents the total share of respondents (100%), and the smaller circle represents the percentage of respondents planning to leave their jobs in the next six months (39%). The exhibit headline says, “39% of respondents in a survey conducted in 7 countries say they are planning to leave their jobs in the next 3 to 6 months.”

5

Closing the capability chasm. Companies often announce technological or digital elements in their strategies without having the right capabilities to integrate them. To achieve a competitive advantage, organizations need to build institutional capabilities—an integrated set of people, processes, and technology that enables them to do something consistently better than competitors do.

Two concentric circles formed by 100 dots in total that represent the total share of respondents. Of these 100 dots, five are highlighted to support the headline which says, “Only 5% of respondents say their organizations already have the capabilities that they need.”

6

Walking the talent tightrope. Business leaders have long walked a talent tightrope—carefully balancing budgets while retaining key people. In today’s uncertain economic climate, they need to focus more on matching top talent to the highest-value roles. McKinsey research shows that, in many organizations, between 20 and 30 percent of critical roles aren’t filled by the most appropriate people.[4]

A pair of nested squares, one representing the rate of production for average performers in a set business role, and another much larger circle representing the 800% increase in production for the highest performers. The exhibit headline says, “The highest performers in a role are 800% more productive than average performers in the same role.”

7

Leadership that is self-aware and inspiring. Leaders today need to be able to lead themselves, lead a team of peers in the C-suite, and exhibit the leadership skills and mindset required to lead at scale, coordinating and inspiring networks of teams. To do that, they must build a keen awareness of both themselves and the operating environments around them.

A square made up of 100 dots, representing the total share of respondents. Twenty-five of the dots are highlighted. The exhibit headline says, “Only 25 percent of respondents say their organizations’ leaders are engaged, are passionate, and inspire employees to the best-possible extent.”

8

Making meaningful progress on diversity, equity, and inclusion. Many organizations are prioritizing diversity, equity, and inclusion[5] (DEI), but in many cases, the initiatives aren’t translating into meaningful progress. To realize DEI aspirations, leaders will need to identify opportunities to make progress both in their organizations and in their communities and broader society.

A pair of donut pies, with one set within the other. The outer pie shows the 70% of respondents who say their organization expresses transformative diversity, equality, and inclusivity (DEI) aspirations. The inner donut pie shows the 47 percent of respondents who say that their organizations actually have the infrastructure to realize those same DEI aspirations.

9

Mental health: Investing in a portfolio of interventions. About nine of ten organizations around the world offer some form of well-being program.[6] But global health and well-being scores remain poor. Organizations need to refocus their efforts on systematically addressing the causes of mental-health and well-being challenges; one-off and incremental fixes won’t be enough.

A pair of nested circles, representing employees’ likelihood to want to leave their organizations. The larger circle represents the share of employees likely to want to leave their organization if they are facing mental-health and well-being challenges. That circle is four times larger than the circle representing leaving intentions for those not facing the same challenges.

10

Efficiency reloaded. More than one-third of leaders in our survey list efficiency as a top three organizational priority. Boosting efficiency is about more than managing immediate crises or getting the same work done with fewer resources; it means more effectively deploying resources to where they matter the most.

A square made up of 100 smaller squares, representing the total share of respondents. Of these, 40 are highlighted, representing the approximately 40 percent of respondents who point to complexity and organizational structure as a main cause of inefficiency. This exhibit headline says, “Approximately 40% of respondents point to complex organizational structure as a cause of inefficiency, and a similar proportion cites unclear roles and responsibilities.”

Lessons from leaders

While there is no blueprint for success in tackling these organizational shifts, some companies serve as beacons of inspiration, showing possible paths forward. Here we share best practices from some leaders who are adapting to recent economic and operational disruptions to forge a new path for the modern organization.
While this isn’t a comprehensive compilation, the companies in it represent diverse industries and geographies and share common threads: an unwavering commitment to their people and the ability to transform in the face of disruption. The interviews are ordered by the number of employees in each company, from most to least.

Poul Weihrauch

Poul Weihrauch
CEO, Mars
“Our five principles … are at the center of every decision we make.”
Listen with your head and heart: How Mars anchors on principles and people

Barbara Martin Coppola

Barbara Martin Coppola
CEO, Decathlon
“Our mission is to create value not only for shareholders but also for society and the planet.”
Entrepreneurship at all levels: How Decathlon innovates for the future

Huagang Li

Huagang Li
Senior vice president, Haier; CEO, Haier Smart Home
“What the users need is no longer a set of products but smart home solutions.”
A business of its times: Haier’s self-evolving organization

Yan Hong Lee

Yan Hong Lee
Managing director and head of group HR, DBS
“One out of four vacancies in the bank are filled by our own people.”
Leading from the front: How DBS embraces change and empowers employees

Loren I. Shuster

Loren I. Shuster
Chief people officer and head of corporate affairs, LEGO
“We’re investing in our people and brand for the long term.”
Relationships worth building: The LEGO Group’s people-first approach

Cara Ang

Cara Ang
Group chief HR officer, AIA
“Comprehensive investment in employees’ well-being will pay off.”
The ties that bind: How AIA leads with purpose and empowers its people

Sid Sijbrandij

Sid Sijbrandij
Cofounder and CEO, GitLab
“You have to measure what you want to reinforce.”
All remote from day one: How GitLab thrives

Jeremy O’Brien

Jeremy O’Brien
Cofounder and CEO, PsiQuantum
“When I talk to colleagues about what keeps them here, it’s the people and our bold vision.”
Shooting for the moon: How PsiQuantum forged its own path

Making change at scale

An integrated approach is required to address the ten organizational shifts and adapt to recent disruptions. We conclude with four points to consider.

First is that companies need to set a direction to calibrate their ambition—that is, develop a clear perspective that is appropriate for the organization. This could be a question of fine-tuning to flatten structures and clarify roles and responsibilities better, or it could be a more radical transformation.

The second and third points are “must dos,” regardless of the type of transformation undertaken: there needs to be a strong focus on cultivating talent and on investing in the leadership that will take the organization forward.

Finally, all these aspects need to be integrated. The outcome should ensure that change at scale can take place with an organization that is prepared to adapt to new situations, new challenges, and new opportunities.

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