There are nine keys to building a future-ready business.

For years, people have been clamouring for change.. Senior executives concerned about their organisations being too slow, too siloed, too weighed down in sophisticated matrix systems, and too bureaucratic long before the COVID-19 pandemic. Many executives feared, and the pandemic confirms, that their businesses were built for a world that is vanishing—a world of standardisation and predictability that is being supplanted by four major trends: increased connectivity, lower transaction costs, unprecedented automation, and shifting demographics (Exhibit 1). (See "Organizing for the Future: Why Now?" for further information on these forces.) And if incumbents couldn't see it in themselves, they could see it in the competition.

In this post, we'll draw on our own experience as well as fresh research into the organisational methods of 30 of the world's most successful organisations to show how businesses might best structure for the future. While no company has yet cracked the code, current research suggests that future-ready businesses share three traits: they know who they are and what they stand for; they operate with a focus on speed and simplicity; and they grow by expanding their ability to learn, innovate, and seek good ideas regardless of origin. Companies will boost their chances of prospering in the next normal by adopting these fundamentals—and the nine organisational imperatives that underpin them.

What's the bad news? There is no time to waste for businesses. In an increasingly winner-takes-all corporate environment, where McKinsey study reveals that the top 20% of companies generate up to 95% of economic profit, any company that isn't looking for innovative ideas is living on borrowed time.

What's the good news? Not only do these top performers provide suggestions as to what a better company can look like, but businesses around the world are realising that the pandemic presents a once-in-a-generation chance for transformation. Indeed, the much-awaited—and, yes, unavoidable—transition from today's COVID-19 crisis mode to the next normal provides senior executives with a once-in-a-lifetime opportunity to defrost. Companies can uncover organisational "unlocks" and establish new systems that are antifragile,1 more flexible, organic, interconnected, purposeful—and simply more human—by grabbing the initiative.

Reinvention needed.

When you inquire about a company's operations, you can expect to be shown an organisational chart. It's understandable. The management principles depicted in the org chart—coordination, hierarchy, and a matrixed organization—are the ones that leaders grew up with and are most familiar with, as were previous generations. The first organisational chart was created in 1854 to aid in the operation of the New York and Erie Railroad during the steam engine era.

Therein lies the difficulty. Organizations nowadays are structured as classic hierarchies or matrix organisations, with roots in the 18th, 19th, and 20th centuries' industrial revolutions. These arrangements, in principle, offer clear lines of power from frontline personnel up to management layers. In actuality, matrix structures have become more sophisticated as business has become more complex, to the point where they are so onerous in some firms that they barely work.

What's the takeaway? In today's climate, we shouldn't expect these ancient machines to be fit for purpose. They're mechanistic by nature, designed to achieve uniformity, bureaucracy, and control—goals that undercut what businesses currently value most: innovation, speed, and accountability.

Organizing for the future.

In 2018, we began on a research project with our colleagues in McKinsey's Organization Practice to see how organisations may improve their performance. successfully organise for the future in order to define "radically better" for organisations. This research uncovered nine imperatives (exhibit 2) that we feel distinguish future-ready firms from the pack.

Exhibit 3 depicts the extent to which 30 leading US corporations are undertaking or planning dramatic changes in response to the imperatives. These businesses, which are all in the top three in their respective industries based on total economic profit between 2015 and 2019, represent the vanguard of a world where the winner takes it all.

Companies in the top quintile for economic profit capture over 90% of it, as our colleagues in McKinsey's Strategy & Corporate Finance Practice highlighted in their 2018 book, Strategy Beyond the Hockey Stick. According to a more recent analysis, this percentage has risen to 95%—basically all excess profits over the cost of capital.

The case for rethinking a company and taking big steps has never been more compelling. Let's look at how organisations can do both by looking at the organisational imperatives and how they can assist them answer three key questions: Who are we, exactly? What is our method of operation? How do we progress?

Who we are: Strengthen identity.

The economist and Nobel laureate Ronald Coase argued in his famous 1937 essay, "The nature of the firm,"3 that companies form to avoid the transaction costs of the open market. However, as transaction costs fall (because to increased connection), this logic no longer holds water. So, why do businesses exist?

Identity is the answer. People crave a sense of belonging and a desire to be a part of something larger than themselves. Organizations that build a strong identity that addresses employees' demands for affiliation, social cohesiveness, purpose, and meaning will gain ground over companies that focus just on profitability.

Future-ready companies do so in three ways: they clarify their mission, understand how they provide value and why they're different, and build strong and distinct cultures that help them attract and retain the finest employees.

Imperative 1: Take a stance on purpose.

Purpose is both a differentiator and a must-have for high-performing organisations. A strong sense of corporate purpose is a company's unique statement of its identity—the why of work4—and encapsulates all the organisation stands for historically, emotionally, socially, and practically.

Future-ready businesses understand that a sense of purpose motivates people to join, stay, and grow in their organisations. Investors recognise the importance of this and consider it while making decisions: The rise of environmental, social, and governance (ESG)-related funds is only one example of how they recognise that purpose is inextricably linked to value generation.

Despite this, only a small percentage of businesses completely utilise purpose. According to a McKinsey survey of US employees, 82 percent believe company purpose is vital, yet only half believe it drives impact. What can be done to close the gap? Take steps to put the company's mission into motion; assist in making it a reality for employees. Employees can only feel linked to their company's mission if they identify with it.

While meaningful, symbolic action can be used to foster and reinforce such connections—for example, Amazon leaves an empty chair at meetings to signify the customer's participation in decision-making5—purpose must also be forged through actual choices and behaviours. Consider CVS Health's decision to discontinue selling tobacco products in order to better fulfil their mission of "assisting individuals on their journey to better health."