21st century leadership

Corporate leaders need to recognise that the greatest role of the CEO is to put organisational design at the heart of strategy.

by McKinsey Quarterly Online
Last Updated: 23 Jul 2013

Most companies today are organised on 20th century lines, better suited for a time when capital was the scarcest resource. They were organised on hierarchical lines and had matrix structures, which often discouraged staff initiative and creativity.

The most important fact to bear in mind today is that growth and profits are driven by the talent within organisations. When looking at the fastest growing companies of recent years, it becomes clear that they have grown by increasing the profit per employee the most. The 30 companies with the greatest market capitalisation in 2007 saw their profit per employee soar from $35,000 to $83,000 over the period 1995 to 2005.

In today's world, where talent is the scarcest commodity, the most important function of a leader is to ensure that he or she creates an organisational structure which eases the path for talented individuals to work together and that those at the front line, where new market trends are most apparent, are fully motivated and empowered to contribute to the company's strategic direction.

By doing so, the company will be better positioned to generate the "intangible" value that otherwise lies hidden within the minds of its most talented people. By enabling people within a global firm to collaborate better or initiate new ideas, for instance, it will deliver better performance in areas such as institutional skills, intellectual property, networks and brands.

The barriers to creating the digital age company are "hard-to-manage businesses, thick silo walls, confusing matrix structures, e-mail overload, and 'undoable' jobs". There are a number of clear ways companies can move in the right direction. One is to hold ambitious, talented individuals accountable for the way in which they help others within the organisation. Like basketball players, they will be judged on the way they "assist" (passing the ball) and not just on the points they score.

Second, leaders can build a "simple backbone line structure" which drives performance and puts authority in the hands of those working on the front line, and replaces the matrix model with a formal network structure that encourages individuals to drive themselves and to collaborate with one another. Another considerable challenge is to create a "one-company" governance structure and culture.

Better strategy through organizational design
Lowell L. Bryan and Claudia I. Joyce
The McKinsey Quarterly Online. May 2007
Review by Morice Mendoza

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