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Extending the horizons of value, technology, leadership, and work
Playing for the long haul
Pocket Edition / 2020 Number 1
Pocket Edition
Last Laugh
Appetite for disruption
View all Pocket Editions
Read previous Pocket Editions
Confronting the early-career gender gap
When women lead, workplaces should listen
Are you asking enough from your design leaders?
Understanding the leader’s ‘identity mindtrap’: Personal growth for the C-suite
NEW LEADERSHIP FRONTIERS
Boosting the accessibility of workplace reskilling
Getting practical about the future of work
THE FUTURE OF WORK
As workers interact with ever-smarter machines, the demand for soft skills is beginning to surge. To learn how your organization can keep pace, check out this edition of the Five Fifty, the Quarterly’s timely dose of smart.
Soft skills for a hard world
The Five Fifty
View “Soft skills for a hard world”
In disruptive times, the power comes from people: An interview with Eric Schmidt
TECHNOLOGIES OF THE FUTURE—TODAY
The value of value creation
Read the summary
PLAYING FOR THE LONG HAUL
Read the summaries
How ALJ—a ‘75-year-old start-up’—leads with purpose
THE GENDER-PARITY IMPERATIVE
A game plan for quantum computing
Redefining the role of the leader in the reskilling era
Bias Busters: Avoiding snap judgments
APPLIED RESEARCH
Article summary
by Marc Goedhart and Tim Koller
Long-term value creation can—and should—take into account the interests of all stakeholders.
The problem
Challenges such as globalization, climate change, and income inequality have shaken public confidence in large corporations and, more generally, in capitalism. In an annual Gallup poll, more than one in three of those surveyed express little or no confidence in big business—seven percentage points worse than two decades ago. The chief culprit? A fixation on short-term performance and today’s share price, which comes at the expense of longer-term thinking.
Why it matters
With capitalism on the defensive, it’s critical that managers and board directors have a clear understanding of what value creation means beyond maximizing today’s share price. It’s possible for shareholder value and the interests of other stakeholders to coexist. For instance, European and US companies that created the most long-term shareholder value in the past 15 years have shown stronger employment growth.
What to do about it
Balance shareholder and stakeholder interests by satisfying broader stakeholders and creating strong environmental, social, and governance (ESG) propositions. In so doing, businesses not only create long-term shareholder value but also catalyze progress by lifting millions of people out of poverty, contributing to higher literacy rates, and fostering innovations that improve quality of life and lengthen life expectancy.
•
Prioritize long-term value creation when trade-offs must be made. For example, a company that tries to boost short-term profits by underpaying employees or skimping on benefits will have trouble retaining a high-quality workforce. Lower-quality employees can lead to inferior products, which in turn can damage the brand’s reputation over time. Instead, pairing an attractive wage with a range of nonmonetary rewards can keep quality employees happy and more productive in the long run.
Strategize for complexity and externalities. Value creation is not a magic wand that vanquishes tough decisions; long-term-oriented companies striving to solve global challenges such as climate change must attune themselves to long-term changes that governments and investors will demand. Doing so enables companies to adjust their strategies over a five-, ten-, or 20-year time horizon and reduce the risk of stranded assets, or of productive assets that get sidelined because of environmental or other issues.
Exhibit
Correlation between total shareholder returns (TSR) and employment growth, CAGR,¹ 2007–17, %
US and European companies that created the most shareholder value in the past 15 years have shown stronger employment growth.
40
60
20
0
-20
-40
-10
10
High
TSR
Low
Employment growth
United States
European Union
2
Sample includes companies in the core 15 EU member states.
CAGR = compound annual growth rate; sample includes companies with real revenues >$500 million and excludes outliers with >20% employment growth.
1
Fady and Hassan Jameel are the third-generation leaders of ALJ, the first major investor to back the electric-vehicle manufacturer Rivian eight years ago, before Ford and Amazon jumped in on the action. The company—which has its beginnings as a humble gas station 75 years ago—is active in 30 countries and across a range of sectors, including energy, transportation, real estate, consumer products, and financial services. The brothers articulated their family’s explicit sense of purpose underpinning many of their ventures.
What do Rivian electric vehicles, renewables innovation, empirical philanthropy, and a Nobel Prize have in common? A Saudi Arabian company called ALJ—and a family’s sense of purpose, say its leaders.
With our background in automobiles, we wanted to get into the electric-vehicle space. Even more, we wanted to be part of the disruption in mobility—we looked for ways to be disrupters rather than to be disrupted. There’s so much noise now in mobility. . . . Investing with a clean slate in a company like Rivian gives us a read on the latest and greatest in that sector. . . .
When we invested in Rivian, we didn’t give them a blank check and say, ‘Here you go. Go build a car company and buy a factory.’ It was done in tranches and in stages with the management over several years, until we gained each other’s trust.”
“
On the decision to back Rivian:
Profit is one indication of how well you are doing, but addressing other issues within your sector is very, very important. Yes, I know a lot of people will say that. We truly believe it. It’s really close to our hearts. Through Community Jameel, we also have a nonprofit subunit called Bab Rizq Jameel [BRJ], or ‘Beautiful Gateway to Prosperity.’ BRJ has helped create 900,000 jobs in the Middle East and North Africa since its establishment. . . . Seeing the value that they’ve created is fuel for us to keep going.”
The bottom line, alone, is not a purpose for a company anymore. An organization needs to have purpose, and we as owners and managers of the organization need to feel that. But, more importantly, your employees need to know and feel that the company has purpose, that it’s not just about making money and reaping profits. You need to have a real meaning behind why you’re going to work every day.
On the intersection of purpose and the bottom line:
Energy is a sector that we feel very strongly about. We like that it’s a long-term play. It’s not something you come in and out of. . . . In 2016, we established a desalination and water-treatment company, Almar Water Solutions [AWS]. . . . That’s a business that is even longer term; it takes four to five years to establish one plant. These sectors are important for us in terms of future business—not only geographic diversification, but also impact. There’s a great need for energy and for clean water, whether from a personal or an industrial point of view. We used to say that climate change would be a problem in 20 years, or in 50 years—but it’s a problem now, and I’m glad we’re in industries that are supporting sustainability.”
On the long term:
In a bid to keep up with the dizzying speed of technological disruption, it’s easy to focus on technologies such as machine learning, artificial intelligence, and generative design—and to underestimate the role that human beings play. More is needed to develop young talent into the inventors and leaders of tomorrow.
As we enter a new golden age of technological innovation, nurturing talent will become more critical, according to the former chairman of Alphabet.
Although new techniques and technologies are providing impressive solutions to existing problems, exceptional people are the ones who trigger profound paradigm shifts in the way we will solve future problems. With the right people—and with the right approach to helping them develop—businesses large and small can continue to thrive.
Ensure plenty of diversity. Studies indicate that with a blend of different points of view, you’re much more likely to get the kind of innovation that pushes things forward.
Provide the right coaching and structure. This next generation has enormous energy but lacks business experience. Business leaders should embrace being mentors and educators for these people. It’s both good for business and personally satisfying.
Be a magnet for young talent. Four in ten people in the world are under the age of 25 and they are growing up in a more sophisticated, digitally native, and intense world. This new generation is going to be smarter than previous ones and will change the workplace in profound and unexpected ways.
Article Summary
Physical and psychological stress in the workplace harms productivity, increases employee turnover, and adds to healthcare costs.
A few companies are adopting simple and cost-effective ways to improve employee health, thereby tangibly improving individual lives and making it easier to attract talent.
Demonstrating that you care about employees’ well-being
Encouraging individuals to care for one another
Using language to foster a spirit of community
Connecting people by sharing success and providing opportunities to volunteer
Second, provide employees with social support, rooting out practices that pit people against one another. Practices often overlooked include:
Return to overview
Thanks to technology advances, some companies may reap real gains from quantum computing within five years. What should you do to prepare for this next big wave in computers?
by Alexandre Ménard, Ivan Ostojic, Mark Patel, and Daniel Volz
By the early 2020s, finance, travel, logistics, global energy and materials, and advanced industries are the sectors most likely to be affected by the hybrid classical/quantum computing approach. Here’s what executives can do now to prepare their companies to reap the benefits while minimizing the risks:
Expect acceleration in the development of new drugs, autonomous vehicles, and optimization solutions. In cybersecurity, quantum computing poses a serious threat. With the ability to perform multiple calculations simultaneously, quantum offers the potential to break any classical encryption system.
Companies that are ill-prepared for the coming age of quantum computing may fail to develop the capabilities needed to solve complex problems or, worse, may find their business or trade secrets at risk of being stolen.
Transition to quantum cryptography. Every chief information officer, not just those from first-wave companies, should be on high alert about the cybersecurity implications of quantum. Classical computing–based security measures may be rendered obsolete, leaving trade and business secrets vulnerable.
Partner with tech companies already working on quantum. Companies are in the early stages of adapting quantum computing to real-world business needs, so they can still influence the ways in which the technology is being developed to suit their specific needs.
Start hiring quantum developers to build an in-house team to tap into the burgeoning quantum infrastructure and create algorithms that target pressing systemic problems. Such talent is in short supply, and demand will likely surge in the years ahead.
A hybrid approach—where quantum computing swiftly provides a narrow range of possible solutions for classical computing to solve definitively—would revolutionize a broad spectrum of sectors from pharmaceutical and automobile to finance and materials science.
Quantum computing has the potential to be both transformative and disruptive by processing multiple calculations with multiple inputs simultaneously, making it exponentially faster than single-calculation, single-input classical computing.
28
Distribution of quantum-computing use cases, 2019, %
Who could create value with quantum computing?
Estimated value at stake
Medium
Finance
Near term
Medium term
Long term
16
Global energy and materials
11
Advanced industries
9
Pharmaceuticals and medical products
Telecom, media, and technology
7
Public/social sector, professional services
6
Healthcare systems, services
McKinsey surveys show that executives see talent shortages as the biggest barrier to successful digitization and automation strategies. Most of them also agree that companies should take the lead in preparing employees for the future of work—yet only a minority of companies have launched new reskilling programs.
Adapting to a digital age will require organizations—and not just employees—to equip themselves with new capabilities.
by Bryan Hancock, Kate Lazaroff-Puck, and Scott Rutherford
Our work with some early movers has taught us that successful transformation involves three broad phases.
As companies look to address their talent shortfalls, they are realizing that they can’t hire all the skills they need. The better approach is to develop their existing talent. This is not only quicker and more financially prudent but also good for morale and the company’s long-term attractiveness to potential recruits.
1.
Scouting potential, assessing gaps, and reviewing readiness. In this stage, the company develops a single vision of its digital and automation future—and the total value of that future—and identifies its most important skill gaps, looking at future needs, not just extrapolating from the past (which is the norm in much workforce planning). Then the organization assesses its readiness to deliver.
2.
Shaping work and developing new structures. In the second phase, companies redesign work for the demands of a more digital future and, with their employees, cocreate the upskilling programs they need. One crucial task: developing internal talent marketplaces (or “accelerators”) that help match talent with the most important future roles.
3.
Shifting the workforce at scale. In the third phase, the organization’s suite of talent-related activities shifts onto a bigger scale. Required here is the recognition that helping employees adapt to the future of work is just as important as other near-term (and seemingly more urgent) talent priorities.
A continuous transformation of the workforce involves three phases.
Scout
Quantify your digital aspirations and assess future talent gaps and organizational readiness
Shape
Design future roles, create talent accelerator, and set up infrastructure for upskilling and reskilling
Shift
Scale up work changes, develop new skills, and scale up employee transitions
As digitization and new technologies change the nature of work, some people are at risk of being left behind as a result of a lack of equitable access. How can companies evolve from providing generic reskilling programs to ensuring that all employees in any location have the necessary learning capabilities designed to fit their needs?
How can we ensure that everyone has the skills needed to thrive in the 21st century? Three experts sketch out a vision.
A group of researchers, corporate and not-for-profit leaders, and McKinsey experts have been convening as the Consortium for Advancing Adult Learning & Development (CAALD) to help clarify the challenges ahead and stretch toward potential solutions. Three CAALD members discussed the issue of equitable access at the fourth annual meeting in Norwalk, Connecticut:
The experts
Chike Aguh, principal at McChrystal Group and a former member of the Council on Foreign Relations–sponsored task force on the future of the US workforce
Bror Saxberg, vice president of learning science at the Chan Zuckerberg Initiative
Beth Cobert, CEO of Skillful
Beth Cobert: We do need a mix of technology and personal touch. . . . We’ve seen the power of an individual coach to make a difference, to give people the confidence so that they can get from where they are now to a good job with a sustainable wage.
On coaching at scale:
We’ve structured our program so that it’s much more intensive and personal, but we’ve also created a community of coaches across the state of Colorado, and in Indiana. They’re all on an online platform . . . where they have access not only to digital tools to help them in their roles but also to each other, in order to share practices.
Bror Saxberg: We often think about these skilling or coaching opportunities as being more in the technical domain. What we miss is the comprehensive learner-development problem, which is not just about workforce or academic skills—it’s about social and emotional skills. . . . Some folks are going to walk in with a strong sense of their identity or a great growth mindset. But others will not have had that kind of support from their families or support systems.
For people who didn’t have that kind of support in their lives, that lack is going to be one of their key roadblocks. . . . We need ways to understand where you are on the set of multiple dimensions, and then work with you as needed to overcome the things that may get in your way.
If you think of who can take the most risk, because they don’t have voters and they don’t have shareholders, it’s the not-for-profit space. Understanding what everyone is good at allows you to begin to think about a division of responsibility and labor between these stakeholders that’s most effective.
Chike Aguh: The government is good at scale and at creating incentives. . . . What the private sector is good at is knowing what the problem is and what skills are needed. What they may not be as good at, particularly if they’re publicly traded, is the long view, because it’s just not the nature of their incentives.
On engaging diverse stakeholders:
Beth Cobert: Our work involves engaging employers with community colleges and other training resources in ways that can shape things at a pace that fits with what business needs, as opposed to a more traditional academic cycle of semesters. . . . We had done some work building a skills-based job curriculum based on what would prepare you for a reasonable entry-level job in a certain industry that would be a good jumping-off point for what could be a great career but that wouldn’t require a bachelor’s degree.
On changing processes and institutions:
It’s about transitioning your culture so that leaders see the need for change, are rewarded for it, and are committed to lifelong learning—and unlearning, because what got them into their current leadership roles is no longer sufficient.
Joe Voelker: Reskilling for our leaders is tricky, because the way they’ve done things in the past has worked. So we have to start working from the mindset of, “If we don’t disrupt our business, somebody else is going to do it for us.”
On keeping an eye to the future:
Joe Voelker, chief human-resources officer at Stanley Black & Decker
David Rock, director of the NeuroLeadership Institute
Lynda Gratton, professor of management practice at the London Business School
A group of researchers, corporate and not-for-profit leaders, and McKinsey experts have been convening as the Consortium for Advancing Adult Learning & Development (CAALD), looking to illuminate the big-picture challenges ahead and explore their implications for individual leaders. Four CAALD members recently discussed the mindsets and behaviors that leaders must learn (and unlearn) to meet the needs of their people and their organizations in the age of reskilling:
Continuous learning in the workplace requires leaders to take on a role they might initially find unfamiliar—facilitator-in-chief of learning.
To enable continuous learning, leaders will need to think and act differently.
Tim Welsh, vice chairman of consumer and business banking at US Bank
Lynda Gratton: Create an environment of psychological safety for . . . employees so that they are comfortable making mistakes as they learn. Adult learning is difficult. Anyone who has tried to learn as an adult has struggled with the sort of failures that, as children, we didn’t notice so much. When you are learning as a child, it’s really hard to tie your shoelaces, but everybody’s finding it hard. . . . So, how leaders demonstrate the ways that they think about failure is really important.
Tim Welsh: Be honest but positive, painting potential opportunities for the future, and design the work and create the environments in which people can thrive.
On creating a safe space to learn:
David Rock: The term psychological safety is often misunderstood. It doesn’t mean everyone feels happy and delighted all the time. The best teams . . . can challenge each other without anyone feeling that they’re being personally attacked. At work, people typically operate at different levels of threat response. . . . A skilled leader should know how to create an atmosphere where people . . . can effectively do their work without unnecessary stressors.
David Rock: In an era where it’s all too common to treat people as numbers—literally dehumanizing them—the leaders and organizations that will succeed are those that put human values at their core.
Tim Welsh: We need humble leaders—in part, because increasingly they will need to be enablers of others, not in charge of others. This requires a very different mindset. In a world of reskilling, a leader will be a person who needs to act in service to others, empowering a group of employees to do things on their own.
On cultivating a service-leadership approach:
Overcoming identity mindtraps helps executives lead with more ease and empathy while improving their ability to deal with complexity. Furthermore, it helps their teams and organizations thrive in an uncertain, rapidly changing world.
Research shows that most of us tend to believe that we have changed a lot up to now but won’t change much in the years ahead. Because we don’t think of ourselves as evolving, we begin to project—and protect—the person we have already become, instead of continuing our personal growth. In other words, we get caught in an “identity mindtrap.”
If you’re shackled to who you are now, you can’t recognize—or reach for—who you might become next.
by Jennifer Garvey Berger and Zafer Gedeon Achi
The self-authored mind draws from an internal operating system of values, beliefs, and a sense of purpose that we’ve created. We still care about others’ opinions and try to accommodate more perspectives, but a person with a self-authored mind may have a blind adherence to personal values and purpose at the expense of other important possibilities.
The socialized mind relies on our social surroundings—such as relationships, inherited values (faith or political affiliation), and professional expertise—to inform the truth we perceive about ourselves. In this form of mind, we mostly protect and project the identity that others give us. Hallmarks of this stage include a rigid adherence to expertise, role, or hierarchy.
The self-sovereign mind sees only its own needs and views. While capable of logical reasoning, it has little or no ability to hold the perspectives of others or to understand the abstractions of larger principles. It’s characterized by a lack of empathy and an unwillingness to wonder about gray areas in a situation.
Academic research highlights four stages—or forms of mind—of potential development in adults. To develop, we have to move from one to another sequentially, building capacity in the process. Since growth is not preordained, it requires humility, time, self-awareness, and the willingness to discover and examine the hidden beliefs that govern our identity. The four forms of mind are:
The self-transforming mind searches for—and relishes—the next thing that might challenge our deeply held belief systems. At this stage, we seek to spend less time creating and defending a particular version of ourselves and more time letting life transform us. We are aware that we have some, but not total, control. This form of mind opens us up to new possibilities and helps generates the collaboration and new ideas needed to solve the biggest and most complex challenges of our day.
Why do I believe what I believe?
Here are three questions that can help orient us on our personal journeys of growth:
How could I be wrong?
Who do I want to be next?
Companies that excel at design grow revenues and shareholder returns at nearly twice the rate of industry peers. If companies are to capture the full business value of design, CEOs must give their senior design leadership a powerfully ambitious mandate.
Some 90 percent of companies surveyed in the McKinsey Design Index online survey tool were found to have fallen short of capturing the full business value of design. One big reason: a lack of effective design leadership. Even as the number of companies adding senior design roles has doubled in the past five years, companies lack clarity about where and how design leaders can contribute and how much to expect of them.
Embed your senior designer into the C-suite while cultivating a collaborative top-team environment in which your design leader will thrive.
Make the most of user data through a balance of quantitative and qualitative design metrics and incentives that enhance user satisfaction and business performance.
Embrace user-centric strategies, improving not only products and services but also the full user experience and, in some cases, the organization itself.
Three interconnected interventions are required:
A new breed of leaders can help companies unleash the business value of design.
by Melissa Dalrymple, Sam Pickover, and Benedict Sheppard
Leadership role archetypes for design.
% of respondents
The community leader (reports to CEO or others in C-suite)
10%
The executive (reports to CEO)
The hybrid leader (reporting varies)
30%
The functional head (reports to C-suite)
Multiple managers (design leaders embedded in business units)
20%
The most valuable lessons of women’s leadership programs are those that show organizations where to improve.
Women-only leadership programs hold up a mirror to the organization. If a company is receptive, such programs can gauge how well the organization promotes effective leadership behavior and can offer insights into where the company succeeds at fostering an inclusive environment and where it fails.
Women-only leadership programs have empowered female executives in myriad ways, but organizations often overlook the approaches that these programs offer to improve not only the skills of the participants but also the inclusivity and performance of the workplace itself.
by Natacha Catalino and Kirstan Marnane
Encourage more effective introspection across the board. Reflective organizations are able to transform themselves into truly inclusive workplaces and take full advantage of the significant benefits of diverse teams. Leaders can ask peers to share what they find effective about a colleague’s leadership, which helps them identify effective traits that they can in turn recognize and encourage in others. This positive feedback loop also wears down long-held assumptions about antiquated leadership styles.
Encourage dissent. Many women fear the recriminations of speaking out and are hesitant to point out to their employers the barriers they face at work. Enlightened leaders must demonstrate, through visible actions, that women’s views will be respected and appropriately acted on. Embracing the openness encouraged by women’s leadership programs helps companies become more aware of common problems. What’s more, an environment of constructive dissent enhances leadership, gender equality, and overall communication within the company.
Broaden leadership models to prioritize leadership behaviors—such as intellectual stimulation, inspiration, participative decision making, setting expectations and rewards, people development, and role modeling—over traditional behaviors like control, corrective action, and individualistic decision making.
Relative importance of nine leadership traits to addressing future challenges, % of top executives identifying behavior
Survey results suggest that women, more frequently than men, exhibit leadership traits that are highly applicable to future global challenges.
Women apply more
Frequency of the behavior observed in each gender
Men apply more
Women and men apply equally
Respondents could choose up to 4 types of behavior.
61
Inspiration
57
Participative decision making
Expectations and rewards
38
People development
34
Role modeling
18
Control and corrective action
12
Individualistic decision making
62
Intellectual stimulation
23
Efficient communication
Source: Women Matter: Time to accelerate—Ten years of insights into gender diversity, October 2017, McKinsey.com
To achieve workforce parity, businesses should apply the same practices they are using against the glass ceiling.
The collective stumble on the first step of the corporate ladder suggests that over the next five years, one million women in corporate America will get stuck at the entry level while their male counterparts move into promising career paths. The fact that all of these women are left behind early in their careers results in an unbalanced talent pipeline for senior-level roles in the future.
Despite strides made toward gender parity at the senior level in companies, disparity persists, especially at the very first rung of the corporate ladder. While women account for 48 percent of entry-level hires, only 38 percent of first-level managers are female, according to the 2019 Women in the Workplace study McKinsey developed with LeanIn.Org.
by Kevin Sneader and Lareina Yee
Deliver on opportunities and fairness. Meaningful correctives such as debiasing performance reviews, leadership succession planning, gender-balanced promotion slates, and formal sponsor- ship programs should be applied. In a fair workplace where opportunities are distributed without bias, men and women are three times happier and three times more likely to stay.
Hold managers accountable for increasing gender parity. While only 15 percent of companies do this for early-tenured managers today, some 55 percent hold their top leadership accountable for gender parity. Increased accountability must be accompanied by better support and tools. Managers need clear goals, data visibility on how they are doing, positive incentives, and training on inclusive leadership.
Remedy problems at the beginning of the talent pipeline. If companies hire and promote women into first-level manager roles at equal rates as men today, we could bridge most of the gap between entry-level and manager roles for women in just five years.
Apply ‘nudges’ to your implementation efforts. Making change stick means shifting day-to-day behavior. Nudges are simple prompts on daily actions that create more inclusive working experiences for those around you. Examples for managers include sharing the spotlight, curiously seeking out the opinions of others, or speaking up when you see someone withdrawing from a conversation or being interrupted.
When making important business decisions, it’s critical to put first impressions aside and explore the facts.
When it comes to hiring decisions for a position such as CEO, the halo effect is a distortion that could lead companies to make poor decisions resulting in billions of dollars in losses.
Important hiring and business decisions are often subject to the halo effect, which is the tendency of individuals to make specific judgments based on overall impressions that have been inferred from what they already know—or think they know.
by Tim Koller, Dan Lovallo, and Phil Rosenzweig
Discuss a candidate’s relative merits after the candidate has been scored and evaluated. The structured interview does not prohibit the use of executive intuition, but it can usefully delay it.
Score each candidate against a standardized rating scale, criterion by criterion, before making an overall evaluation.
Measure the candidates against valid indicators—attributes and experiences defined as being most important for success in the position. All should have been subject to the exact same criteria and questions.
When it comes to hiring, structured interviews can help mitigate the halo effect:
Asking yourself: “What sort of judgment would I make if I set aside my first impressions?”
Acknowledging your intuitions.
For other important business decisions, reduce the influence of the halo effect by:
