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Global management consulting firm McKinsey & Company surveyed 2,500 business leaders around the globe to identify how companies are managing in volatile times and what their organizations are doing to navigate economic and operational challenges.

The State of Organizations 2023 report identifies what McKinsey calls the 10 most important organizational shifts businesses are addressing in 2023. All these changes are being driven by economic volatility, geopolitical instability, rapid technological advancements, or the residual effects of the COVID-19 pandemic.

The 92-page report shows that organizations around the world are adapting to remain competitive and resilient. The 10 transformational shifts affecting organizations are:

  • Increasing speed, strengthening resilience. Compared to their peers in slow-moving companies, leaders in fast-moving organizations report 2.1 times higher operational resilience, 2.5 times higher financial performance, 3 times higher growth, and 4.8 times higher innovation.
  • True hybrid: The new balance of in-person and remote work. The pandemic has accelerated the adoption of remote work and 90% 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, the report said. True hybrid companies “distinguish themselves as destination workplaces.”
  • Making way for applied AI. AI-driven solutions are increasing efficiency and changing the way businesses manage talent, processes, and organizational structures. “As organizations embrace the opportunities offered by AI, they need to focus on embedding its use in corporate culture, hiring and developing AI-savvy leaders, and being thoughtful about AI-related risks and ethical concerns,” the report said.
  • New rules of attraction, retention, and attrition. It isn’t all about money anymore, as work-life balance, professional development, and purpose are all part of the employee value proposition. Successful companies are tailoring employee preferences to close the gap between what workers want and what companies need, the report said.
  • Closing the capability chasm. Building a company with institutional knowledge of, and capabilities for, using new tools to redefine business strategies is crucial. Adapting to this shift involves employees developing new skills and institutional knowledge as industries and technologies change.
  • Walking the talent tightrope. Balancing budgets while retaining key employees is difficult. In an uncertain economic climate, organizations need to focus more on finding ways to match top talent to the highest-value roles. Research shows that in many organizations 20% to 30% of critical roles aren’t filled by the most appropriate people.
  • Leadership that is self-aware and inspiring. Leaders these days are necessarily focused on short-term responses to crises, but they also need to think longer term. Only 25% of the McKinsey survey’s respondents said that they considered their organization’s leadership culture to be one that inspires employees to the best extent possible.
  • Meaningful progress on diversity, equity and inclusion (DEI). Progress cannot be achieved if there is a missing link between DEI strategy and the business strategy. Leaders must identify opportunities for making progress within their organizations, as well as for improving their external communities and society.
  • Mental health: Investing in a portfolio of interventions. Poor mental wellbeing is linked to attrition, absenteeism, lower engagement, and decreased productivity. Organizations need to refocus their efforts on addressing the root causes of mental-health and wellbeing challenges in a systematic way.
  • Efficiency reloaded. In today’s economic climate, companies are refocusing attention on efficiency measures. Eliminating organizational structures that make roles and responsibilities unclear, or that lead to slow decision-making, is a good place to start.

McKinsey said its research has shown that 72% of transformations fail because either management does not fully support the change or employees resist it. Therefore, the 2023 report offers recommendations on how to successfully implement changes at scale.

Transformational changes succeed when leaders: set bold aspirations; look for role models at all levels of the organization who are modeling the desired change; double down on institutional capability building; and make the change personal, the report said.

“Unleashing an organization’s full potential is hard—even harder in today’s unsettled business environment,” the report said. “But as our research and discussions with leaders in beacon organizations demonstrate, doing so is very possible with the commitment and collaboration from CEOs and other leaders across an organization, a desire to inspire, and leaders’ ability to maintain their bearings in disorienting times.”

Go here to read the entire McKinsey report.