Founder: Turnaround Talk
Last week, we began the discussion about agility and what becoming Future Fit actually means for businesses, professions and industries.
This is a bit of a vague topic as there was always a need for businesses, professions and industries to adapt to change that was associated with an industrial revolution. However, the pace of change that is associated with the Fourth Industrial Revolution is far more significant than any of the previous three Industrial Revolutions. Let’s put this into perspective; according to Statista, mobile penetration in South Africa (through smart devices) in 2014 was 9.7 million. This means that only 9.7 million South Africans had a smart device in 2014; this increased to 26.3 million devices in 2023. This means that almost half of South Africa’s population has access to a smart device. If we look at India, according to Statista, 70.95% of the population currently has access to a smart device; this will increase to 81.31% of the population by 2026 and 95.81% of the population by 2040.
Further bolstering this rapid change is the growth of eCommerce. Current statistics point out that South Africa is the 42nd largest eCommerce market globally, with a predicted revenue of US$7,217 million by the end of this year. This is also growing at a rapid rate.
This means that the pace of change within businesses needs to be significant in order to be Future Fit enough to address the unique challenges of a dynamic business environment that is rapidly becoming hyper-competitive. In today’s article, we will focus on the second round of imperatives that were outlined in the McKinsey report.
Imperative 4: Radically flatten structure
The McKinsey report points out that, as the business environment has become more complex and interconnected in recent years, many companies have mirrored these changes in their organizational structures, creating an ever-more convoluted matrix. Unwittingly, they are betting on organizational complexity to solve market complexity.
This is a losing bet. Future-ready organizations, by contrast, structure themselves in ways that make them fitter, flatter, faster, and far better at unlocking considerable value. Their goal isn’t to eradicate hierarchy so much as make it less important as an organizing mechanism. They flatten the organization and adopt the simplest P&L structure possible, reinforcing business objectives with clear, strong performance management and other mechanisms.
Consider Haier, the China-based multinational maker of appliances and consumer electronics that shifted away from traditional hierarchical structure and toward emergent, agile teams. Employing one of the more intriguing approaches we’ve come across, Haier is an organization with no layers, no traditional bosses, and no middle management; yet the company is anything but a free-for-all.
The McKinsey report adds that, instead, thousands of independent “microenterprises”—small, flexible teams that form by mutual selection—collaborate over networks of platforms and people to accomplish the company’s goals. Microenterprises come in three forms: transforming units that aspire to reinvent existing products; incubating units that create entirely new products; and node units that support the others with component products and services.
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Another intriguing approach is the “helix organization.” In this model, reporting is split into two separate, parallel lines of accountability—one focused on stability, the other on speed. To achieve the former, a function-oriented capabilities manager oversees an employee’s long-term career path and skills development. For the latter, a market-facing “value manager” sets priorities and provides day-to-day oversight, ensuring that people can be deployed as flexibly as needed to meet priorities. This model allows for nimble reallocation of people while avoiding the confusions of traditional dual reporting.
The McKinsey report points out that the vision of the future that these examples suggest is one in which organizational structure no longer focuses on boxes and lines. Instead, it centers on connectivity—on who works on what with whom. Future-ready organizations require models that are designed, nurtured, and grown around people and activities. Furthermore, advances in digital technology mean that bosses in the years ahead can become true coaches and enablers—not micromanagers—across larger spans of control (1:30 ratios of manager to employee are imaginable, versus much smaller ratios). When companies have a strong identity informing their priorities and ways of working, responsibilities and clear decision rights can empower frontline staff to make decisions in real time.
The McKinsey report adds that, finally, rethinking structure means rethinking teams. Many companies have established networks of teams that are empowered to operate outside current structures, take over some critical operations, and deal with rapidly evolving situations. Companies such as Google follow a “non-zero-sum” management approach in which the development of lines of communication running in all directions is more important than reporting relationships. Such teams bring together cross-functional skills and a wide range of experience while avoiding the usual baggage that comes with more hierarchical mindsets. The teams can act fast because they are flexible. They form, disband, reshape, and experiment as they learn lessons, make and correct mistakes, and try new approaches.
Imperative 5: Turbocharge decision making
A recent McKinsey survey found that organizations that make decisions quickly are twice as likely as slow decision makers to make high-quality decisions. Organizations that consistently decide fast and well are, in turn, more likely to outperform their peers. However, only one in three survey respondents said their organizations consistently make fast, high-quality decisions.
The McKinsey report points out that, achieving quality and speed in tandem takes work. It requires a system that properly allocates decisions to the right executives, teams, individuals, or even algorithms. The top team needs to focus its time and energy on the core business decisions that only it can make, such as those initiatives central to the value agenda. Other leaders, meanwhile, should spend more time deciding on resource and talent allocation for those initiatives. Top of mind for everyone should be who is working on what. Through managing the backlog of resources from the top of the house, organizations will speed up and increase the quality of decisions.
To prepare for the future, many companies will need to reset their default mode by developing a bias for action and the ability to differentiate between crosscutting and delegable decisions. The great majority of decisions should be delegated to the lowest levels possible, giving employees at the company’s edges agency and accountability for decisions they are equipped, and best placed, to make. For example, most of Alibaba’s operating decisions are made by small teams informed by machine learning and creative applications of data. The company’s C-level executives focus on crosscutting decisions, including resource allocation for top initiatives. Many decisions and processes require less than half the steps executives imagine are necessary. This kind of streamlining is vital to increasing decision speed.
The McKensey report adds that leading organizations also rightsize the number of decision makers and critical voices involved in a decision. Each participant should be purposefully included, with a clear eye to removing decision “spectators” or others without a critical role in the process. Who has a vote? Who has a voice? Notably, clarity on this does not necessarily mean limiting the number of people involved or removing diverse perspectives. It just means ensuring that there is a strong reason for each participant to be present.
The Covid-19 crisis has forced companies to “turbocharge” decision making out of necessity. For example, Sysco, the largest US food distribution company, pivoted its core business in only a few weeks to provide services to the retail grocery sector by leveraging its supply-chain expertise. As an executive at another company confided during the early days of the pandemic, “We are making a month’s worth of decisions every day at the moment.” Such examples suggest that companies do have the muscles to accelerate decision making. Now they must strengthen and flex those muscles, embedding what they’re learning from the crisis into redesigned decision-making processes for the future.
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Imperative 6: Treat talent as scarcer than capital
The McKinsey report points out that the world of work is changing fast. Some jobs are being replaced by automation while others, facilitated by technology platforms, are becoming more globally dispersed. These changes are leading many companies to rethink their talent strategy. Top companies will anchor the effort to a bedrock principle: our talent is our scarcest resource. Then they’ll zero in on three core questions: What talent do we need? How can we attract it? And how can we manage talent most effectively to deliver on our value agenda?
Answering the first question (What talent do we need?) will be devilishly hard for companies that haven’t yet taken the time to create a value agenda. Our research finds that a substantial amount of value in organizations is linked to as few as 25 to 50 roles, many of which aren’t at senior levels of the company. Leaders must know what those roles are. If they don’t, they may be wasting top talent on roles that can’t deliver outsize value.
The McKinsey report adds that creating an attractive destination for top talent means fostering an inclusive employee experience. This influences whether employees stay and thrive, which in turn affects the company’s bottom line. A recent McKinsey global survey found that 39 percent of respondents said they have turned down a job or decided not to pursue one because of an organization’s perceived lack of inclusion. And other McKinsey research finds that companies in the top quartile for racial/ethnic diversity and gender diversity at the executive level are 36 and 25 percent more likely to have above-average profitability, respectively, than companies in the bottom quartile.
When it comes to performance management, senior executives can learn from companies such as Netflix, which says it prioritizes having “stars” in every position and at every level. While this statement might sound like an empty motto at another company, for Netflix it serves a valuable need: the company’s highly autonomous culture would suffer with the wrong people in place. To decrease the odds of this happening, Netflix actively counsels out “adequate” performers.
The McKinsey report adds that future-ready companies see that talent ecosystems often allow for the best management and allocation of top talent. In some cases, companies rely on tech-enabled marketplaces to better match skills to projects. Such talent ecosystems can even reach beyond traditional corporate boundaries. For example, Cisco’s Networking Academy offers self-paced IT training and skills development to prepare students for a range of tech-related roles and then connects them to job opportunities, including with external partners. Participants benefit from greater opportunities for career advancement. But Cisco wins, as well, by tapping into a larger pool of talent empowered with specific skills the company prioritizes.
Fitter, faster, stronger
The McKinsey report points out that future-ready organizations structure themselves in ways that make them fitter, flatter, faster, and far better at unlocking value.
This will be driven by Big Data which is providing companies with enhanced insights into consumer behaviour and what they are looking for in companies that they do business with. At the end of the day, value to shareholders is about enhancing the customer journey and making them feel as if they are important components in the future of the company.
