Organizing for the age of urgency PART
I
To
compete at the speed of digital, you need to unleash your strategy, your
structure, and your people.
Congratulations! Your organization
is performing at or near the top of its game, or it has been in the recent
past. Perhaps even better, you have a strategy to improve in the near future.
Now for the bad news: the good news won’t last.
It can’t—at least
without the right kind of organization. Across industries, barely half of the
top performers sustain their leadership position over the course of a decade,
according to research by our colleagues in McKinsey’s Strategy Practice. The challenges in
maintaining dominance are not new; even sectors that digitization has not
consigned to oblivion have seen flagships such as Delta Airlines, General
Motors, and Owens Corning move from the top into Chapter 11 and then back into
leadership positions again.
But of course,
technology is changing everything. As digitization, advanced
analytics, and artificial intelligence (AI) sweep across industries and
geographies, they aren’t just reshaping the competitive landscape; they’re
redefining the organizational imperative: adapt or die. The average large firm
reorganizes every two to three years, and
the average reorganization takes more than 18 months to see is not an option;
it’s a death sentence.
As a result, companies
are beginning to experiment with increasingly radical approaches. We’re struck
by a commonality among those who get it right: they create adaptive,
fast-moving organizations that can respond quickly and flexibly to new
opportunities and challenges as they arise. In doing
so, they’re moving intelligent decision making to the front lines. That’s in
sharp contrast to the standard, “safer” modus operandi of capturing data,
sending it up a hierarchal chain, centrally analyzing it, and sending guidance
back. Several of these forward-thinking organizations now starkly describe
their decision making as being pushed to the “edges”—to and beyond employees,
past the organization’s four walls, and out to consumers and partners. The
process functions more like a network and less like a chain of command.
In this article, we’ll
share these emerging elements of the organization of the future. While there is
no set formula for success, we’ve seen versions of these elements at so many
companies that we think they provide at least the organizational outline to win.
Along the way, we’ll try to dispel some common misconceptions (too risky!
too inefficient! too time consuming to set up!) of what such an
organization really means. We know you don’t want your company to undergo yet
another reorg—and another one a few years after that. Consider this a road map
out.
The urgency imperative
A good road map can come
with callouts and suggestions, and here’s our first: floor it. When you compete
in a marketplace that moves so quickly, the default outcome is to fall behind.
If your organization is to have any hope of keeping up, it will need to be
reconceived as fast, quick to turn, and even quicker to emerge from rapid pit
stops and tune-ups. One could almost analogize to a race car—almost, because
race cars typically run on a fixed track toward a clear finish line. Your
organization’s race, by comparison, is toward an unknowable destination. And
that race doesn’t end.
Worship speed
At the
highest-performing companies, speed is the objective function, the operating
model, and the cultural bias. And more: speed is an imperative. Walk the halls
of leading organizations, and you’ll repeatedly hear catchphrases such as
“energy,” “metabolic rate,” “bias for action,” and “clock speed.” Jeff Bezos,
in his April 2017 letter to Amazon shareholders, highlights making not just
“high-quality” decisions but “high-velocity” decisions. They go hand in
hand. “Most decisions,” writes Bezos, “should probably be made with somewhere
around 70 percent of the information you wish you had. If you wait for 90
percent, in most cases you’re probably being slow.” Choosing not to fail fast
comes at a price. “If you’re good at course correcting,” Bezos continues,
“being wrong may be less costly than you think, whereas being slow is going to
be expensive for sure.”
Shift to emergent strategy
Tacking and readjusting
quickly are essential, even if the destination is uncertain. In fact, because the
destination is uncertain you need an “emergent strategy,” which entails a
relentless quest and not a defined end point. The pursuit itself should be a
firm’s North Star—a questioning of “how do we add value” that’s unceasing but
also unsolved, open to exactly how that manifests in terms of specific
opportunities and actions.
Too often, decisions
about how to create value are made from on high and tend to be “one and done.”
They’re implemented by means of top-down planning, frontline execution,
frontline reporting back up the ladder, top-down analysis of gaps, top-down
replanning and pushing down mandates to fill those gaps, frontline reexecution,
and repeating it all again—a process much too slow and mechanistic to keep up
with real-world change. That’s particularly the case in organizations with a
number of “clay layers” of middle management, where officers feel compelled to
add value by refining, augmenting, synthesizing, piling on, micromanaging, and
adjusting information that passes their way—and where personal incentives and
cognitive biases inadvertently give rise to hockey-stick forecasts,
sandbagging, and poor decision making.
Our colleagues in
McKinsey’s Strategy Practice have just written a book, Strategy Beyond the Hockey Stick (Wiley, 2018), about how to tame this “social
side” of strategy. By understanding the real odds (long) of breaking out from
the pack, by making a consistent series of big moves, and by treating these
steps as a journey that doesn’t end, they show that companies can make
strategic breakthroughs.
Such an approach
requires an organizational platform that allows for an emergent mix of multiple
strategies to be formulated and carried out in real time. If the old world was
a master composer like Mozart, planning every detail for every instrument, the
new world is improvisational jazz. But even older cats can jam. One global
chemical manufacturer, for example, had originally been conceived, decades ago,
to commercialize a singular scientific breakthrough. When challenged, decades
later, to dig deeper into how the company had actually realized high returns
after its founding period had passed, leadership discovered that the business’s
biggest moneymakers were consistently the result of incremental, close-to-the-customer
applications. Many of those value-creating innovations had sprung from learning
by doing, improvising, and improving—and getting by on a shoestring. In fact,
upon further analysis, the company realized that it had been starving
incremental (but high-impact) innovation for the new New Thing, with poor
returns on investment too often the result. Grasping that insight, leadership
decided to flip its resource allocation almost completely. That fundamental
shift, hitching its star to emergent strategy, has since generated
outperforming value for more than a half dozen years.
Agility
The principles behind
organizational agility have been around for decades. In its current, most
mainstream form, agility is a DevOps description of how IT teams form to
address problems, sprint toward solutions, and then reconstitute to work on new
challenges. These approaches have made “agile” practical and concrete, and
they’ve given rise to broader applications yielding
transformative impact across an entire enterprise.
Much like agile software development helps meet the challenge of producing an
application that is already obsolete when finally launched, enterprise agility helps solve the
problem of an organization’s strategies, resources, structures, and
capabilities being obsolete by the time they’re finally operational.
Organizing for urgency
calls for organizing differently. The
urgency imperative places a premium on agility: it enables the shift to
emergent strategy, while unleashing your people so they can reshape your
business in real time. It’s also a powerful means of minimizing confusion and
complexity in our world of rapid-fire digital communications where everyone can
talk with everyone else—and will, gumming up the works if you don’t have a
sensible set of operating norms in place. Agility is also the ideal way to
integrate the power of machine-made decisions, which are going to become
increasingly important to your fundamental decision system.
Unleash decision making
In a competitive
environment that’s changing so rapidly and so profoundly, can any single
individual keep up? Not in isolation, and certainly not from the top down. But
the right kind of organization—one that taps into a network of individuals,
recognizes the outperformance and resilience that a diverse workforce will
provide, and deploys technology aggressively and purposefully—can.
To understand how, tap
into your own decision system—the human brain—and consider how people actually
decide. While neuroscientists can identify specific parts of the brain that are
more active under certain circumstances, it’s never the case that one discrete
neuron, alone, is determinative. Rather, intelligence is an emergent property
of the whole system, and every person’s “decision system” is a network of
multiple, small, iterative processes honed naturally over time.
That’s not to say all
decisions are created equal; they are anything but, and a failure to categorize
often contributes to inefficient or ineffective decision making. In our
experience, the best way to understand decisions is to conceive of them as part
of a four-category taxonomy. The highest level of decision making, we’d submit,
comprises the decisions about how to decide. Call this meta–decision making
“greenhouse design.” It involves choosing the foundational elements—the
structures, governance arrangements, and processes—that define how your
organization operates and reflect its core value proposition. This platform, in
turn, supports looser, more dynamic elements that can be adapted quickly in the
face of new challenges and opportunities. The CEO is absolutely essential for
this organizational “platform definition,” which is why some leading executives
describe themselves as “gardeners,” “city planners,” or “architects,” rather
than “operators” or even “strategists.”
The second category of
decision making is “big-bet decisions.” These infrequent and high-risk
decisions have the potential to shape the future of your company. Examples
include major acquisitions and game-changing capital investments—both high
stakes and inherently risky. Organizations that do well in this decision
category focus not only on debiasing but also on designating a single executive
sponsor, atomizing decision components into identifiable and more easily
solvable parts, standardizing a decision-making approach, and moving as fast as
possible. Time, after all, is of the essence.
Less conspicuous but
still high stakes are determinations in a third category: “cross-cutting
decisions.” These often look like big decisions but are actually a series of
smaller, interconnected choices made by different groups and individuals as
part of a collaborative, end-to-end decision process. Such decisions include
pricing, sales and operations planning (S&OP), new-product launches, and
portfolio management. These types of determinations are necessarily
cross-functional and often highly iterative. The challenge is to bring together
multiple parties who often have different priorities, so they can provide the
right input at the right time, without bureaucratic watering down.
The final category is
made up of determinations that are pushed out to the edges of your
organization. These are the “delegated decisions” and “ad hoc decisions.”
Delegated decisions are high frequency and low risk (in other words, even if
long-term impact is high, bad decisions can be undone or corrected long before
significant consequences arise). They can be handled effectively by an
individual or a small natural working team, with limited input from other parts
of the organization. Such decisions also increasingly can be delegated to
algorithms (think instant recommendations on YouTube or route planning at UPS).
Ad hoc decisions are less frequent but still low stakes; they arise
unexpectedly, but frontline employee judgment should be supported by more
senior managers through an ethos that Jeff Bezos calls “disagree and commit”
and Zappos’s Tony Hsieh encourages as “safe enough to try.”
Reimagine your structure
The more interconnected
your organization, and the more that decision making can be diffused, the
easier it will be to sustain high performance in a world of uncertainty, speed,
and disruption. Accelerating, unpredictable, and shifting currents of
information are precisely not what a tall command chain is
designed to confront, especially in a turbulent external environment. Those
dynamics can render your firm’s advantages in numbers, tools, and training
irrelevant. That’s a key reason why even the most hierarchical chain of
command—the US military—moved to decentralize decision authority to help beat
back Al Qaeda’s Iraqi-based forces.
Of course, hierarchies
will continue to exist, and it’s right that certain functions (think risk
management, legal, treasury) should be centralized. In a world growing more complex
by the moment, there are compelling reasons for strata of specializations and
subspecializations—the very sort of dedicated expertise that should be teamed
for what we’ve described earlier as cross-cutting decisions. “Flattening,”
without more, is not a comprehensive fix.
What does work is to
free your initiatives and decisions from the constraining hands of unnecessary hierarchy.
While some level of prioritization and resource allocation must be coordinated
centrally, many actions and decisions are best taken where the work is done at
the front line, close to the customer. To pull that off, eliminate superfluous
management levels, decouple decisions from control, and let go.
That calls for getting
serious about letting your sensors, machine and human, work their shared mojo
as information providers and decision makers. The human element is not a
feel-good add-on. Winning organizations—from the 2017 World Series Champion
Houston Astros, who value player “heart” and talent-evaluator intuition, to Zappos,
whose passionate customer-service agents have cultivated a passionately loyal
customer base—are analytics powerhouses, but they rely on inspired individuals
to outpace the competition. These organization have also figured out that
flatter makes it much easier to operate in agile ways, to speed information
along, and to integrate disparate sources of it in ways that boost the odds of
making decisions that serve the interests of the company as a whole, not just
of isolated, self-interested cells.
CONTINUES IN PART II
https://www.mckinsey.com/....
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