McKinsey Global
Surveys, 2021:
A year in review
Our collection of research-based insights confirms the countlesstests that companies have endured this year—and suggests a way forward
in a still-evolving and ambiguous business landscape.
December 2021

Cover image:© Olemedia/Getty Images
Copyright © 2021 McKinsey &Company. All rights reserved.
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without consulting appropriate
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No part of this publication may becopied or redistributed in any form
without the prior written consent of
McKinsey & Company.

Contents
3

Building workforce skills at scale to thrive

11

Three keys to building a more skilled
postpandemic workforce

16

How companies capture the value

25

Organizing for sustainability success:34

The new digital edge: Rethinking

48

Strategy for a digital world

58

How boards have risen to the COVID-19 challenge,
and what’s next

68

The role of boards in fostering resilienceduring—and after—the COVID-19 crisisof sustainability: Survey findings

Where, and how, leaders can start

strategy for the postpandemic era

1Introduction
It’s safe to say that for much of the world, the COVID-19
pandemic’s second year did not provide much of a reprieve fromthe tremendous uncertainty of its first. Yet the demand for adata-driven understanding of the business, economic, and humanchallenges that unfolded in 2021 continued to hit record highs.
Thank you for your interest in McKinsey’s global survey research,
and we hope the insights that follow prove thought-provoking anduseful. We wish you a safe and restful end of the year and a goodstart to 2022.

Daniella Seiler
Senior Editor
McKinsey Global Publishing

2

McKinsey Global Surveys, 2021: A year in review

Heather Hanselman
Associate Editor
McKinsey Global Publishing© Jorg Greuel/Getty Images

Building workforce skills
at scale to thrive during—
and after—the COVID-19
crisisA new survey shows that skill building is becoming common practice,social and emotional skills are in demand, and there’s a recipe forsuccessful skill transformations.
by Fabian Billing, Aaron De Smet, Angelika Reich, and Bill Schaninger

Building workforce skills at scale to thrive during—and after—the COVID-19 crisis

3

In the past year, the COVID-19 pandemic has
quickly and dramatically accelerated the need for
new workforce skills.1 The rapid rise of digitization
and remote work has placed new demands on
employees who, in many instances, now requiredifferent skills to support significant changes to
how work gets done and to the business priorities
their companies are setting. Also required: help fromtheir employers to develop the skills that will makethe overall business, and its individual employees,
future-ready.
In our newest McKinsey Global Survey on reskilling,2
the urgency of addressing skill gaps is clear—and,across industries, more important than ever to do.
Most respondents say that skill building (more thanhiring, contracting, or redeploying employees) isthe best way to close those gaps and that they havedoubled down on their efforts to reskill or upskill
employees since the pandemic began. The results
also point to a shift in the most important skills todevelop, which tend to be social and emotionalin nature: for example, empathy, leadership, andadaptability. But regardless of the skills involved,
we also found that there is a clear recipe for successwith skill transformations, which are large-scale,programmatic efforts to support skill building sothat employees can adapt to fundamentallychanging requirements of their current role or moveinto a new one. When companies follow all nine
practices that support a skill transformation—for
example, assessing the demand and need forspecific skills in the future, designing a portfolio
of initiatives to close skill gaps, and launching anorganizational structure that is dedicated to learning—
the odds for success are nearly guaranteed.
1

During the pandemic, companies
have made a significant shift toward
skill building
The survey suggests that the need to address
skill gaps is more urgent than ever. A majority of
respondents (58 percent) say that closing skill gaps
in their companies’ workforces has become a higher
priority since the pandemic began. And of five key
actions to close these gaps—hiring, contracting,redeploying, releasing, and building skills within thecurrent workforce—skill building is more prevalent
now than it was in the run-up to the pandemic.
Sixty-nine percent of respondents say that theirorganizations do more skill building now than they
did before the COVID-19 crisis (Exhibit 1), a much
more dramatic increase than they report for theother four actions. This finding is also consistent
with organizations’ predictions from our previous
survey on skilling before the pandemic began.3
Redeploying talent to new roles—which often
requires some degree of skill building—has also
become more commonplace over the past year.
Forty-six percent of respondents report anincrease in redeploying talent at their organizations,which makes it the second-most-critical activity
for closing skill gaps.
Additionally, the results suggest that thiscommitment to skill building represents morethan a one-time investment. More than half of
respondents say that their companies plan toincrease their spending on learning and skillbuilding over the next year, compared with theirinvestments since the end of 2019.

For more details on these trends, see Sapana Agrawal, Aaron De Smet, Sébastien Lacroix, and Angelika Reich, “To emerge stronger from the
COVID-19 crisis, companies should start reskilling their workforces now,” May 7, 2020, McKinsey.com.
2
The online survey was in the field from December 8 to December 18, 2020, and garnered responses from 700 participants representing the fullrange of regions, industries, company sizes, functional specialties, and tenures.
3This survey was in the field from May 14 to May 24, 2019, and garnered responses from 1,216 participants representing the full range ofregions, industries, company sizes, functional specialties, and tenures. For more on the findings, see “Beyond hiring: How companies are
reskilling to address talent gaps,” February 12, 2020, McKinsey.com.

4

McKinsey Global Surveys, 2021: A year in review

Web <2021><Skills at scale>
Exhibit <1>1 of <6>
Exhibit

Sixty-nineof respondents
respondentsreportreportananincrease
increasein
inskillskill buildingbuilding during
Sixty-nine percent
percent ofduringthepandemic,
more
so
than
for
other
actions
to
close
skill
gaps.
the pandemic, more so than for other actions to close skill gaps.
Changes in actions used to close skill gaps, since the end of 2019, % of respondents1
Building skills

Redeploying

HiringReleasingContracting

69

46

42
36
29

MORE
LESS

7

8

12
20

25

62

38

17

17

16

Percentage-point difference1

Respondents who answered “no change” or “don’t know” are not shown; n = 700.

Skill building is more prevalent thanit was prior to the pandemic, with
69 percent of organizations doing
more skill building now than they
did before the COVID-19 crisis.

Building workforce skills at scale to thrive during—and after—the COVID-19 crisis

5

Skill-building efforts have focused on‘softer’ and advanced cognitive skills
The survey asked about 25 specific skills thatcompanies have prioritized to address throughreskilling, and more than half of respondents
report a focus on developing leadership, criticalthinking and decision-making, and projectmanagement skills. Compared with the resultsfrom 2019, many of the skills where respondents
report the biggest increases in focus fall into two
categories: social and emotional skills (which
account for three of the five biggest increases)
and advanced cognitive skills (Exhibit 2). For
example, the share saying that their companies
are addressing interpersonal skills and empathy
skills has nearly doubled in the past year.

4
5

Basic digital skills have also become a clear priority
for companies since the pandemic began; the sharesaying so is 16 percentage points larger than in 2019.
There are also some industry differences of note: inadvanced industries4 and industrial organizations,5
respondents report less of a focus than others onbuilding basic digital skills—likely because theseskills were already present before the pandemic.
But these respondents are much likelier than others
to prioritize technology design, engineering, andmaintenance: 50 percent say so, while 15 to28 percent of respondents in all other industries
say the same. On the other hand, their peers in the
public and social sectors, as well as in healthcare
and pharmaceuticals, are nearly twice as likely as
those in industrial organizations to say that they
have focused on interpersonal skills and empathy.

Includes respondents in the advanced-electronics, aerospace and defense, automotive and assembly, and high-tech industries.
Includes respondents in the agriculture, chemicals, electric power and natural gas, metals and mining, oil and gas, and paper and forest
products industries.
Web <2021><Skills at scale>
Exhibit2
Exhibit <2> of <6>

Most ofthat companies
Mostof thethe skills
skills thatcompanies areare increasingly
increasingly focused
focusedon
ondeveloping
developingare
aresocial, emotional,
andadvancedcognitive.
emotional, and advanced cognitive.
Skills that companies have prioritized to address through reskilling,1 % of respondents
Social and emotional skills

Advanced cognitive skills

2019

Technological skills

2020

0

10

20

30

40

50

60

0

10

20

30

40

50

60

Leadership and managing others
Critical thinking and decision making
Project management
Adaptability and continuous learning
Basic digital skills
Interpersonal skills and empathy
Advanced data-analysis and mathematical skills
Quantitative and statistical skills
Complex information processing and interpretation
Advanced IT skills and programming

1

6

Out of 25 skills that were offered as answer choices; n = 700.

McKinsey Global Surveys, 2021: A year in review

Getting skill transformations right:
The recipe for success
Even before the pandemic, respondents recognizedthat skill gaps were a pressing and critical issue.
And while the previous survey indicated that skilling
programs were at an early stage in 2019, companies
appear to have made real progress. Fully half of
respondents now say that their organizations havebegun a skill transformation6 to support employees’skill building in a large-scale and programmatic way.
For those that have, the benefits are clear. Between
71 and 90 percent say their skill transformations
have had a positive impact on four company
outcomes: the ability to realize company strategy,
employees’ performance and satisfaction, andreputation as an employer. Furthermore, reskilling
pays off. In other research, we learned that reskillingyields positive economic returns for UK employers,in addition to other benefits: for example, increased
productivity and improved employee morale.7
Despite the enthusiasm, the successful design andimplementation of skill transformations is difficult to
get right—and, in our experience, relies on nine key
practices that all need to be applied properly. Basedon our research, the more of these nine practices acompany pursues, the higher its overall likelihoodof an effective transformation (Exhibit 3).
The nine practices support three different phasesof a skill transformation (Exhibit 4). The first phase(which we call “Scout”) consists of rapid workforce
planning to identify skill gaps, which involves
comparing the company’s current supply of skills
with the demand for certain skills, based on its
strategic ambition, digital agenda, and overallbusiness model.
The second phase (“Shape”) focuses on how
companies shape the skill strategy to close
anticipated gaps, by finding the right mix of actions(that is, building skills as well as redeploying, hiring,
contracting, and releasing employees). Sinceskill building and redeployment are often the
predominant actions that companies are taking,important decisions in this phase also include which

Web <2021><Skills
at scale>
Exhibit3
Exhibit <3> of <6>

Thelikelihood
likelihoodofofaasuccessful
successfulskill
skill
The
transformation increases
increases dramaticallytransformation
dramaticallywhen companies
companies pursue more of ninewhen
key
key practices.
practices.
Success rate of skill transformations,1 by numberof practices successfully implemented (out of 9),% of respondents (n = 700)
97
87

67

43
28

<2
1

2–3

4–5

6–7

8–9

Respondents who agree that (a) their organizations can effectively reskill and/or
upskill their workforces so that they are ready for future changes in the businessenvironment, and (b) they have a culture that supports learning and development.

learning formats to use, how to design and deliver
learning journeys to employees, and the setup
of required infrastructure (for example, learningmanagement systems) and governance for learning.
The third phase (“Shift”) involves the execution anddelivery of skill-building efforts at scale, across theorganization: ensuring that the workforce is building
new skills, that there are dedicated organizational
structures in place for learning (for example, skillinghubs), and that there is a rigorous yet dynamic
system for tracking the impact of learning.
The results indicate that all nine of these practices
are important—there are no shortcuts to take. At

6That is, a large-scale and programmatic effort to support employees’ skill building so that they can adapt to the fundamentally changing
requirements of their current role or move into a new one.
7
Tera Allas, Will Fairbairn, and Elizabeth Foote, “The economic case for reskilling in the UK: How employers can thrive by boosting workers’
skills,” November 16, 2020, McKinsey.com.

Building workforce skills at scale to thrive during—and after—the COVID-19 crisis

7Web <2021><Skills at scale>
Exhibit4 of <6>
Exhibit <4>phasesof
ofaaskillskill transformation.
transformation.
The ninenine key
key practices
practices support three different phases% of respondents who say their companies have successfully implemented each practice
Scout:
Workforce planning to assess potential skill gaps
Assessing demand and/or need for specific skills in the future

58

Determining the current supply of specific skills

56

Analyzing skill gaps (including development of the businesscase to close them)

54

Shape:Development of a skill strategy to ensure that the workforce is future-ready
Designing a portfolio of initiatives to close skill gaps

43

Designing tailored learning journeys and delivery plans for
specific roles and/or groups of employees

40

Deciding on learning infrastructure and enablers1

48

Shift:
Reimagined infrastructure for skilling at scale
Launching a “skilling hub” or other organizational structure2 dedicated to learning

28

Delivering a skill transformation at scale across the organization via comprehensive
capability-building programs that address the most critical skill needs

28

Implementing dynamic tracking of workforce and impact3
1

23

That is, specific technologies to use.
For example, that conducts skill and fit assessments, matches talent to new roles, and redeploys people accordingly.
For example, return on investment and impact on business outcomes.

2

3

At the organizations that have implemented
all nine practices, respondents report a nearly
100 percent chance of having a successful
skill transformation.

8

McKinsey Global Surveys, 2021: A year in review

the organizations that have implemented all of them,
respondents report a nearly 100 percent chanceof having a successful skill transformation,8 whichis 2.5 times higher than the success rate fororganizations that have failed to implement atleast one of the practices (Exhibit 5).
While all nine matter, it is also true that some
practices are implemented successfully more often
than others. According to respondents, companies
tend to be most successful at the three practices
related to workforce planning and assessment:
assessing demand and need for specific skills in the
future (which 56 percent say their companies do well),determining the current supply of skills (56 percent),
and analyzing skill gaps (54 percent). Smallerorganizations are particularly good at workforceWeb <2021><Skills at scale>

Exhibit5of <6>
Exhibit <5>

Effectively implementing the nine key
practices nearly
practicesnearly guarantees
guaranteesaasuccessful
successful
skill
skill transformation.
transformation.
% of respondents reporting success in skill
transformations1

At organizations thatsuccessfully implemented
all 9 practices of askill transformation (n = 52)
94
At organizations thatwere unsuccessful at
implementing atleast 1 practice (n = 311)
38

~2.5×
1

Respondents who agree that (a) their organizations can effectively reskill and/or
upskill their workforces so that they are ready for future changes in the businessenvironment, and (b) they have a culture that supports learning and development.

planning practices, seemingly because they often
benefit from greater transparency around theorganization’s needs, know their employees better,and can create a more accurate baseline of skills.
Smaller organizations also see a higher success rate
at skilling than their larger counterparts, consistent
with the findings from 2019.
On the other hand, companies appear to struggle
most with the practices related to the infrastructureand delivery of skilling efforts. For instance, just
23 percent of all respondents whose companies
have started a skill transformation say that they have
implemented dynamic tracking of the workforce’s
performance and overall impact on the business.
But it is critical to perform each of these practices
to reap the full benefits of a skill transformation.

When building skills, go beyond digitallearning and apply a mix of formats
Digital learning feels ubiquitous, especially during
the pandemic. And the survey results suggest that it
works: respondents who say that digital learning issuitable for their employees, or who say the samefor sessions that combine in-person and virtual
learning, report a higher overall rate of successfor their companies’ skill transformations.9
But the survey also indicates that, overall, a varied
and multichannel approach to learning and skillbuilding works best (Exhibit 6). Out of 12 learning
formats, respondents say that an average of fiveformats are suitable for their companies’ employees.
At the companies that have already begun
skilling transformations (reported by half of all
respondents), the rate of success is higher when
respondents cite a larger number of learning
formats: it is 50 percent for those who identify
fewer than four formats, and more than 70 percent
for those who cite eight or more.
According to the results, other less common ways
to learn also link to success. Respondents who cite
peer learning teams or expert coaching are likelier to8

We define organizations with successful transformations as those that, according to respondents, can effectively reskill their workforce,
upskill it, or both so that it is ready for future changes in the business environment, and those that have a culture that supports learningand development.
9
For more on our research about learning programs, see “Rethink capabilities to emerge stronger from COVID-19,” November 23, 2020,
McKinsey.com.

Building workforce skills at scale to thrive during—and after—the COVID-19 crisis

9Web <2021><Skills at scale>
Exhibit
6

Exhibit <6> of <6>

Whiledigital
digitallearninglearningisisthethemostmostsuitable
suitableformat
formatfor
forskillskill
building, the survey
Whilebuilding,suggestsa multichannel
approach supports
thesurveythat
suggeststhat a multichannel
approachsuccess.
supports success.
Most suitable learning/skill-building formats for organization’s employees,1 % of respondents
Formats that are significantly correlated with a successful skill transformation2
75
60
50

48

46

42
35

33

32

29

29
22

Digitallearning

Individual
or teamassignments

In-person
and/or virtual
workshops
1

Expertcoaching

Peer
learning
teams

Experience-ledchangesupports

Sponsor or
managercoaching

Performance
supportOrganization-led
changesupports

Fieldwork

Experiential
and/or“go-and-see”
learning

Organizational
and/orindividual
diagnostics

Respondents who answered “other” or “don’t know” are not shown; n = 700.
Confidence interval = 0.95.

2report successful transformations, which underlines
the importance of the team-based learning that, in
our experience, is a crucial ingredient in successful
skilling strategies.

Many companies are now at a critical juncture whenit comes to talent development and skill building,and it is clear from the survey results that dramaticchanges are needed to thrive—or even survive—in
the future. To emerge stronger from the pandemic,
now is the time for organizations to invest in skill

transformations and apply the lessons of the past
year to crystallize their current and future skill
needs. The survey confirms that organizations musttake a holistic approach to skill transformations
and focus on all nine of the practices that we know
support success; there are no shortcuts to take. And
when they do so, they should not fall into the trapof focusing only on “hard” technological skills ordigital-only channels for learning. The pandemic, andour research, has shown how critical interpersonal
skills and resilience really are, and that they requiredifferent ways of learning to be cultivated.

The survey content and analysis were developed by Fabian Billing, a senior partner in McKinsey’s Düsseldorf office;
Aaron De Smet, a senior partner in the New Jersey office; Angelika Reich, a partner in the Vienna office; and Bill Schaninger,a senior partner in the Philadelphia office.
The authors wish to thank Jutta Bodem-Schrötgens, Nicole de Locarnini, and Pawel Poplawski for their contributions to this article.
Copyright © 2021 McKinsey & Company. All rights reserved.

10

McKinsey Global Surveys, 2021: A year in review

© Jorg Greuel/Getty Images

Three keys to building amore skilled postpandemic
workforce
Many companies face large, and growing, skills deficits. A few companies
approach skill building in a more integrated way—and are quietly gaining
an edge on rivals.
by Jutta Bodem-Schrötgens, Angelika Reich, Bill Schaninger, and Kartik Sharma

Three keys to building a more skilled postpandemic workforce

11The COVID-19 crisis and subsequent move tohybrid working models have accelerated the needfor new workforce skills. Fifty-eight percent ofrespondents to our recent global survey1 said thatclosing skills gaps has become a higher priority
since the pandemic began, and 69 percent said theircompanies engage in more skill building than they
did before the crisis.
Intriguingly, the skills companies prioritize most areleadership and managing others, critical thinking anddecision making, and project management (Exhibit 1).
This suggests that in addition to wanting to be more
employee centric, organizations are still coming togrips with the new ways of working forced on themby the virus.
The challenges will only grow. For example, weestimate that demand for social and emotional skills(ones that machines can’t master) will increase
25 percent in the United States alone over the next

decade, compared with a previously expected rise of
18 percent (see sidebar, “A software company gets
emotional”). And research2 from the McKinsey Global
Institute finds that 107 million workers may need toswitch occupations by 2030—up 12 million from aprepandemic estimate.
Companies need to prepare their people for a future
where new and evolving skills and ways of working
are a given and where an embrace of continuous
learning3 is the key to relevancy in the workplace.
And leaders must do this while embarking on the
broader organizational experiment of determining
what the workplace even looks like in a postCOVID-19 world.
To help, senior executives can study the practicesof organizations that already take workplace skilling
seriously. In this article, we highlight three nascentprinciples drawn from best practices. While relatively
few companies have fully mastered the challenges,

1“Building workforce skills at scale to thrive during—and after—the COVID-19 crisis,” McKinsey Global Survey results, April 30, 2021,
McKinsey.com.
2“The future of work after COVID-19,” McKinsey Global Institute, February 18, 2021, McKinsey.com.
3“Building a learning culture that drives business forward,” April 16, 2021, McKinsey.com.

Exhibit 1

Companies areare increasingly
increasingly focused
focusedon
ondeveloping
developingsocial,social,emotional,
emotional,andandCompanies
advancedcognitive
skills.
advanced cognitive skills.
Skills that companies have prioritized to address through reskilling,¹ % of respondents
Social and emotional skills

Advanced cognitive skills

Leadership and managing others
Critical thinking and decision making
Project management
Adaptability and continuous learning
Basic digital skills
Interpersonal skills and empathy
Advanced data-analysis and mathematical skills
Quantitative and statistical skills
Complex information processing and interpretation
Advanced IT skills and programming¹Out of 25 skills that were offered as answer choices; n = 700.

12McKinsey Global Surveys, 2021: A year in review

Technological skills

2019

2020

0

10

20

30

40

50

60

0

10

20

30

40

50

60

A software company gets emotional
The development of so-called “soft” skills
is easy to overlook in a company’s push togain technological know-how. Not
so for a global software company. When
company leaders recognized how cloudcomputing would make its future sales

more dependent on long-term customer
relationships, it upskilled 30 percent
of its client-facing staff to ensure theywould have the interpersonal and emotioal skills they would need. The effort hashelped the company stay close to cus-

their examples can serve as useful touchpoints forany organization aspiring to start building its own
more resilient, future-ready workforce.

1. Find your true starting point

Leaders at a large insurance company knew they
faced a skills deficit. Prior to the pandemic
the company was losing top recruits to sexierhigh-tech firms. Now, with AI and data analytics
skills becoming even more important to the industry,company leaders suspected their current workforce
was falling behind. But where, how far, and how fast?
“We have more than a hundred job families and two
thousand-plus different types of roles,” noted one
executive. “Where do we start?”
In response, the company took a comprehensive
inventory of skills across the organization.
The inventory was validated by a combination ofhuman managers and AI, which allowed
for an apples-to-apples comparison of people’s
résumé inputs, as well as their professional
experience and accomplishments.
Importantly, the exercise wasn’t treated as acataloguing of roles. Collecting job titles is
a waste of time when what’s changing are theunderlying skills. Similarly, the insurance company
didn’t approach the effort as a one-off project but
as part of a commitment to a new approach—one
grounded in the principle of linking talent to a clearly
defined value agenda. The inventory was to be part of
the fact base supporting an enterprise-wide supplyand-demand model for current and future roles.

Three keys to building a more skilled postpandemic workforce

tomers but is far from over. Requirements
for upskilling are increasing again in thesoftware industry as its “skills life cycle”
has shortened, a result of technologicalchange and bruising competition.

The first test of the database came when theinsurer used it to zero in on 15 job families whoseskills would be most vital for the company’s longterm success. In parallel, the company used it topinpoint areas of immediate concern. For example,
the company saw it would face big head-countshortfalls for data analysts, systems developers,
and IT-infrastructure experts—all roles in which theunderlying skills were themselves changing
the fastest.

2. Make skill building a wayof lifeAs the insurance company’s talent aspirations took
shape, the organization created a “skills hub” tomanage, operationalize, and scale them.
The hub, a permanent business unit led by thecompany’s head of talent, became responsible
for balancing the supply and demand of skills—
for instance by creating foundational learning
programs for everyone, as well as customized
programs for reskilling people in particular roles.
As a pilot exercise, the hub started with the company’s finance and call-center units—two importantgroups in which technology already threatened
to make many skills (and roles) redundant. In
areas where roles needed to change, the hub
offered learning modules to help employees gain
necessary skills; when roles were being eliminated,the hub provided upskilling to help people qualify
for a different role or to find adjacent roles where13

By making clear to everyone that the
reskilling was an investment in talent,and in direct support of the company’s
regional growth plans, employees weremore energized.
possible. Senior executives had feared they would
have to resort to widespread layoffs or severance
offers, but the hub ultimately redeployed or reskilled
nearly everyone in the pilot units.
Similarly, a large telecom company had a highsuccess rate using its skills hub to reskill andredeploy employees whose roles were being affectedby technology. The company’s rationale helped.
By making clear to everyone that the reskilling was
an investment in talent, and in direct support ofthe company’s regional growth plans, employees
were more energized (and reassured the program
wasn’t simply a cost-cutting move). Nonetheless, thecompany’s efforts made financial sense as well. In
our experience, hiring new workers can be morethan twice as expensive as upskilling and reskilling
existing employees.
To be most effective, skills hubs should have a clear
remit. This should include candidate assessment,
the future allocation of roles, the implementation of
the program itself, and the measurement of impact(Exhibit 2).

3. Take an ecosystem view

During the chaotic early days of the COVID-19
crisis, some companies, out of necessity, adopted
an ecosystem mindset. In just two days, for4example, Dubai-based Majid Al Futtaim reskilled
one thousand employees from its cinema businessto work in its grocery business.4 Similarly, HR
technology company Eightfold.ai, together with the
US-based Food Industry Association (FMI), created atalent exchange to help furloughed and laid-off
workers find open jobs in other member companies.5
The exchange ultimately amassed more than one
million job openings, while providing workers accessto 700 free courses to help them upskill.
More recently, the European Round Table for Industry
launched a pan-European training initiative to help
unemployed and at-risk workers. Dubbed Reskilling
4 Employment, the effort aims to reskill one million
workers by 2025, and up to five million by 2030.
Initial pilot projects are planned in Portugal, Spain,
and Sweden, and corporate supporters include
AstraZeneca, Iberdrola, Nestlé, SAP, Sonae, andVolvo Group.6
As these examples suggest, integrating skillbuilding with the whole ecosystem in mind canhelp companies as well as communities and otherstakeholders. Cisco’s Networking Academy offers agood example of just such a win–win approach. The
company partners with educators and instructors
around the world to offer students IT training in arange of areas such as big data, cloud, cybersecurity,and machine learning. The effort connects students“Stay visible—but don’t be needed: How Alain Bejjani is leading through the unexpected,” McKinsey Quarterly, August 3, 2020, McKinsey.com.
“Eightfold.ai creates talent exchange with FMI to immediately match recently furloughed or laid off employees with critical open jobs,” FMI,
April 6, 2020, fmi.org.
6	“ERT announces new initiative to stimulate reskilling and boost human capital in the EU,” European Round Table for Industry, May 7, 2021,
ert.eu.
5

14

McKinsey Global Surveys, 2021: A year in review

Exhibit 2

Creating a skills hub can help companies in four ways.

Assess candidates

Assess future needs• Collects all key skills androles• Ensures fairness andtransparency• Bases criteria selection on
tailored assessment• Collects supply-and• Designs, manages, and• Creates dashboards todemand data and assesses
implements learning
manage the process andpriorities
journeys
track the program• Anticipates timing of skill• Maintains an overview while • Creates ongoing view ofneeds relative to availability managing the project
supply and demand of skillsof talent (and company’s• Shares best practices
ability to reskill)
across a common learning
platformto jobs inside Cisco and with its external partners,
while creating a much larger pool of skills thecompany prioritizes.

Companies are more likely to gain an edge in skillbuilding when their leaders are willing to question
old assumptions. Legacy approaches are likely to
be too slow, too incremental, or too difficult to scale
given the challenges ahead.

Manage skill building

Measure the impact

Organizations must also be willing to question
their legacy mindsets, including presumptions ofwhat employees want and what they’re capableof. Employees are often more energized by skills
development than senior executives give them
credit for. This was true at a midsize Europeanbank, where leaders worried that tellers would beunmotivated by the company’s reskilling program, oreven resent it. But rather than balk at the changes,
the tellers embraced them, and the bank ultimately
created three distinct career paths for the tellers aspart of its successful pilot program—one that is now
being scaled across the entire organization.

Jutta Bodem-Schrötgens is a consultant in McKinsey’s Hamburg office, Angelika Reich is a partner in the
Vienna office, Bill Schaninger is a senior partner in the Philadelphia office, and Kartik Sharma is an expert in the Waltham,
Massachusetts, office.
The authors wish to thank Tomi Eisenberg for her contributions to this article.
Copyright © 2021 McKinsey & Company. All rights reserved.

Three keys to building a more skilled postpandemic workforce

15© Maskot/Getty Images

How companies capture
the value of sustainability:
Survey findings
What makes the difference between a sustainability program that
produces business value and one that doesn’t? A new survey identifies
practices that distinguish value-creating companies from others.

16

McKinsey Global Surveys, 2021: A year in review

Amid widening recognition of how environmental
issues such as climate change create business
opportunities and risks, results from a McKinsey
Global Survey 1 show that companies that generatevalue from their sustainability programs follow a
distinctive set of management practices. Survey
respondents say these companies are more likely
than others to make sustainability a strategic
priority and to set out specific aspirations andtargets. Responses also suggest that valuecreating companies are more likely than others tomake sustainability an element of their corporate
culture and train employees on how to integratesustainability into their work.
Survey results indicate that value-creatingcompanies are more apt to engage customers andbusiness partners in their sustainability agendas.
Compared with those at other companies, more
respondents from value-creating companies saythey collaborate with customers and suppliers on
addressing sustainability issues, adjust productportfolios to be more sustainable, and account forsustainability factors when selecting and evaluating
suppliers. Respondents from value creators are also
more likely than others to report that sustainability
issues inform how their company manages its
facilities and its transportation networks.

1

Looking five years ahead, about two in five
respondents to our survey say they expect theircompanies to generate value from sustainability.
Understanding the distinctive practices of today’svalue-creating companies could help others find away to join their ranks.

An optimistic outlook
Sustainability endeavors often make good businesssense, promising to deliver revenue gains, costsavings, and other benefits that lift enterprise value.
In our survey, 22 percent of respondents—the valuecreating group that this article focuses on—say theircompanies realized modest or significant value fromsustainability in the past five years. Nearly as many
respondents say their companies’ sustainability
programs resulted in significant or moderate cost
increases. About one-third say their companies’
sustainability programs have had minimal or no
financial impact.
Respondents are also optimistic that their companies’
sustainability programs will yield value in the future.
Compared with the proportion who say these
programs have already created value, nearly twice as
many respondents, or 40 percent, say they expect
the programs to generate modest or significant value
in the next five years (Exhibit 1). Respondents in a few

The online survey was in the field from January 21 to January 31, 2020, and garnered responses from 2,475 participants representing the fullrange of regions, industries, company sizes, functional specialties, and tenures.

Survey results suggest that to catch up
with the value creators, other companies
might start by understanding which
practices are most closely linked withpositive financial impact.

How companies capture the value of sustainability: Survey findings

17specific industries are especially likely to predict that
their companies will create value from sustainability
during that five-year timeframe. These industries
include some—such as automotive; electric power
and natural gas; oil and gas; and travel, transport,
and logistics—that play pivotal roles in curbing
climate change.

Strategic, purposeful intent
Survey results suggest that to catch up with thevalue creators, other companies might start byunderstanding which practices are most closely
linked with positive financial impact. According

to respondents, value creators exhibit a strategic,
purposeful approach that differs from that ofother companies in several ways. More than half of
respondents at value creators say their company’s
CEO makes sustainability a priority on the strategic
agenda—a significantly greater proportion of
respondents than among nonvalue-creatingcompanies (39 percent).
Motives for engaging on sustainability also appear
to matter. Respondents at value creators are
significantly more likely to say their organizations
address sustainability topics to fulfill theirWeb 2021

Sustainability
Exhibit1
Exhibit 1 of 6

Fortypercent
percent ofof respondents
respondents expect
Forty
expectcompany
companysustainability
sustainability programs
programs totogenerate value
years—nearly double
double the current share.
generate
value in the next five years—nearly
Share of respondents who report or expect ‘modest’ or ‘significant’value created from sustainability programs, by industry,¹ %In the past 5 years

In the next 5 years

Electric power and natural gas
Travel, transport, and logistics
Social sector
Oil and gas
Business, legal, and professional services
Financial services
Automotive and assemblyHigh techConsumer packaged goods
RetailTelecom
Capital projects and infrastructure
Healthcare systems
Public sector
Pharmaceuticals and medical products
All respondents
0

10

20

30

40

50

¹Total 7 answer choices presented: “significant cost,” “modest cost,” “minimal to no cost or value,” “modest value,” “significant value,” and “don’t know”; n = 2,421.
Only industries that received meaningful numbers of responses are shown.

18

McKinsey Global Surveys, 2021: A year in review

organizational purpose—to align with their goals,
mission, or values, or to make a tangible, positive
impact on an issue (Exhibit 2). Respondents at othercompanies, on the other hand, are significantly more
likely to say that these organizations are addressing
sustainability for other reasons, such as to meetindustry norms or standards or to conformwith regulatory requirements.

Sharp focus
When it comes to implementing sustainability
strategies, value creators place more importancethan other companies do on translating thesustainability strategy into definite terms: value
creators are significantly more likely to establish
clear and focused priorities, set targets or goals,
and develop key performance indicators forsustainability (Exhibit 3).

Web 2021

Sustainability
Exhibit2
Exhibit 2 of 6

Companies creating
Companies
creating value
value with
with sustainability
sustainabilityare
aremoremorelikely
likelythan
thanothers
otherstotoaddress
the
issue
for
reasons
relatedtotheirorganizational
purpose.
address the issue for reasons related to their organizational purpose.
Organization’s reasons for addressing
sustainability topics,¹ % of respondents

Value creators

All others

Statistically significant difference

Align with our goals, mission, and values
Make a tangible, positive impact on an issue
Meet consumers’ expectations
Attract, motivate, and retain employees
Meet industry norms or standards on sustainability
Meet investors’ expectations
Meet nongovernmental organizations’ expectations
Meet expectations of supply-chain partners
Develop new growth opportunities
Improve operational efficiency
Respond to competitive pressure
Build, maintain, or improve corporate reputation
Conform with regulatory requirements
Promote our ability to grow
0

10

20

30

40

50

¹All 13 topics that were presented as answer choices. Responses with “don’t know,” “other,” and “not applicable” are not shown here. Total n = 2,475.

How companies capture the value of sustainability: Survey findings

19Web 2021

Sustainability
Exhibit3
Exhibit 3 of 6

Value creators
creators areothers to
Value
are moremore likely
likely than
than others
to havehave sustainability
sustainability programs
programs withwithclear priorities,
defined targets,targets, andclear
priorities, definedand keykey performance
performance indicators.
indicators.
Features of the organization’s sustainability program,¹ % of respondents
We have a sustainability strategy
with clear, focused priorities

We set targets or goals forsustainability initiatives

We have key performanceindicators for sustainability

41

50

39

Value creators

Value creators

Value creators

28

32

31

All others

All others

All others¹All categories shown here represent statistically significant differences between companies that create value from sustainability and those that don’t; n = 2,421.

Engaging employees
According to respondents, another noteworthy
difference between companies that create value
from sustainability and those that don’t is that value
creators are doing more to engage their workforcesin sustainability efforts (Exhibit 4). Nearly threefifths of respondents at value creators say thatsustainability is a part of the corporate culture. A
significantly lesser share of respondents at othercompanies, 39 percent, say the same.
Among the value creators, employee engagement isalso a more important element of the sustainability
agenda than it is for other companies. A greater
share of respondents at value creators say that
all employees receive training on integrating
sustainability practices into their work and that
employees understand how sustainability efforts

20

McKinsey Global Surveys, 2021: A year in reviewalign with the company’s strategy. Incentives areanother factor: a greater share of respondents
at value creators say their organizations consider
sustainability performance to a moderate orsignificant extent when making decisions about
employees’ compensation.

Meeting customer expectations
Just as value creators engage employees intheir sustainability programs, they also put more
effort than other companies into understanding
customers’ expectations and respond with changes
to their products (Exhibit 5). Disproportionate
shares of value creators seek customer input
on the sustainability attributes of their products
and services and highlight those attributes intheir marketing efforts. Their orientation towardsustainability issues in customer relations extends

Web 2021

Exhibit4
Sustainability
Exhibit 4 of 6

Sustainability is
is aa more
more significant
employee
Sustainability
significant element
elementofofcorporate
corporateculture
cultureandandemployeeengagement at
than
atat
others.
engagement
atvalue-creating
value-creatingcompanies
companies
thanothers.
Cultural and workforce aspects of the organization’s sustainability program,¹ % of respondents
Employees across the organization
understand how sustainability
efforts align with overall strategy

Sustainability is part of thecorporate culture

All employees receive training on
how to integrate sustainability
practices into their work

57

27

47

Value creators

Value creators

Value creators

39

8

27

All others

All others

All others¹All categories shown here represent statistically significant differences between companies that create value from sustainability and those that don’t; n = 2,421.

Just as value creators engage employees
in their sustainability programs,
they also put more effort than othercompanies into understanding
customers’ expectations and respondwith changes to their products.

How companies capture the value of sustainability: Survey findings21

to the management of product portfolios: value
creators are more likely than other companies tochange product designs, develop new product-asa-service models to address sustainability issues,and offer sustainable brands.

Value-chain collaboration
For most companies, the majority of sustainability
impacts result from the activities of their suppliers,
contract manufacturers, distributors, and othervalue-chain partners. Value-chain engagement
can thus be a telling indication of how muchcompanies are doing about sustainability—and it’s
an area where value-creation leaders demonstratedistinctive approaches (Exhibit 6).
Value-creation leaders are more likely than others
to make sustainability a priority in managing energy,
water use, and waste generation at their own
facilities, as well as making decisions about their site
portfolios. They’re also more likely to collaborate withand monitor suppliers’ sustainability performanceand to seek improvements in the efficiency of theirtransportation and distribution networks.

Web 2021

Sustainability
Exhibit5
Exhibit 5 of 6

It’s more
more common
engagecustomers
on on
It’s
commonfor
forvalue
valuecreators
creatorsthan
thanforforothers
otherstotoengagecustomers
sustainability attributes
attributes andsustainability
andupdate
updateproductproductofferings
offeringsininresponse.
response.
Approaches to engaging customers,¹ % of respondents

Value creators

Company markets thesustainability attributes of
products or services

Company seeks customers’ inputs
on sustainability attributes of
products or services

All others

Company provides information about
the organization’s or product’s
sustainability attributes on packaging

59

44
41

37
27

26

Approaches to managing products,¹ % of respondents
Company has changed
product designs to manage
sustainability-related impacts

Company is shifting fromproduct-sales model toproduct-as-a-service model

Company offers one or more
dedicated “sustainable” brands

13

16
37

24
29

27

¹All categories shown here represent statistically significant differences between companies that create value from sustainability and those that don’t; n = 2,421.

22

McKinsey Global Surveys, 2021: A year in review

Web 2021

Sustainability
Exhibit
6
Exhibit 6 of 6

Collaboration withwiththethevalue
valuechain
chaindistinguishes
distinguishesvalue
valuecreators’creators’ sustainability
sustainability
Collaboration
programs fromfrom those
those of other companies.
programs
companies.
Company’s approaches to managing facilities,¹ % of respondents

Value creators

All others

Making changes to reduce waste generation in its facilities
Making changes to reduce water consumption in its facilities
Replacing nonrenewable-energy sources with renewable sources
Accounting for sustainability performance when making
decisions about its facility portfolio
0

10

20

30

40

50

60

Company’s approaches to working with suppliers and value-chain partners,¹ % of respondents
Integrates sustainability with supplier qualification and criteria
Monitors suppliers’ sustainability performance
Helps suppliers to improve their sustainability performance
Company works with value-chain partners onlowering their energy consumption
0

10

20

30

40

50

60

Company’s approaches to managing transportation and distribution networks,¹ % of respondents
Making modal shifts for long-haul transport
Improving the energy efficiency of means of transportation
Improving the operational efficiency of its transportationand distribution network
0

10

20

30

40

50

60

¹All categories shown here represent statistically significant differences between companies that create value from sustainability and those that don’t; n = 2,421.

Looking ahead
The survey results highlight practices more widely
followed by companies that are creating value
from sustainability than by companies that aren’t.
Experience also suggests that companies witheffective sustainability programs tend to plan andmanage these programs with the same disciplineand commitment that they apply to other businessinitiatives. Here are a few directional considerations
that executives might use to focus their companies’
sustainability efforts and derive more value fromthem:

How companies capture the value of sustainability: Survey findings— Approach sustainability issues as business
opportunities. Leading companies develop
business cases for their sustainability programs
based on the value that they stand to create (orprotect) through their handling of sustainability
issues. They set tangible, concrete aspirations
for their sustainability programs and convert
those aspirations into quantitative performancetargets, which reflect their competitive position,
their consumers’ expectations, and theirinvestors’ demands.

23

— Build organization-wide accountability forresults. Product-focused business units,
functions such as supply-chain management,
and geographic departments are the partsof a company that ordinarily generate mostof its sustainability impacts. And unlike thecentral sustainability team, these departments
also have the authority to change day-to-day
operations. Recognizing this, savvy executives
assign responsibility for sustainability initiatives
to heads of functions and divisions and givethem related performance targets. In this way,
executives can hold senior managers to accountfor the company’s sustainability achievements.

— Seek impact through collaboration. While
companies can do a lot on their own to improvetheir sustainability performance, some facechallenges that span industries or regions.
The problem of plastic waste, for example,
bedevils the entire chemicals industry, notjust one company. To address these systemic
difficulties, companies might form coalitions
with industry peers and work together onsetting new standards, promoting technologicalinnovation, or advocating for policy shifts.
Since value chains produce the majority of thetypical company’s environmental impact, mostcompanies will also benefit from working closelywith their value-chain partners.

The contributors to the development and analysis of this survey include Anna Granskog, a partner in McKinsey’s Helsinki office;
Eric Hannon, a partner in the Frankfurt office; Solveigh Hieronimus, a senior partner in the Munich office;Marie Klaeyle, a consultant in the Paris office; and Angela Winkle, a consultant in the Chicago office.

Copyright © 2021 McKinsey & Company. All rights reserved.

24

McKinsey Global Surveys, 2021: A year in review

© Hudiemm/Getty Images

Organizing forsustainability success:
Where, and how, leaders
can start
As sustainability becomes more of a strategic and operational imperative,
executives must lead the way to set up a sustainability organization that’s
right for their companies.
by Aaron De Smet, Wenting Gao, Kimberly Henderson, and Thomas Hundertmark

Organizing for sustainability success: Where, and how, leaders can start25

Sustainability and environmental, social, andgovernance (ESG) issues affect how all companies
do business—and increasingly so in recent years.1
More companies, and their investors, are recognizing
sustainability as a strategic priority that involves
significant business risks and opportunities. But
historically, few companies have organizational
structures that are designed to treat sustainability
as a material business issue. Instead, sustainability
activities—and the organizations that support
them—have focused primarily on investor relations,PR, and corporate social responsibility.
The “sustainability organizations” that still operatethat way (and there are many) are tasked withmanaging stakeholder communications, target
setting, and reporting. While those tasks areimportant, they are also insufficient for sustainability
organizations to be successful. Our experiencesuggests that success is more likely when executives
empower sustainability organizations to engage
proactively and strategically hold them responsible1

for creating measurable impact. Only then willcompanies be able to maximize the value at stakefrom their sustainability initiatives (see sidebar,“A leader’s guide to embedding sustainability incorporate strategy”).
To get sustainability programs right, companies havebig decisions to make. To start, they shouldchoose which issues under the broader sustainability
umbrella should be the responsibility of theirsustainability organizations and which issues
should be left to other parts of their businesses. The
issues range widely, from building new low-carbon
businesses and commercializing green products
to managing environmental compliance and
ESG reporting more proactively. As companies
mobilize to respond to increasing sustainability
concerns, many have struggled with the differences
between sustainability and other business issues
in the trade-offs involved, decision-making andgovernance processes, and even employee andleader mindsets.

Witold Henisz, Tim Koller, and Robin Nuttall, “Five ways that ESG creates value,” McKinsey Quarterly, November 14, 2019, McKinsey.com.

A leader’s guide to embedding sustainability in corporate strategy
To make sustainability a true organization-wide issue and a pillar of company
strategy, CEOs and senior executives mustbe leading from the front. In our experience,leaders are most effective at doing so when
they follow these three strategies (usually inthis order):— Embed sustainability in the company’s
strategy-setting process. Thisis a prerequisite for the effective
management of sustainability—andsomething that senior leaders are

26

best positioned to do. The goal is not
simply to have a great sustainability
strategy but rather a corporate strategy
that includes sustainability as acore component.
— Shape the portfolio to reflect anintegrated strategy. Once a company’ssustainability-related priorities areclear, companies must make decisions
on capital allocation, R&D funding,and portfolios accordingly.

McKinsey Global Surveys, 2021: A year in review— Scale up sustainable businesspractices through a fulltransformation. To incorporate
sustainability in business planningand to empower and motivate thewhole organization to take action onthese issues, leaders should approachsustainability as they would any othernew large-scale change effort. To
ensure buy-in across the organization,it’s important to be clear about
which sustainability topics the company
will and won’t prioritize.

So how do executives build sustainability
organizations that are well placed and empoweredto help their companies meet stakeholders’increasing expectations, manage sustainabilityrelated risks, and capture business opportunities? In
this article, we outline four ways that leaders
can guide the organizational redesign of theirsustainability work and why they must think
differently about sustainability compared with other,more traditional business issues (Exhibit 1).

Design according to sustainability
topics, not sustainability overall
Sustainability is often used as a catchall term
covering a great many topics. But for any given
company, few topics will be of equal importance.
Our work shows that companies address
sustainability issues more effectively when they
design their sustainability organizations tofocus on each sustainability topic the company
is prioritizing (for example, green hydrogen or its
subtopic, operational decarbonization).

Exhibit 1

There are four key ways that executives and their companies can organize their
There are four key ways that executives and their companies can organize theirsustainability work for success.
sustainability work for success.

1
Design according tosustainability topics,
not sustainability
overall42

Prioritize the design ofprocesses and governance—
rather than reportinglines—that account forsustainability’s complexityand dynamic nature

Give your central
sustainability teamthe decision rights to
execute change

3

Find the structurethat best fits yoursustainability agenda—
and your organization
as a whole

Organizing for sustainability success: Where, and how, leaders can start27

To support sustainability work at the
topic level, our experience suggests thata modular organizational design—rather
than one holistic, central sustainability
organization—often works best.

To do this well, companies should define the list ofsustainability topics that matter for the organization,either because they are important to the business or
because they are the areas in which the company
is uniquely positioned to make a difference. One way
to do so is with evergreen materiality assessments,2which account for the potential impact from, andlikelihood of, a range of issues that could affect thecompany. Based on its materiality assessment,
a company can then develop a short list of priority
topics for its sustainability organization to cover.
This will help companies make better decisions on
resourcing and organizing around the issues thatmatter to their business.
When it comes to supporting sustainability work at
the topic level, our experience suggests thata modular organizational design—rather than one
holistic, central sustainability organization—often
works best. A modular design gives companies
the nimbleness to address emerging topics in amore agile way. Indeed, many sustainability topics
arise quickly: for example, in 2018, the numberof earnings calls that mentioned “plastic waste”
increased 340 percent year over year.3 In practice,even if there’s a dedicated center of excellence2

for a certain topic, it doesn’t necessarily need tobe part of the central team. Instead, it could beembedded in a business unit that has particularexpertise on the topic or will be primarily responsible
for leading the company’s response to it.
One company we worked with built a carbonmanagement organization that distributed initiatives
among different parts of the company, rather
than relying on a central organization that covered
all sustainability topics or that managed allof the organization’s carbon initiatives. The R&D
department, for example, focused on researchingand developing new low-carbon innovations. A
separate business unit was created to commercialize
low-carbon offerings to customers. Meanwhile,
manufacturing sites set their own carbon-reduction
targets, embedded their decarbonization initiatives
in line with site-level turnaround schedules,
and were held accountable for implementing thoseinitiatives. The procurement team focused on
decarbonizing the company’s supply chain. Finally,a lean central team coordinated carbon-emissions
reporting and other carbon-related activities acrossthe company.

	A materiality assessment is the process of identifying and prioritizing the potential sustainability topics that are most important for a company
to address because of their potential impact on the business or its stakeholders. The process requires the engagement of both internaland external stakeholders, especially business-unit leaders with profit-and-loss responsibilities, investors, customers, nongovernmentalorganizations, regulators, and other key partners to the business.
3
Audrey Choi, “The business case for investing in sustainable plastics,” World Economic Forum, January 20, 2020, weforum.org.

28

McKinsey Global Surveys, 2021: A year in review

Give your central sustainability teamthe decision rights to execute change
In our experience, it’s important for companies tohave a central sustainability team to coordinate theirwork on these topics. Our experience also suggeststhat companies don’t need large central teams to
implement their sustainability agendas successfully.
While we have seen many companies start theirsustainability transformations by allocating more
central resources to these issues, we have also
seen that having a smaller central team and more
dedicated resources in the business lines that
execute the detailed planning and implementationof sustainability can be most effective. In fact,
among the companies we have worked with, someof those with highly effective sustainability programs
have lean central sustainability organizations
whose mandate is to incubate new sustainability
ideas and integrate sustainability initiatives
across the company.
What makes the central team particularly effectiveis having the decision-making authority to executechange, particularly regarding priority sustainability
topics that affect multiple functions or that havea material impact on the overall organization. Thisauthority has several dimensions. First, the central
group should also engage the board of directors
on critical sustainability topics, since the board holds
the ultimate decision rights on such issues andthe company’s strategic direction. The central
team should also be empowered to hold othersaccountable, which it can do by setting centralized
targets. Individual sites or businesses then comeup with specific initiatives, timelines, and plans forpursuing those targets, and the central teamtracks their progress while also maintaining a
corporate-wide view of the company’s performanceon the topic.
To ensure broad engagement in and commitment tocommon sustainability goals, the central team canenlist the company’s leaders to develop and definea corporate-level sustainability agenda. When thecentral team has a clear mandate from the business,
it can better see that the sustainability agenda
cascades through the organization and that business
units have clear guidance on which priorities
to take on.
At one company with a successful sustainability
organization, an existing business unit worked closelywith the central sustainability team to incubate a
new business for end-of-life products. Once theidea reached a defined financial milestone andlevel of technological maturity, the responsibilityof business building shifted away from the central
team to that business unit. Since the business
unit was involved in the effort from the start, thetransition of the business’s decision rights
was smooth.
To be clear, not all decisions need to be made by thecentral team, which could overstretch it (especially
if it’s a small group) and divert attention from specificpriorities. Rather, cross-functional decisions andthose that are highly material to the full company are
best suited for central-team oversight.4 The rightto make other decisions, such as those that involve
single functions, can be assigned to leaders
or teams that are more closely associated withthose units.

Find the structure that best fits yoursustainability agenda—and yourorganization as a whole
Reporting structure is usually the first topic
that comes to mind when companies consider
organizational redesigns, and so the first question
we are often asked is, “Which organizational
structure is ideal for capturing the full potentialof sustainability?” In reality, there is no single“right” answer for the design of a sustainability
organization and no one-size-fits-all approach,beyond the general principle that the structure
should be well integrated into—and compatible
with—the rest of the company’s setup.

4	For more on how to classify and make decisions appropriately, see Aaron De Smet, Gerald Lackey, and Leigh M. Weiss, “Untangling yourorganization’s decision making,” McKinsey Quarterly, June 21, 2017, McKinsey.com.

Organizing for sustainability success: Where, and how, leaders can start29

That said, we do see that some organizationalmodels tend to be more effective than others atelevating sustainability as a true strategic
priority (Exhibit 2).
Compared with two other models that we see mostoften today in which sustainability is embedded
in a support function or fully decentralized within
business units, these three models help linksustainability to an overall strategy and give asustainability organization real decision rights:— Large central team with few business-unit
resources. In this model, a large central
team plans—and maintains the decision rights
to—most sustainability initiatives and also
coordinates with individual business units thatare actively working on specific sustainability
issues or have expertise related to the topic. The
central team incubates sustainability initiatives
before handing them off to the business
units and supports activities that have noother natural owners in the organization. It also
ensures that sustainability priorities across thecompany have sufficient budgets and staff
and that the organization stays focused on itspriority topics. A central team may also havethe best view of broader sustainability trends
and stakeholder demands, though it’s likely
less equipped than business units to respond to

new sustainability-related market opportunities
and risks. As an example, Newmont Goldcorp(a leading gold-mining company) was promptedby shareholders and its board to improve
its management of sustainability issues after
completing a merger. It responded quickly,
creating a centralized sustainability groupfrom 2002 to 2007 to design and drive theimplementation of global environmental
standards across its operational sites.
This central group also managed decision
making and the allocation of execution
resources to sustainability issues.
— Lean central team with decision rights and manybusiness-unit resources. In this structure, theprioritization of sustainability topics islargely a top-down process, led by the leancentral team, to ensure that a common companywide agenda and targets are in place. Business
units have a mandate to develop specificinitiatives to achieve company-wide goals,
which they do by deploying their own resources.
Business units also have the flexibility andresources to set up and work on sustainability
initiatives of their own, in line with the central
team’s guidance. In our experience, thisstructure can be most effective at companies
that have already embedded sustainability
in the organizational culture, which increases

There is no single ‘right’ answer for thedesign of a sustainability organization
beyond the general principle that thestructure should be well integrated into—and compatible with—the rest of thecompany’s setup.

30

McKinsey Global Surveys, 2021: A year in review

Exhibit 2

Certain organizationalbe moremore effective
effectivethan
thanothers
othersatatelevating
elevatorganizational models
models tend to beingsustainability
asastrategic
priority.
sustainability as a strategic priority.
Five commonly used models for sustainability organizations, scope of role in sustainability work
Small

Large

Sustainability
team

Corporate
resources

Small and lean central teamwithin a central support function

Business-unit(BU) resources

Directreporting

Linkages, but nodirect reporting

Fully distributed resources in the BUs,
with cross-BU informal networks

Decision-making authority

Decision-making authority

Large central team with a few
distributed BU resources

Lean central team with decisionrights and many BU resources

Decision-making authority

Decision-making authority

Central team that deploys
agile/SWAT teams to BUs
Decision-making authority

Three of these models are especially effective at helping companies capture sustainability’s full potential
Pros• Faster to elevate sustainability issues
at corporate level• Centralized target setting, planning,
and tracking• Consistent, cross-BU implementationof sustainability priorities• Faster BU-level response• Empowered BUs receive clear
central guidance• Less resource-intensive forcentral team

• Central team controls corporate
sustainability agenda and resourcing• Agile resource deployment to meet
evolving priorities• Easy sharing of best practices andexpertise across BUs• More speed and agility within BUs
but not across BUs• Significant resource commitment
from BUs• Highly resource intensive forcentral team• Sustainability driven from the top
down, so BUs are not empoweredto drive initiatives

Cons• Resource-intensive for central team• Less responsive to BU-specific priorities• BUs not empowered to scale other
BU-specific sustainability initiatives

Organizing for sustainability success: Where, and how, leaders can start31

the likelihood that sustainability becomesa true cross-functional effort. Since 2019, thismodel has been in place at International
Paper, a leading pulp-and-paper company.
Its lean central team sets the company-wide
sustainability agenda and focuses on bothmanaging external relationships and integratinginternal efforts. Meanwhile, business-line
leaders drive the sustainability agenda. They set
targets, develop the company’s sustainability
initiatives, assume responsibility for deliveringon those initiatives (including the coordinationof resources), and embed sustainability into dayto-day operations.
— Central team that deploys agile or SWAT teams
to business units. This structure puts a central
team in charge of deploying sustainabilityfocused task forces to individual business units.
Once a task force is embedded in a business
unit, it helps with the planning and initial executionof that unit’s priority sustainability initiatives
and builds capabilities so that the business caneventually run its own initiatives, once thetask force leaves to support another unit. Thisfacilitates the deployment of sustainability
expertise and the sharing of best practices acrossthe company, as well as the nimble reallocationof resources in response to the rapidly changing
sustainability landscape. From a talentdevelopment perspective, this model (what wecall the “helix organization”5) also allows fora clearer separation of leaders—between those
who help individuals develop capabilities andthose who oversee employees’ day-to-day work.
The result is that sustainability talent can be
developed both ways.

Prioritize the design of processes andgovernance—rather than reportinglines—that account for sustainability’scomplexity and dynamic nature
In our work on organizational redesign, we havefound that many companies’ default mode is tofocus solely on reporting structure. But we know
5from experience and research that going beyond“lines and boxes” corresponds with a much higher
chance for redesign success: in a McKinsey Global
Survey on organizational redesigns, respondents
were nearly three times more likely to reportsuccessful redesigns if they focused on improving
multiple elements of the organization (for example,
performance management, business processes,
and culture), not just on changing reporting lines.6
With respect to sustainability, which involves
reorganizations that are more complicated andmultifaceted than those of a typical function—and priorities that can shift much more quickly thanin other areas of the business—we have foundthat it’s critical to think about redesigningsustainability-related processes and governanceearly on. Several guiding principles can help
with this kind of effort.
For one, companies’ processes for making
sustainability-related decisions should be robust
and clearly define when an issue or decision
should be escalated from the business unit to
the central sustainability team. Decision-making
processes should also include frequent discussions
among stakeholders and fast decision cycles
so that cross-functional or high-level topics canbe identified and resolved quickly.
In most cases, the central team should be
empowered to make decisions on topics that
individual business units can’t resolve on their own.
If the central team, in turn, finds it can’t resolve
high-priority issues, it can escalate them to the
executive team or a C-suite sustainability council.
We have seen many companies fail to adapt theircadence on engaging with sustainability issues
as they would with other topics. But that’s whatsustainability necessitates, since many of these
topics require quicker decision making andresponses than other business issues. For many
companies in traditional and mature sectors (forexample, petrochemicals, cement, steel, and otherheavy industrials) that are used to longer decisionmaking cycles, this may require a significant mindset
shift. The executive team can help effect such	A aron De Smet, Sarah Kleinman, and Kirsten Weerda, “The helix organization,” McKinsey Quarterly, October 3, 2019, McKinsey.com.
	“ The secrets of successful organizational redesigns: McKinsey Global Survey results,” July 1, 2014, McKinsey.com.

632

McKinsey Global Surveys, 2021: A year in review

a shift by clarifying that sustainability is a
strategic priority that requires different decisionmaking approaches.
Another principle of effective sustainability
processes and governance pertains to capital
allocation. Sustainability investments often
have different risk–return profiles and greater
uncertainty than other, more traditional investment
types. In our experience, many companies thatlead on sustainability have set aside a separate
pool of funds dedicated to sustainability initiatives,
defined different hurdle rates for sustainability
investments, introduced an internal carbon price toaccount for carbon impact and related risks, andput in place integrated financial and sustainability
criteria to facilitate capital-allocation and
M&A decisions.
Finally, it’s valuable for companies to develop
sustainability-specific performance metrics. While
the specific metrics will vary depending on the
topic, the same principles of good performance

management of other business activities also
apply to sustainability: setting measurable targets(both financial and nonfinancial), establishing
incentives (such as linking compensation tosustainability performance), and putting in place
regular performance reviews of sustainability.

Sustainability is no longer an issue of compliancefor most companies but rather a strategic andoperational one. Once senior leaders integratesustainability into their corporate strategy, they will
benefit from having a dedicated organization to
support their sustainability efforts. There is no right
structure that applies to every company; eachwill need a structure of its own and will likely needto adjust this structure as business conditions
and requirements change. A well-designed
sustainability organization, we find, can give thecompany the capabilities that it needs to capture
value and manage risks from sustainability in asystematic and even transformational way.

Aaron De Smet is a senior partner in McKinsey’s New Jersey office; Wenting Gao is an associate partner in the Houston office,where Thomas Hundertmark is a senior partner; and Kimberly Henderson is a partner in the Washington, DC, office.
Copyright © 2021 McKinsey & Company. All rights reserved.

Organizing for sustainability success: Where, and how, leaders can start33

© Henrik Sorensen/Getty Images

The new digital edge:
Rethinking strategy forthe postpandemic era
Our latest survey confirms that the future will belong to companies
that put technology at the center of their outlook, capabilities, andleadership mandate.

34

McKinsey Global Surveys, 2021: A year in review

Introduction
One year into the COVID-19 crisis, our newest
McKinsey Global Survey on digital strategy 1
indicates that the pandemic has increased the paceof business and that technology capabilities willbe critical to companies’ COVID-19 exit strategies
as well as to what comes next. After seeing how
the pandemic had sped up the adoption of digitaltechnologies by several years, we took a closer lookat how companies are rethinking the role of digitaltechnology in their overall business strategy andhow to conduct business at the quickening pacethat’s now needed to operate.

The imperative for a strategic approach totechnology is universal, yet some companies are
already leading the pack; their responses showthat better overall technology capabilities, talent,
leadership, and resources (what we call a company’s“technology endowment”) are linked to better
economic outcomes. At the same time, the results
confirm that many organizations could be missing
opportunities to invest in the areas of their businessmodels that are most at risk of digital disruption.

Companies with better overall
technology capabilities, talent,
leadership, and resources are seeing
better economic outcomes.

1	The online survey was in the field from January 19 to January 29, 2021, and garnered responses from 1,140 C-level executives, senior
managers, and business-unit, department, or division heads representing the full range of regions, industries, company sizes, andfunctional specialties.

The new digital edge: Rethinking strategy for the postpandemic era

35

The pandemic has dramaticallyincreased the speed at which digital isfundamentally changing business
Our previous survey showed that across key
areas of the business model, companies’ overall
adoption of digital technologies had sped up by
three to seven years in a span of months. The

newest results show that this acceleration is also
happening at the level of core business practices:
what was considered best-in-class speed for mostbusiness practices in 2018 is now slower than
average (Exhibit 1). And at companies with thestrongest technology endowments,2 respondents
say they are operating at an even faster pace.

2	Companies with a top technology endowment are those where respondents strongly agreed with at least seven statements (out of 13 total)
about the role of technology in their organizations’ strategies and the overall role of technology in their organizations; n = 158.
Web 2021
Survey-DigitalStrategy
Exhibit 1 of 13

Exhibit 1

hasfundamentally
fundamentallychanged
changedthethepacebusiness,
The COVID-19 pandemic
pandemic has
pace
of of
business,
andthecompanies
withsuperior
technology
capabilities
arewinningrace.
and the companies with superior technology capabilities are winning thethe
race.
Median frequency of core business practices1
2018 top economic performers2

2021 average response

2021 top-decile tech-endowed companies3

Median frequency1
QuarterlyMonthly

WeeklyWeekly or faster
Use multiple sources of customer
data to assess their unmet needs
Business leaders dedicate time tolearn about digital technologies
Share test-and-learn findings
across the organization
Reallocate digital talent among
business units or functions
Monthly or fasterUse scenarios to time and size
potential shifts in industry economics
Evaluate profit pools based oncompetitive-landscape shifts
Evaluate portfolio for opportunities to
add/divest businesses, in light of digital
Reallocate capital expenditures
across business units
Use rigorous process to defund
underperforming digital initiatives
Frequencies shown are the median values from a histogram, which was constructed by assigning “daily” responses a value of 0; “weekly,” 1; “monthly,” 2;“quarterly,” 3; “annually,” 4; “every few years,” 5; and “never,” 6. The question also asked about the frequency of evaluating M&A opportunities as part of every
strategy-setting discussion. These responses are not shown because M&A typically requires a longer time frame than the other operational practices tested,
often due to regulatory reasons.
2
Respondents of the 2018 survey who say their organizations have a top-decile rate of organic revenue growth (ie, of 25% or more in past 3 years) relative toother respondents; n = 138.
3
Companies with a top-decile tech endowment are those where respondents strongly agreed with at least 7 statements (out of 13 total) about the role oftechnology in their organizations’ strategies and the overall role of technology in their organizations; n = 158.
1

36

McKinsey Global Surveys, 2021: A year in review

But it’s not only the pace of business that the
COVID-19 crisis has fundamentally changed.
According to the survey, many respondents
recognize that their companies’ business models
are becoming obsolete (Exhibit 2). Only 11 percent

believe their current business models will beeconomically viable through 2023, while another64 percent say their companies need to build new
digital businesses to help them get there.

Web 2021
Survey-DigitalStrategy
Exhibit 2 of213
Exhibit

Looking toward
toward 2023,
2023, most
Looking
mostcompanies
companieswill
willneedneedtotobuild
buildnewnewdigital
digitalbusinesses
businesses
to stay
stay economicallyeconomicallyviable.
viable.
Changes needed to make company’s business model economically
viable by 2023, % of respondents1
Nearly 9 in 10 respondents
think that the businessmodel needs to change(or has changed already)We need to build new
digital business(es)We need to embed
digital technologies inour current
business model

64

21

4

11

Not applicable; we havealready made fundamental
business-model changes
Our current businessmodel will remain
economically viablewithout changes

Respondents who answered “don’t know” are not shown; n = 1,140.

1

The new digital edge: Rethinking strategy for the postpandemic era

37

At the same time, the pandemic has created newvulnerabilities to—along with new opportunities
from—future disruptions. We know from experiencethat customers, employees, and value-chain
partners have all increased their use of technology,
which has made the barriers to digital disruption
even lower than before the crisis and paved the way
for more rapid, technology-driven changes going
forward. In our survey, respondents in every sector
say their companies have significant vulnerabilities,
especially to their profit structures, ability to bundle
products, and operations (Exhibit 3).

We also looked at the areas of their business whereindustries have been investing and, for the mostpart, those investments don’t align with the areasthat are most prone to disruption (or that offer thehighest returns). For example, many healthcare andpharma companies are investing in tailoring theirofferings, enabling on-demand access to products
and services, and improving overall customer
experience. Yet, according to the survey, thesebusinesses face greater risks of disruption in theirvalue chains, the structure of their operating costs,
and the types of products they offer.

Web 2021
Survey-DigitalStrategy
Exhibit 3 of 13

Exhibit 3

all sectors,
sectors, respondents
areas
of of
their
businesses
thatthatare veryIn allrespondentsreportreportseveral
severalareas
theirbusinesses
areveryvulnerable
todigitaldisruption.
vulnerable to digital disruption.
Level of business area’s potential vulnerability to disruption, by industry, % net agree
Low
Professional
services

High tech/telecom

Profit structure
Manual value
chain/operations
Operating-cost
structure
Unused capacity
Bundling
Customersubsidies
Customer-tocustomer accessConnected
products
Fulfillment lag
Demandpredictability
Market dynamics
Tailoring
AccessCustomerexperience138

Consumer packaged goods.

McKinsey Global Surveys, 2021: A year in review

Financialservices

Public andsocial sectors

Healthcare
and pharma

Auto and
assemblyHigh
CPG
and retail1

To meet new demands, companies
are making digital and technology
investments across the business model
One marker of technology’s increasing importanceto both strategy and operations is that companies
devoted more resources to their digital andtechnology capabilities during the pandemic,
even as they cut resources from other parts ofthe business. According to the survey results, thefunding of digital and technology initiatives increased,as did the numbers of full-time equivalents in digitaland technology roles (Exhibit 4).

Web 2021
Survey-DigitalStrategy
Exhibit 4 of
Exhibit413

Spending
ondigital
digitalandandtechnology
technologyincreased
increased
duringthepandemic,
despiteSpending on
duringthepandemic,
despitebelt-tightening
elsewhere
thebusiness.
belt-tightening elsewhereinin
thebusiness.
Changes in business metrics, past year, % of respondents1
Funding of digital/tech initiatives
Number of
FTEs2 in digital/tech roles
Increase

65

Variablecosts

26

No change

25

Fixed
costs
18

Physicalfootprint

19

8

21
38

Decrease

44

Total
numberof FTEs

40

35

59

7
52

11
43

43
29

1

Respondents who answered “don’t know/not applicable” are not shown; n = 1,140.
Full-time equivalents.

2

The new digital edge: Rethinking strategy for the postpandemic era

39Consistent with last year’s findings that executives
have started to take a more strategic view oftechnology,3 thinking of it as more than a mere cost
driver, more than half of this year’s respondents

say their companies are looking to technology as away to strategically differentiate themselves fromcompetitors (Exhibit 5).

3	“How COVID-19 has pushed companies over the technology tipping point—and transformed business forever,” October 5, 2020,
McKinsey.com.

Web 2021
Survey-DigitalStrategy
Exhibit
5 of513
ExhibitAfter thethe acceleration
acceleration ofofdigitala majority
of of
After
digitaladoption
adoptionduring
duringthe
thepandemic,
pandemic,a majority
companies viewasas
a strategic
differentiator.
companies
viewtechnology
technologycapabilities
capabilities
a strategic
differentiator.
Level of ambition for organizations’ planned investments in digital and technology, % of respondents1

1

To becomea techcompany2

To differentiate
ourselves fromcompetitors

7

51

Respondents who answered “don’t know/not applicable” are not shown; n = 1,140.
That is, the organization’s core value proposition is based on the technology and data it produces.

2

40

McKinsey Global Surveys, 2021: A year in review

28

11

To keep
up with ourindustry

To maintaincurrent infrastructure
and capabilities

The highest-performing
companies made bolder investments
in technology and possess stronger
overall capabilities
We know from past research that bolder, at-scale
investments in technology are significantly more
likely to support a successful transformation
than those that are smaller in scope. To achieve
their ambitions, it’s critical that organizations
understand what it really means to differentiate
from others on their technology—especiallysince “technology” and “digital” are such broad
terms and mean different things at different
organizations. So we asked respondents about
specific elements of technology that, based on our

experience and prior research, underpin successful
digital transformations and make up a company’s
technology endowment.4 The results suggest aclear link between the technology endowment andeconomic outperformance (Exhibit 6). When looking
at the technology endowment’s individual capabilities(the survey asked about 13 in total), the top-decile
economic performers are already significantly aheadof their peers on nearly every one.5 For example,
these respondents are nearly twice as likely as others
to say they fill key technology roles with high-quality
talent in a timely manner. At the same time, the results
confirm that even the top performers have room toimprove and strengthen their tech endowments.

4	For more on McKinsey’s thinking on strategic endowments, see “How to make the bold strategy moves that matter,” December 6, 2019,
McKinsey.com.
5	Respondents who report increases of at least 15 percent in their companies’ revenue and in earnings before interest and taxes (EBIT) over the
past three years.
Web 2021
Survey-DigitalStrategy
ExhibitExhibit 66
of 13

Top
onon
almostallallTop performers
performersare
arealreadyalreadysignificantly
significantlyahead
aheadofoftheir
theirpeers
peers
almostelements
endowment,
makingcatching
up up
a challenge.
elementsofoftheir
theirtechnology
technology
endowment,
makingcatchinga challenge.
Share of respondents who strongly agree with each statement, %Top-decile economic performers1

Top-decile
advantage,% points

All other respondents

We have made well-informed decisions about cloud adoption and infrastructure, both public and private solutions+21

We have a common source of data that serves as the single source of truth across the organization+20

We have moved key elements of our technology to a modern architecture+21

We have sufficient cybersecurity to mitigate current risks and threats+6

Tech resources are allocated via a clearly defined process that prioritizes the most strategically important efforts+16

We fill key technology roles with high-quality individuals in a timely manner+15

There is organization-wide clarity on the types of technology talent and leadership roles that are needed+10

We have limited our tech debt2

+13

0

25

50

75

100

Respondents who report increases of at least 15% in their companies’ revenue and in earnings before interest and taxes (EBIT) over the past 3 years; n = 118.
That is, the number of digital and technology projects, products, or services that were underengineered due to tight deadlines.

1

2

The new digital edge: Rethinking strategy for the postpandemic era

41

Talent poses a perennial challenge to companies
that are transforming their business through digitaland technology—as many of our respondents
say their companies aim to do. As organizations
make their plans for filling critical talent gaps intechnology, from the board to the front line, theresults suggest that there is no silver bullet to fillingskill gaps (Exhibit 7). Top economic performers
report a greater reliance in hiring new employees.
At other companies, respondents report an equal
focus on hiring and retraining their current people,
and the two groups rely equally on partneringor contracting.

Web 2021
Exhibit7
Survey-DigitalStrategy
Exhibit 7 of 13

Top performers are more likely than their peers to fill talent gaps
Top performers
throughhiring. are more likely than their peers to fill talent gaps through hiring.
How organizations are planning to fill talent gaps, % of respondents1

34
Hiring new talent

46

34
Training existing talent

23

Acquiring other companies
to recruit their talent

2

4Partnering or contracting

19

19

Outsourcing

109Top-decile
economic performers

Bottom-decile
economic performers

Respondents who answered “don’t know/not applicable” are not included in the analysis. For top-decile economic performers, n = 115; for bottom-decile
economic performers, n = 165.

1

42

McKinsey Global Surveys, 2021: A year in review

that these organizations are more likely to invest
in talent, create new partnerships (including withcompetitors), and increase their R&D spending(Exhibit 8).

Catching up with the leaders (much lesssurpassing them) will be increasingly difficult,for the top economic performers have alreadytaken more actions than peers to achieve theirtechnology objectives. Their responses show

Web 2021
Survey-DigitalStrategy
Exhibit 8 of 13

Exhibit 8

Compared with
have
been
more
likelyComparedwith their
their peers,
peers,thethetoptopeconomic
economicperformers
performers
have
been
more
likelyto investin
newpartnerships,
talent,and
R&D.
invest in new partnerships, talent, and R&D.
How organizations have increased their digital and technology capabilities, past year, % of respondents
Top-decile economic performers

Top-decile
advantage,% points

All other respondents

Increased investment in technology and/or data foundations+6

Increased investment in talent (ie, acquisition, training)+21

Created new partnerships+13

Implemented other organizational changes (eg, creation of agile teams, new roles )–1

Increased investment in change management

0

Reallocated best people toward digital and technology initiatives–1

Increased R&D spending+12

Created a dedicated innovation group+7

Acquired new intellectual property+7

Acquired new digital business(es)

+1

0

25

50

The new digital edge: Rethinking strategy for the postpandemic era

75

100

43

larger share of their sales from products orservices that didn’t exist one year ago (Exhibit 9).

Top-decile performers have also taken a bolder
approach to innovation and now obtain a much
Web 2021
Survey-DigitalStrategy
Exhibit
9 of913
ExhibitTop economic
economic performers
moreinnovative
than
their
peers
duringTop
performershave
havebeenbeen
moreinnovative
than
their
peers
duringthe COVID-19
crisis.
COVID-19 crisis.
Share of sales from products or services
that did not exist one year ago, %

~1.8×

21

Top-decile economic performers1
All other respondents2

121

n = 91.
n = 636.

2

What’s more, the top-decile performers are making
more aggressive plans to differentiate themselveswith technology, with some preparing to reinvent
their value proposition altogether (Exhibit 10).

Web 2021
Survey-DigitalStrategy
Exhibit
1013
Exhibit
10 ofLooking ahead,ahead, top economic
Looking
economicperformers
performersare
areplanningplanningto
todoubledoubledown
down on tech astech as a differentiator.
aondifferentiator.
Level of ambition for organizations’ planned investments in digital and technology, % of respondents1

Top-decile
economic
performers2
All other
respondents3

7

To becomea techcompany4

To differentiate
ourselves fromcompetitors

15

67

50

Respondents who answered “don’t know/not applicable” are not shown.
n = 118.
n = 1,022.
4
That is, the organization’s core value proposition is based on the technology and data it produces.
1

2

3

44

McKinsey Global Surveys, 2021: A year in review

To keep up To maintainwith ourcurrent infrastructureindustryand capabilities
8

30

8

11

Tech-savvy leadership helped set top
performers apart—and will be evenmore valuable in the future
Given technology’s growing importance tobusiness
Web 2021 success, it’s perhaps not surprising that

top performers are nearly twice as likely to havetechnology leaders who actively shape overall
strategy (Exhibit 11). They’re also more likely
to give tech leaders a major role in innovation andproduct development.

Survey-DigitalStrategy

Exhibit 11 of 13
Exhibit11

Effective digital- and technology-driven strategies require deep involvement
Effective
digital- andtechnology-driven strategies require deep involvementfrom technology
leaders.
from technology leaders.
Share of respondents who strongly agree with each statement, %Top-decile economic performers

Organization’s highestlevel tech leader plays acentral role in shaping
overall business strategy

Technology leaders play acentral role in the company’s
innovations, whether they
are tech-related or not

All other respondents

Product-management function
works closely with engineering/
technology leaders to define
our tech-enabled offerings

50

52

45

27

27

20
100

Despite the importance of involving technology
leaders in business decisions, it isn’t sufficientfor companies to have a single technology leader
responsible for driving a top-performing and digitallyenabled business strategy (Exhibit 12). We asked how
boards of directors, C-suite leaders, and businessunit heads are engaging in technology. Respondents
atthe
top economic performers are nearly 2.5 times
Web
2021

likelier than bottom-decile companies to say sevenor more of these roles are leading the technologyrelated thinking for their organizations. There areeven bigger differences at organizations with a topdecile technology endowment: those respondents
are more than 7.0 times likelier than the bottom decile
to report at least seven tech-savvy leaders.

Survey-DigitalStrategy

Exhibit 12 of
Exhibit1213

Organizations
leadershipteams
teamssignificantly
significantlyoutperformed
outperformed
Organizations with
with tech-savvy
tech-savvy leadershiptheir peers in their ability to build top-performing tech endowments.
their peers in their ability to build top-performing tech endowments.
Number of tech-savvy company leaders,1 % of respondents
Top-decile
tech-endowed companies2

67

Bottom-decile
tech-endowed companies3

43
30

11
0 to 2
members

18

17

9
3 to 45 to 6

7 to 90 to 2
members

3 to 45 to 6

6
7 to 9Note: Figures may not sum to 100%, because of rounding.
That is, company leaders who are industry leaders in finding ways to apply new technologies or who consistently identify how new technologies could change ortransform the business and lead the implementation of these technologies.
2
Companies with a top-decile technology endowment are those where respondents strongly agreed with at least 7 statements (out of 13 total) about the role oftechnology in their organizations’ strategies and the overall role of technology in their organizations; n = 157.
3
Companies with a bottom-decile technology endowment are those where respondents did not strongly agree with any statements (out of 13 total) about the roleof technology in their organizations’ strategies and the overall role of technology in their organizations; n = 377.
1

The new digital edge: Rethinking strategy for the postpandemic era

45

The importance of digital poses a challenge
for company leaders: few are used to engaging
with technology, even as it is transforming therequirements of nearly every role and becoming
part of everyone’s job (Exhibit 13). Boards are being
asked to communicate to the market about theirorganization’s investments in digital technologies
and how that will enable them to keep pace withcompetitors. Chief human-resources officers need
to not only hire new types of talent but also addressquestions about artificial intelligence’s role inchanging the types and numbers of people theirbusiness requires.6 CFOs need tomake larger and faster decisions on investments
in digital technologies and, in many cases,
spearhead the acquisition of digital companies.
Yet according to the survey, the majority ofcurrent leaders lack the knowledge or experience
to pioneer ways to apply new technologies or
consistently identify how new technologies cantransform their business. They need to become
technology “leaders”—rather than “enablers” 7 or
“obstructors”8—at their respective organizations.

6	For more information, see “The future of work after COVID-19,” McKinsey Global Institute, February 18, 2021, on McKinsey.com.
	That is, company leaders who respond in a well-informed manner when others raise decisions related to technology.
8	That is, company leaders who respond sporadically and not always in a well-informed manner in technology-related discussions or who are notengaged at all in technology-related discussions.
7

Web 2021
Survey-DigitalStrategy
Exhibit1313
Exhibit 13 ofAcross the
become
more
tech
savvy
is urgent—even
Acrosstheleadershipleadershipteam,
team,thethecall
calltoto
become
more
tech
savvy
is
for
roles
that
have
typically
engagedvery
littlewithtechnology.
urgent—even for roles that have typically engaged very little with technology.
Level of engagement by role, % of respondents1

Leader2(ie, leads andshapes thinking
on technology)

CIO
or CTO5

CEO

59

45

Head ofstrategy

45

Businessunit
leaders

COO

38

40

Chief
digitalofficer

CFO

46

25

Board ofdirectors

22

Chief
humanresources
officer

17

Enabler3(ie, participates
helpfully ontechnology)

19

Obstructor4

8(ie, participates
unhelpfully ontechnology)

35

23

37

31

15

40

35

31

28

33

36

7
13
17

14
21

Respondents who answered “don’t know” are not shown; n = 1,140.
That is, company leaders who are industry leaders in finding ways to apply new technologies or consistently identify how new technologies could change ortransform the business and lead the implementation of these technologies.
3
That is, company leaders who respond in a well-informed manner when others raise technology-related decisions.
4
That is, company leaders who respond sporadically and not always in a well-informed manner in technology-related discussions or are not engaged at all intechnology-related discussions.
5
Chief information officer or chief technology officer.
1

2

46

McKinsey Global Surveys, 2021: A year in review

The time is now for companies tomake bold investments in technology
and capabilities that will equip theirbusinesses to outperform others.
Looking ahead
The corporate recovery from the COVID-19
crisis will involve permanent changes to many
dimensions of an organization: the pace at whichit conducts its business, the very nature of thatbusiness’s value proposition, and the talent,
capabilities, and leadership that are necessary
for success. With digital and technology-driven
disruptions creating a winner-takes-all dynamic
in more and more industries, only a small subset
of organizations is likely to thrive—and even thesecompanies have much more room to strengthen

their technology endowments. Our survey
results confirm not only that a strong technology
foundation is critical but also that leading
companies are far ahead of competitors in building
theirs. For everyone else, the time is now to makebold investments in technology and capabilities
that will equip their businesses to outperform
others in a rapidly evolving landscape.99	Chris Bradley, Martin Hirt, and Sven Smit, “Strategy to beat the odds,” McKinsey Quarterly, February 13, 2018, McKinsey.com.

The contributors to the development and analysis of this survey include Jeff Galvin, a senior partner in McKinsey’s Tokyo office;
Laura LaBerge, a director of capabilities for digital strategy in the Stamford office; and Evan Williams, an associate partner in
the Sydney office.
Copyright © 2021 McKinsey & Company. All rights reserved.

The new digital edge: Rethinking strategy for the postpandemic era

47© Cathy Scola/Getty Images

Strategy for a digital world
A winning digital strategy requires new twists on familiar moves.
by Simon Blackburn, Jeff Galvin, Laura LaBerge, and Evan Williams

48

McKinsey Global Surveys, 2021: A year in review

By accelerating digital adoption, the COVID-19
pandemic has widened the gap between the top
and bottom companies on the power curve of
economic profit,1 amplifying winner-takes-mostdynamics and further separating digital leadersfrom also-rans. Competitive differentiation, now
more than ever, emerges from superior digital
capabilities and technology endowment, moreagile delivery, and a progressively more techsavvy C-suite.
Digital’s ascendancy is visible not only in thedominance of hyperscale tech companies but inthe success of non-digital-native companies suchas John Deere, Goldman Sachs, BHP, Disney, andBosch, among others. These companies haveinvested heavily in new digitally enabled strategies
and business models. Not only did they enter the

pandemic with bigger technology endowments2
than their peers—they continued to outspend themon digital technology as the pandemic went along.
Legacy companies looking to make comparable
performance improvements should start byrevisiting the classic strategy moves that,
individually and in combination, have been provento jump companies up the power curve of economic
profit.3 By adapting these classic strategies insometimes counterintuitive ways, companies
can build a winning strategy in an era of digital
disruption (Exhibit 1). This article sets out a roadmap for doing so.

1	Economic profit—the total profit after the cost of capital is subtracted—measures the success of a company in beating the market. Plotting
each company’s average economic profit reveals a power curve showing that while most companies effectively earn their cost of capital, only a
few companies, all of them in the top quintile of the distribution, generate significant economic value.
2	Technology endowment refers to the sum of a company’s overall digital technology capabilities, talent, leadership, and resources.
3	Using empirical research, our colleagues described five “big moves” that enabled companies to outperform on the power curve of economic
profit; see Chris Bradley, Martin Hirt, and Sven Smit, Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds,
Hoboken, NJ: John Wiley & Sons, 2018. Further research since then suggests the shape and magnitude of these moves may be changing in
Q4 2021
response
to aPrint
more digital and tech-enabled world.

Individual purpose
Exhibit 1 of 4

Exhibit 1

Digitalis changing
the bigthat drive
to outperform
Digitalstrategy
strategy
is changing
themoves
big movesthatcompanies
drive companies
totheircompetitors.
outperformtheir competitors.
Big moves

What worked in the past 10 years

How technology and digital are changing the game

Differentiation
improvement

A company’s average gross marginmust exceed its industry’s by 30%
over 10 years

Most companies must differentiate by delivering new
digital products, services, and experiences faster thancompetitors and capturing winner-takes-most dynamics

Productivity
improvement

SG&A1 activity relative to industry in
top 20% of companies; labor relative
to industry in top 30% of companies

The bar for cost performance is lean greenfieldattackers instead of the most efficient incumbent peer

Capitalexpenditure

Maintaining a ratio of capital expenses
to sales in excess of 1.7 times theindustry median for at least 10 years

Companies are either investing big in differentiatingtech assets or going “capital light”

Resource
reallocation

Shifting >50% of capital spending
across different business units
over 10 years

Because digital is shifting value pools more rapidly,companies must reallocate resources at a faster paceto ensure they are aligned with tailwinds and growthMergers,
acquisitions, anddivestments

Series of smaller deals amounting
to >30% of market capitalization
over 10 years; no deal >30% of market
capitalization

Companies are anchoring on a single large digitalacquisition to leapfrog their digital capabilities andculture before embarking on programmatic M&A

1

Selling, general, and administrative.
Source: Corporate Performance Analytics by McKinsey; McKinsey analysis

Strategy for a digital world49

Drive differentiation with technology
and digital
The first of these classic moves describes thebusiness-model innovations and pricing advantages
that improve a company’s gross margin. To jump into
the top quintile of performance on the power curveof economic profit, your gross margin needs to reachthe top 30 percent in your industry over a ten-year
period. As digital technology becomes ever more
important, the sources of these innovations andadvantages are now shifting from traditional sweet
spots into less familiar terrain, such as using digitaltechnology to innovate products, services, andbusiness models.

technology is a strategically vital competitive
differentiator, not just for business-model innovation
but for productivity, cost excellence, and otherobjectives (Exhibit 2).
In some cases, differentiation will mean getting
software into the core of your business model andgo-to-market approach. Other times, it will requirebuilding new digital platforms inside the confinesof traditional legacy corporations, as financialservices giant Allianz succeeded in doing with
Allianz Direct—a direct-to-consumer auto-andhome-insurance business served on a single digitalplatform across multiple European markets.
In still other cases, differentiation may require looking
beyond the boundaries of the organization to digitallyenabled ecosystems with interconnected services
that fulfill a variety of users’ cross-sectoral needs
in one integrated experience. For instance, newentrants in the housing market—such as the United
Kingdom’s ZPG or Zillow in the United States—are
looking to create end-to-end ecosystems spanningsearch, property comparisons, mortgage shopping,household moving, phone and cable company
reconnections, and access to home-improvement
professionals. Kakao and WeChat are looking to do
the same, in South Korea and China, respectively. We
see evidence of both incumbents and tech companies
looking to develop ecosystem plays across traditional
industry boundaries in a broad range of sectors.

John Deere, for example, now differentiates
through an Internet of Things (IoT) ecosystem thatprovides digital services to customers, enhancing
the value delivered to customers by its machinery.
Carmakers were previously differentiated, in part,by the quality of their combustion engines. But
as cars continue morphing into “computers on
wheels,” automakers are looking to differentiate
through software, which has traditionally beenoutside their core competence. No wonder they
are looking to quadruple hiring for automotivesoftware developers.
These new sources of differentiation are not loston executives, most of whom realize that digital
Q4 2021 Print
Individual purpose
Exhibit 2 of 4

Exhibit 2

Topperformers
performersplan
plan
to double
down
on tech.
Top
to double
down
on techLevel of ambition for organizations’ planned investments in digital and technology,% of respondents1

Top-decile
economic
performers2
All other
respondents3

7

To becomea techcompany4

To differentiate
ourselves fromcompetitors

15

67

50

To keep up To maintain current
with ourinfrastructureindustryand capabilities
830

Note: Figures may not sum to 100%, because of rounding.
Respondents who answered “don’t know/not applicable” are not shown.
N = 118.
3
N = 1,022.
4
That is, the organization’s core value proposition is based on the technology and data it produces.
1

2

50

McKinsey Global Surveys, 2021: A year in review

811Drive digital productivity from both
inputs and outputs
The second classic move relates to productivity.
Our 2018 research showed that jumping into the top
quintile of performance, or staying there, required a
productivity improvement rate in selling, general, andadministrative (SG&A) activity in the top 20 percent of
the companies in your industry over a ten-year period,
and an overall labor productivity improvement rate in
the top 30 percent.
Digital disruption—for example, the ability ofsmaller players to leverage the public cloud andaccess large-scale data sets—is now changing themath on productivity in many industries. Consider
how the data-driven automation of insurance-claim
filing has, in some instances, reduced costs by asmuch as 70 percent in that industry. Across theboard, executive teams should now assume theproductivity bar has shifted from the leanest of
their incumbent peers to that of greenfield,
digital-native attackers boasting a high degreeof digitization, straight-through processing, andlargely variable cost bases.
As they look to meet this new bar, legacy
companies may find that remote working and themass migration to digital channels has helped
them discover unexpected savings from cheaper
customer interactions and—in some cases—theability to let go of real estate as they shift towardhybrid working. Companies have also accelerated
their tech enablement by moving toward agile
operating models across the organization; byautomating the cloud-based provisioning of
infrastructure and delivery of applications; andby using AI to optimize retail footprints and sales
forces, among other examples.
Automation, for example, is becoming increasingly
prevalent, with rapid advances since the earlydays of industrial applications and robotic process
automation. For instance, several US grocery stores
took advantage of the pandemic-driven surge
in sales and the need to decrease the number ofpeople in store at a given time to invest in robots
that helped clean floors and shelve inventory—
investments that could provide these grocers
longer-term cost savings. We see this happening in
B2B as well, for example, with Schneider Electric’s

Strategy for a digital world

acquisition of industrial-automation provider
ProLeiT, and Microsoft’s acquisition of a softwarerobotic-automation platform.
Of course, productivity gains aren’t all about
cutting costs. Productivity improvements fromtechnology investments also arise throughinnovation. High average productivity, after
all, comes about through some combination of
producing the same or more output for less input,
or higher output from the same or fewer inputs.
Digital winners typically rely on hyperscalable
software-based business models that can rapidly
scale up the number of users and revenue with only
minimal changes to the underlying cost structure.

Invest smart in the tech thatsets you apart
Effective capital spending is another of the classic
strategies companies have used to jump up (orremain at the top of) the power curve of economic
profit. Top-quintile companies on that curve haveboasted a ratio of capital expenses to sales inexcess of 1.7 times the industry median for at leastten years. But strong capital programs make sense
only when companies have the foundations forprofitable growth in place, and in the presenceof underlying demand for the additional capacity
capital programs generate. Absent these,companies risk accelerating projects that destroy
value rather than create it.
As technology and digital become increasingly
important enablers for business-model innovationand productivity improvement, companies that
outperform their peers are focusing more of theircapital investment on technology and digitalassets. This proved even more true during the
pandemic, as further clarity about where and how
best to invest in technology also emerged. Top
economic performers entered the crisis aheadof their peers on technology spending, and outinvested them during the course of the pandemic—
particularly with regard to talent, building newpartnerships, and investing in R&D.
The pandemic has made clear that, while you
may still need to out-invest peers to win, where
you direct that investment and who you consider

51

“peers” when evaluating that level of investment
may vary according to how you are seeking todifferentiate. For example, one of the biggest
differentiators in tech has been the emergenceof hyperscale platforms with winner-takes-most
economics. It is not surprising, therefore, that thebiggest winners during the pandemic (in termsof stock market performance), including bothestablished hyperscale-technology players as well
as fast-growing players such as Zoom and Square,
have invested in these technology platforms.
For most companies, though, aspiring to own aglobal-scale technology platform may prove aless-than-viable pathway. So while the increasingemphasis of your capital investment should be on
digital and technology assets, be sure to focus it on
investments that provide not only a clear source ofdifferentiation but also a winnable one. In the worldof payments, for example, even large regionalbanks—which have traditionally enjoyed theresources to out-invest their local peers—are now
seeing their investment in payments products andtechnology dwarfed by global payments platforms
like PayPal.
It can still be possible for local or regional
incumbents to own critical elements of a future
software-enabled business model or technologyplatform landscape, but they’ll need to be all themore selective about where to play, focusing on
those elements for which local factors are crucial,
and which are more difficult for global technology
players to replicate. For example, Walmart
operates the third largest online marketplacein the United States but still trails more global
players (and digital natives), such as Amazon
and eBay, by some distance. As it seeks to close
the gap, Walmart can leverage its huge physicalstore network to attract vendors wanting tooffer customers in-store pickup and returns andshorter delivery windows. Other local incumbents
have shown that partnerships across industry
players can enable them to shape key technology
platforms to compete with global tech companies.
Nordic banks, for example, have partnered tocreate instant-payment platforms that have helped
them defend their share of consumer payments inthe face of global tech entrants.

52

McKinsey Global Surveys, 2021: A year in review

At the same time, the emergence of global-scaletechnology platforms makes it easier for
subscale or local players to compete. A growing
number of companies are leveraging theseplatforms to build and deliver new softwareenabled business models of their own byaccessing world-class technology solutions via
standardized, cloud-based, third-party solutions.
For example, cloud computing relieves smaller
companies of the need to invest in the fixed costsof data centers. Now, even the smallest start-up
can access the computing power and storage of
Google, Microsoft, or Amazon. In so doing, they
reduce capital investment in less-differentiatingareas and invest instead in the technology
assets and capabilities that provide an edge overcompetitors—and through which they have theability (and sufficient scale) to be distinctive.
One bank began spending smarter during the
pandemic by deploying agile teams to standup minimum viable solutions to challenges indigitization and technology infrastructure. Rather
than shelling out hundreds of millions of dollars
to replace core technology systems (such as
the systems of record that track loans and othertransactions), the bank wrote a bit of code into its
new cloud stack to digitize (and automate) data
capture around credit risk factors, and combinedthat minimally viable product with an agile teamconnecting bankers with risk and compliancespecialists. The approach yielded faster, better
decisions at a fraction of the cost and time—all
while transforming the customer experience.
Working smarter avoided (or at least deferred)a massive spend on underlying core systems,
enabling the bank to redirect these funds into
more productive investments, such as an AI-based
credit-decisioning algorithm that lowers credit risk
while improving customer experiences.
Building a new digital business or fully revolutionizing
an existing one is hard, and the pitfalls are many: it
can be easy to waste money in digital and technology
if leaders are not sufficiently informed regarding theirbusiness’s value drivers. A thorough assessment
can help companies examine their own technology
spending relative to peers, the better to understandwhere they might need to modernize IT operations to
support accelerated digital strategy. A case in point

Tech-enabled leadership
Outperforming through digital requires
a high level of tech savvy, not just fromtechnology leaders within the organization
but from the entire leadership team.
Responsibility cannot fall solely on chief
information officers (CIOs) and chief data
officers (CDOs). Business-unit leadersand COOs are increasingly being asked tomake tough trade-offs between technology
Q4 2021 Print
andother typesof investments. Executive
Individual
purposeboards, for their part, now need a broader
technology fluency across all board-level
decisions, rather than simply a single, siloed“tech expert” board member.

of the critical intersection points between
their business and the promise of newtechnologies, executives and board
members may struggle.

Yet, as of today, too few company leaders
have engaged deeply with technology, evenas it transforms the requirements of nearly
every role and becomes part of everyone’sjob (exhibit). Without a deeper understaning

Sidebar exhibit

Acrossthe leadership team, the call to become more
Exhibittech
is urgent—even
fortoroles
that
have
Acrosssavvy
the leadershipteam, the callbecomemoretechtypicallysavvy is urgent—even for roles thatengagedvery
littlewithtechnology.
have typically e ngaged very little with technology.
Level of engagement, by role, % of respondents1

Leader2(ie, leads andshapes thinking
on technology)
Enabler3(ie, participates
helpfully ontechnology)
Obstructor4(ie, participates
unhelpfully ontechnology)

CIO
or CTO5

CEO

59

45

19

35

Head of Businessstrategy
unit
leaders

45

23

38

37

COO

40

31

Chief
digitalofficer

CFO

46

25

15

Board ofdirectors

22

Chief
humanresources
officer

17

40

35

31

28

33

36

7

8

13
17

14
21

Respondents who answered “don’t know” are not shown; n = 1,140.
That is, company leaders who are industry leaders in finding ways to apply new technologies or consistently identify how newtechnologies could change or transform the business and lead the implementation of these technologies.
3
That is, company leaders who respond in a well-informed manner when others raise technology-related decisions.
4
That is, company leaders who respond sporadically and not always in a well-informed manner in technology-related discussions
or are not engaged at all in technology-related discussions.
5
Chief information officer or chief technology officer.
12Strategy for a digital world53

is the cloud. McKinsey analysis shows that almost
all industries across the Fortune 500 show potential
for an average rise in earnings before interest, taxes,
depreciation, and amortization (EBITDA) of morethan 20 percent from the cloud, but an overly narrow
view of the value the cloud can generate often keeps
companies from making decisions that deliver the
benefits that are possible. For example, blindly
migrating workloads to the cloud in the anticipationof cost savings instead of thoughtfully deploying
the cloud to enable innovation and differentiation atpace has contributed to 30 percent of companies
reporting that much of their cloud spending currently
goes to waste. Paradoxes like this further highlightthe importance of achieving technology fluency
throughout the top team (see sidebar “Tech-enabledleadership”).
Lastly, given the rapid pace of change, a nimble
approach to investment is also important. Agile,
stage-gated investment practices help ensure
spending gets committed on a performance basis
and quickly reallocated if initial hypotheses don’t
bear out in the market.

Reallocate resources at digital speed
The link between active resource reallocationand value creation is well established: McKinsey
research has shown that companies shifting
more than 50 percent of their capital spending
across their businesses over ten years created 50
percent more value than counterparts that moved
resources at a slower pace. Dynamic resource
allocation shifts money, talent, and management
attention to where they will deliver the most value
to your company.
But now companies need to reallocate resources
at an even faster pace. What was considered
best-in-class speed for most business practices
in 2018 is now slower than average—thanks to themassive technology acceleration that has occurredsince early 2020. Companies with the strongest
technology endowments are moving at an evenfaster pace.
This effect was visible during the COVID-19 crisis
as companies stood up working solutions for bigchanges, such as remote working, migration to the54

McKinsey Global Surveys, 2021: A year in review

cloud, or last-mile delivery, all of which required
rapid, dynamic resourcing to support innovativechanges carried out in a matter of days or weeks
rather than the one to two years most companies
had previously thought necessary (Exhibit 3). As
aptly stated by Microsoft CEO Satya Nadella ina 2020 quarterly earnings call, “We’ve seen two
years’ worth of digital transformation in
two months.”
At many companies, an effective response to thepandemic required reallocating capital and talent
toward digital, even when other parts of the businesswere seeing broader cost reductions. These trends
might not continue at the frenetic pace of thepandemic, but they are unlikely to return to precrisis
norms, especially as barriers to improvisation andexperimentation fall, along with the associatedstigma of “failing fast.” Fortunately, you don’t need to
predict the future when shifting resources. You justneed to read the present moment better than yourcompetitors and respond dynamically.

Get digital M&A rightDifferentiating through digital technology
requires having the right capabilities, culture,and infrastructure. But companies can struggle
to build these organically at sufficient scale andspeed. That’s one reason many companies instead
look to acquire digital assets, skills, and talentthrough digital M&A (defined as the acquisition of
a company with predominantly digital capabilities
and revenue streams). Companies need broader
exposure to the tailwinds of digital technology, anddigital is thus often a predominant focus of their
M&A activity.
But what is the right approach to digitalacquisition? Across most M&A strategies, evidenceshows that a programmatic approach (the steadyacquisition of multiple smaller targets in a focusedfashion over an extended time horizon) is the mosteffective one for companies hoping to jump up thepower curve of economic profit. But programmatic
M&A may not always be the best bet for digital
leapfrogging—initially, at least. Our research indicatesthat the early acquisition of a “digital unicorn” (defined
as a single deal worth at least $1 billion) has been asignificant differentiator for total shareholder returns

Q4 2021 Print
Individual purpose
Exhibit 4 of 4

Exhibit 3

Thepandemic
pandemic
showedwhatorganizations
can achieve
the andThe
showedwhatorganizations
can achieve
when thewhen
leadershipleadershipand commit
full organizationcommit to act.
fullorganizationto act.
Time required to respond to or implement changes, pre-COVID-19 estimate vs actual,
number of days
Increase in remote working
and/or collaboration

672

547

454

Actual

Pre-COVID-19 estimate(TSR) for big incumbent companies in the past ten
years (Exhibit 4), even though this runs counter towhat traditional programmatic M&A approaches
would suggest.
Why make a big acquisition in the digital spacewhen this strategy has typically been less effective
for nondigital acquisitions? Because integrating
many smaller tech companies, as would be
required by the programmatic approach to M&A,
can be much harder than integrating smaller,
nondigital companies. The difficulties have to dowith culture, talent, and infrastructure. Emulating
the culture of a digital native (whether Amazon’s
famous “customer obsession,” Netflix’s “no rules
rules,” or the rapid product-development cycles
typical in a native software company) can bechallenging for large incumbent organizations
that have strong existing cultures, as well as morestructural-process and decision-making barriers
to operating like a digital native.
Culture is a sticking point in any postmerger
integration, of course, but even more so whenincumbents buy technology companies with thehope of shifting their own culture toward thatof a digital native with new talent and ways ofStrategy for a digital world

27

23

11

Pre-COVID-19 estimate

Increasing use of advanced
technologies in operations

Increasing migrationof assets to the cloud

Actual

Pre-COVID-19 estimate

Actualworking. Typically, there is a mismatch between theincoming talent and the cultural behaviors of theacquirer. This makes the traditional programmatic
M&A approach, with its series of smaller deals,
more difficult to pull off. If each deal is below
critical mass for shifting the culture and ways ofworking of the combined organization, the smalleracquisitions can have a tendency to die on the vine
once they are bought by corporate behemoths.
Critical talent can be lost when individuals
accustomed to more freewheeling cultures findthemselves in more traditional organizations.
And when talent walks, the culture the incumbent
had hoped might be a transformative catalyst
leaves with it.
Furthermore, when it comes to organizational culture,
every tech company is different. Incumbents thatstart off buying many small tech companies often end
up with a piecemeal approach to integrating multiple
unfamiliar cultures—cultures that may clash with not
only the incumbent company culture but also that of
the incumbents’ other acquisitions.
These pitfalls seem less prevalent whenincumbents acquire a large enough source oftech-friendly talent and culture up front. The

55

Q4 2021 Print
Individual purpose
Exhibit 3 of 4

Exhibit 4

Companiesthat
thatacquired
acquireda a Companies
digitaldigitalunicorn
unicornoutperformed
outperformed those
those
that
did
not.
that did not.
Median excess total shareholder returns(TSR), by number of digital deals,1 2009–18, %

5.0

0.7
–0.4

1

Boughtdigital unicorn(deal value≥$1 billion)

Did digital
M&A; didnot buy
digital unicorn

Did not
do digital
M&A

n = 50n = 472n = 1,083

The difference between a company’s TSR compared with themedian TSR of companies in the same industry (based on
Global Industry Classification Standard industry level 2).

sheer number of people that arrive with a big
acquisition have an easier time protecting theirculture and influencing their new parent company’s
established culture and operating model without
being suffocated in the process (see sidebar“Making big-bang acquisitions work”).
There’s still another reason it may make sense
for legacy companies to consider buying a digitalunicorn: the need for well-integrated and coherent
technology road maps and fit-for-purpose
infrastructure to help transform entire businessdomains within their companies, not merely deliver
individual use cases. To get there quickly, it often
makes sense to acquire the needed infrastructure
all in one go, rather than trying to integrate
smaller acquisitions, each with varying technology
platforms that can be made interoperable only
after the fact.
Of course, a big acquisition isn’t always the rightanswer, and a large digital acquisition doesn’t
magically modernize your technology functionor the tech stack it relies on. The best techtransformations occur in organizations that tackle
multiple interdependent elements spanning thetechnology function’s role, delivery model, andcore systems—all with a properly sequenced
migration path. In this modernization process, a
new acquisition, which might often bring a more
cloud-enabled technology stack, sometimes
provides a lifeboat, so to speak, that helps
companies transition from outdated tech stacks
toward the more nimble cloud-enabled stacks
they need.
That said, once an incumbent company has acquired
and successfully assimilated a digital unicorn—andmade the necessary shifts in culture, ways of working,and technology architecture—the advantages oftaking a more programmatic approach to smalleracquisitions resurface. The organization is now in a
fit state to pursue a more traditional M&A approach.
In sum, companies looking for a better foothold indigital should consider whether it is best to make alarger acquisition up front to achieve a step change inculture, talent, and technology infrastructure before
moving to a more programmatic approach thereafter.

56

McKinsey Global Surveys, 2021: A year in review

Making big-bang acquisitions work
What about the risks that come with
big-bang acquisitions like buying a digitalunicorn? Here are some steps to makethese large bets less daunting.
1. Clarify your intent
Clearly defining your strategic rationale
in the context of a specific acquisition
target helps ensure your big purchase will
prove as relevant to your existing business as possible. Is your acquisition aimed
at plugging a capability gap? Expanding
your reach and relevance? Changing yourcompany’s DNA, including how and where
you compete? Any of these objectives, orsome mix of them, might be the primary
rationale for a big acquisition.

2. Perform your technology
due diligence
Some companies, in our experience,
perform less technology diligence on
acquisitions costing hundreds of millionsof dollars than they do on internal pilot
programs that cost a fraction of that.
Performing deeper and broader technology
diligence will help you understand how theacquisition target’s different technology
capabilities, systems, and platforms mightinteract (or not) with one another and thoseof your own company.

portfolio. Any significant delay carries
increased risk to the synergies built into
the purchase price. Furthermore, acquirers
that take too long to integrate theirpurchase sometimes miss the opportunity
to transform their organizational culture intime to prevent newly acquired talent fromwalking out the door. Slow movers
also risk migrating too gradually to their
new tech stack. Instead, they end up withtwo parallel stacks operating side by side
at great cost—and with considerable
confusion to users.

3. Integrate thoughtfully and quickly
Not only will you want a detailed integration
plan with a specific eye toward technicaltalent retention and existing customer
relations, you’ll want to execute against it
quickly and thoughtfully. Speed matterswith any acquisition but all the more so withdigital ones, since their products often sit
adjacent to other products in an acquirer’s

4. Create a digital M&A playbook
For both a big initial acquisition and moreprogrammatic ones thereafter, you’ll wantan operating model for digital M&A. Your
goals are to establish strong governanceand accountability; design clear roles andassign them to the right people, along withthe right tools; build your capabilities andreputation as an acquirer; and create acompelling narrative for investors.

Many companies, stunned by how quickly digitaltechnology moved center stage during the
pandemic, have scrambled toward rapid digitaltransformations. We’d be the last to discourage
this urgency. But companies should also stepback to reassess their strategies thoroughly
and carefully in the light of digital disruption anddigital opportunities. The fundamental strategic
principles still apply—as do the bold moves provento boost corporate performance—provided you
keep a close eye on how digital is reshaping them.

Simon Blackburn is a senior partner in McKinsey’s Sydney office, where Evan Williams is an associate partner; Jeff Galvin is asenior partner in the Tokyo office; and Laura LaBerge is director of capabilities, McKinsey Digital, in the Stamford office.

Copyright © 2021 McKinsey & Company. All rights reserved.

Strategy for a digital world57© Undefined undefined/Getty Images

How boards have risen to
the COVID-19 challenge,
and what’s next
According to a new survey, the COVID-19 crisis has accelerated operationalchanges and stronger collaboration between directors
and management that are key to a board’s success.

58

McKinsey Global Surveys, 2021: A year in review

For more than a year, the COVID-19 pandemic has
disrupted and challenged organizations, lives, andlivelihoods across the globe. The results from a
recent McKinsey Global Survey of more than 800
board directors and executives confirm that while
overall corporate performance has suffered during
this time, boards were quick to rise to the challengeof navigating a global public-health and economiccrisis.1 That is especially true with regard to how
boards operate; after many years of reports of only
minimal improvements in how they work and theiroverall effectiveness,2 the latest results suggest thatthe pandemic has triggered new and improved ways
of working that may outlast the pandemic.
One such improvement is the collaboration
between the board and management, which inmany organizations has increased significantly
during the crisis. Boards have also implemented
new structures and processes, become more
flexible in their agenda setting, doubled down on
strategy, focused on corporate resilience, and, at thedirector level, committed more time to board-related
work. Whether these changes—in particular, a moreseamless relationship between the board and the
management team—will remain after the pandemic
is not fully clear. But when we look at the responses
from boards that were most adaptable and effective
in helping their organizations navigate the crisis, a
few lessons emerge for what boards should do tomaintain the positive momentum.

Boards before the pandemic
Our survey results from just before the COVID-19
crisis suggest the extent to which the pandemiccaught organizations—and their boards—off guard.
A few months before the initial outbreak in China,
less than half of all respondents in our 2019 survey
said that corporate resilience (for example, theability to manage a downturn) was on their current
board agenda.3

And in 2019, only one-fifth believed that a lack of
corporate resilience was a significant challenge for
their organizations. Among respondents who said
resilience was a challenge, nearly half said theirboards were unprepared to manage it (Exhibit 1).
Our latest survey asked about the most significant
operational challenges facing boards when thecrisis began, and directors tend to say that theirown boards had few established processes in place
to guide them during the pandemic’s early days
(Exhibit 2). After the lack of in-person interactions
and difficulty with remote-working tools, the mostcommon challenges—a lack of crisis-management
processes, the blurring of roles between the board
and management team, and a lack of relevant
capabilities within the board—suggest there weresome early challenges to adapting the board’s
operations in a crisis environment.
At the same time, this environment created a unique
opportunity for board directors to step up their
game and provide critically needed guidance totheir organizations by adapting decision-making
processes and lending their crisis-management
experience while in some cases also battling for thecompany’s survival.4 And the survey results suggest
they have done just that.

Boards responded to the crisis—and quickly
According to the survey, boards have largely
answered the call to help their organizations govern
through crisis. To start, directors increased theiroverall time commitment. Between 2019 to 2020,
respondents report a nearly 20 percent increase in
the average number of days spent on board work,and they expect to increase their time spent evenfurther between 2020 and 2021. Among directors
who say their boards have been very effective at
helping the organization respond to the crisis, they1

The online survey was in the field from September 15–25, 2020, and garnered responses from 846 participants representing the full rangeof regions, industries, company sizes, and board roles; of them, 417 were board directors and 429 were C-level executives. To adjust fordifferences in response rates, we weighted the data by the contribution of each respondent’s nation to global GDP.
2
“Governance since the economic crisis,” July 1, 2011, McKinsey.com; “Improving board governance,” August 1, 2013, McKinsey.com; “Toward avalue-creating board,” February 1, 2016, McKinsey.com; “A time for boards to act,” March 26, 2018, McKinsey.com.
3
The 2019 online survey was in the field from August 1–16, 2019, and garnered responses from 1,304 participants; of them, 1,041 were board
directors and 263 were C-level executives.
4
Martin Hirt, Celia Huber, Frithjof Lund, and Nina Spielmann, “Boards in the time of coronavirus,” April 16, 2020, McKinsey.com.

How boards have risen to the COVID-19 challenge, and what’s next59

Web <2021><COVID boards survey>
Exhibit <1>1 of <8>
ExhibitIn
corporate resilience
resilienceranked
ranked low
low onon thethe board
board agenda—andagenda—andfor
forboards
boardsIn 2019,2019, corporate
that
saw itit as
as aa challenge,
challenge,few
fewwerewerepreparedpreparedtotomanage
manageit.it.
that saw
Topics on the board’s 2019 agenda,1 % of respondents

77
61

59

57

54

54
46

Innovationand growthTechnological Organization’s
trendscultureWorkforcecapability
needs

Organization’s
purposeChanging
customer
behavior

44

Disruptive
businessmodelsCorporate
resilience

How prepared boards were in 2019 to manage a lack of corporate resilience within theirorganizations,2 % of respondents
Very
unprepared

Somewhat unprepared

NeutralSomewhat prepared

8

41

12

35

1
2

Very
prepared3

Out of 15 agenda topics that were offered as answer choices.
Question was asked only of respondents who identified “lack of corporate resilience” as a significant challenge that their organizations were facing; it was citedby 22%. Respondents who answered “don’t know/not applicable” are not shown, so figures do not sum to 100%.

Web <2021><COVID boards survey>

Exhibit2of <8>
Exhibit <2>

ininplacetoAt the start of the pandemic,
pandemic, boards
boards had
had few
fewestablishedestablishedprocesses
processes
place
to
guide
them.
guide
them.
Most significant operational challenges for boards when the COVID-19 crisis began,1 % of respondents
Lack of in-person
interactions and/or
discussion amongboard members
56

1
2

60

Difficulty withremote-working
tools andtechnologies
32

Lack ofcrisis-management
processes
within the board
24

Blurring ofroles between theboard and seniormanagement team23

Out of 11 challenges that were offered as answer choices. Question was asked only of board members, n = 417.
For example, digital expertise, transformation experience, crisis-management skills.

McKinsey Global Surveys, 2021: A year in review

Lack ofrelevant
capabilities2
within the board
21

already spent significantly more time than others
precrisis—and now report much greater increases intheir time spent on board work (Exhibit 3).
Implementing new structures and processes
Besides the increased time investment, the results
suggest that nearly all boards made at least one
change to their operating models to better manage
the crisis (Exhibit 4). The most common change has
been structural: investing in technology and tools toenable more digital collaboration and establishingad hoc crisis committees. After that, directors
most often cite changes to the ways that boards
and management teams work together and theflexibility of their agendas. Among the least common
changes so far have been to board composition—
though perhaps not surprisingly, since adjusting thediversity of skills, demographics, or geographies

represented on a board is a more complex change
to make than others and also requires shareholder
approval (see sidebar, “How to diversify your boardof directors”).
Strengthening collaboration with management
According to the results, the pandemic appears tohave triggered changes that, in past surveys, board
directors cited as the best ways to improve theircollaboration with senior management as well as
the effectiveness of board meetings. In our 2019
survey, more than half of all respondents said that
more constructive boardroom discussions between
the board and senior-management team would mosteffectively improve their collaboration.
Indeed, better discussions and collaboration
between the board and management team are

Web <2021><COVID boards survey>
Exhibit3of <8>
Exhibit <3>

Directors have increased
increasedtheir
their overall
overall time spent
spentononboardboard work,
work, especially
especiallythose reporting
effective’ responsethosereporting a ‘very effective’
responseto
tothe
thecrisis.
crisis.
Days per year board
directors have spent
on board work,1
number of days

40

Respondents who rate their boards as“very effective” at helping the organization
respond to COVID-19, n = 134

30

All other respondents, n = 539

20

10

0
2019
1

2020

2021
(Expected)

Including board and committee meetings, preparation, training, and informal contact with the organization.

How boards have risen to the COVID-19 challenge, and what’s next61

Web <2021><COVID boards survey>
Exhibit4of <8>
Exhibit <4>

Nearlyone changechangeto
totheir
theiroperating
operatingmodels
modelstoto
Nearly all
allboards
boardsmade
made at least
least onemanagethecrisis.
manage the crisis.
Changes made by the board since the COVID-19 crisis began,1 % of respondents
Structural changes
Invested in technology and/or tools to enable
more digital collaboration
Established an ad hoc crisis-management
committee
Implemented new crisis-management
processes
Significantly increased the responsibilities
of its standing board committees
Created new board
committee(s)2Process changes
Increased the frequency of interaction between
the board and management between meetings
Increased flexibility in the board’s
agendaIncluded strategy as a topic on every board
meeting’s agenda
Implemented changes to existing board
processes
Strengthening collaboration
Strengthened collaboration between the board
and senior-management teamStrengthened collaboration between the board
chair and CEO
Realigned the board and management team arounda shared vision for the company’s future
Realigned responsibilities between the board andsenior-management team
Improved team dynamics among members of
the board
Adjusting board composition
Increased the diversity of the board’s skills
and/or capabilities
Increased the board’s demographic and/or
geographic diversity
1

45
25
24
14
11

37
37
35
34

36
27
23
19
18

12
8

Question was asked only of board directors, n = 417; respondents who answered “none of the above” (8%) or “don’t know” (1%) are not shown.
That is, other than the ad hoc crisis-management committee.

2

Directors have largely stepped up
during the pandemic, improving
collaboration, implementing newprocesses, focusing on resilience, andspending more time on board work.
62

McKinsey Global Surveys, 2021: A year in review

How to diversify your board of directors
At least in the near to mid term, we
expect that most boards will continue
to maintain a hybrid approach to their
meetings, which loosens the requirementfor directors to travel on-site for eachmeeting. The newly gained comfort withremote meetings—and evidence that they
can be run well virtually—opens up a muchlarger pool of talented potential directors
with relevant experience and insightsthat are in line with the strategic needs ofa corporation (for example, geographic
diversity) even if they are far removed
from a company’s geographic headquarters. These changing norms for meetings
also give many boards the opportunity todiversify in several ways beyond geography—including social criteria and industry or topic-area expertise. We would
strongly urge boards to start reviewing
their diversity with respect to these issues:for example, seeking new members withamong the most common changes made during
the crisis. What’s more, 79 percent of respondents—
including directors and C-level executives—say
the collaboration between these groups has beeneffective or very effective during the pandemic, up
from two-thirds who said so in 2019. And bettercollaboration correlates with a more effective
COVID-19 response, according to the results:
more than 90 percent of respondents reporting
an effective collaboration between the board andmanagement also say their board’s response to thecrisis was effective—compared with only 60 percent
of all other respondents (Exhibit 5).

experience operating in crisis mode who
can effectively contribute to a broader
scope of activities beyond traditionalboard responsibilities, such as workforce
capabilities and sustainability. And beyond
the composition of the board itself, boards
should also explore ways to tap external
advisers for their advice on rapidly evolving situations in a more systematic way
than they may have done before
the pandemic.

accounts for new or emerging risks or adjusting thestrategy continuously, based on changing conditions.
Here, too, boards have adapted in response to thecrisis. Two of the top five changes respondents saytheir boards have made relate to the flexibility of
their agendas: to discuss topics as they arise andto include strategy on the agenda of every board
meeting—of which there were nine on averageduring 2020.

Creating a more flexible agenda
Over the past ten years, our research suggests thatat a high level, boards have consistently focusedon strategy over other items on their agendas,
even throughout the crisis. Yet in a situation
as extraordinary as the COVID-19 pandemic,
respondents do report changes to more detailed
topics on their agendas, and that an annual process
for setting strategy—which was a long-standing
norm for many boards in the past—is no longer
sufficient. In the survey prior to the pandemic, only
half of all board respondents said their boards wereeffective at either assessing whether their strategy

Increasing the focus on resilience
Compared with the results from the previous survey,
respondents report a clear shift in the specifictopics on their agendas (Exhibit 6). In 2019, boards
were most focused on innovation and growth aswell as technological trends. Innovation and growth
remains the most common agenda item in thelatest survey—though corporate resilience hasrisen in the ranks and become an almost equallyimportant topic. And while boards seem to haveshifted away from several people- and organizationfocused topics (for example, the organization’s
culture, purpose, societal trends and changes,
and workforce capabilities) in the past year to focus
on their crisis responses, slightly larger shares of
directors say such topics will be on the 2021 agenda.

How boards have risen to the COVID-19 challenge, and what’s next63Web <2021><COVID boards survey>
Exhibit5of <8>
Exhibit <5>

Bettercollaboration between
betweenboards
boardsandandmanagement
managementteams
teams
seems
have
Better collaboration
seems
to to
have
supportedamoreeffective
COVID-19
response.
supported a more effective COVID-19 response.
Effectiveness of boards in helping the organization respond to the COVID-19 crisis,1 % of respondents
Very effectively

4

Effectively
Neutral44

Ineffectively
Very ineffectively

56

47
33
1

7
2
Respondents whose board
collaborated very effectively
with senior management
during COVID-19, n = 319
152
All other
respondents,n = 527

Figures may not sum to 100%, because of rounding.

Web <2021><COVID boards survey>
Exhibit6of <8>
Exhibit <6>

2019, respondents
Compared with 2019,
respondentsreportreportaaclear
clearshift
shiftin
inthe
thetopics
topicsonontheir
theirboards’ agendas.
agendas.
Topics on the board’s current agenda,1 % of respondents
Corporate
resilience

Organization’s Major societal Organization’s Diversity oforganization’s
trends and/or
purposecultureleadershipchanges

Workforcecapability
needs

Innovationand growth
77

60
44

59

54
39

40

37

27

+16
2019
1

64

–15

57

49

–13

–10

2020

Out of 15 topics that were offered as answer choices. 2019, n = 1,041; 2020, n = 846.

McKinsey Global Surveys, 2021: A year in review

70

48

41

28

–9

–9

Cybersecurity

–7

35

–6

Learning from the mostadaptable boards

On average, respondents on the most adaptableboards are twice as likely as others to report anyof the operational changes we asked about oncethe crisis had started. The biggest differences
between the most adaptable boards and all others
relate to collaboration between the board and senior
management, as well as collaboration within theboard. And compared with all other respondents, a

To get an even better understanding of thechanges under way, and which of them mightoutlast the crisis, we took a closer look at responses
from the most adaptable boards and the changes
they made across structural, process-related, andinterpersonal dimensions (Exhibit 7).55

We define “adaptable boards” as boards whose respondents report at least one structural change, one process change, and one change
to collaboration on their boards since the COVID-19 crisis began and boards that have been effective at helping the organization respondto COVID-19 (n = 143). This analysis included only board directors and not respondents who identified as C-level executives and answered onbehalf of their own company’s board.
Web <2021><COVID boards survey>
Exhibit7of <8>
Exhibit <7>Theboardswere
weremuchmuchlikelier
likelier than
than others
othersto
toimplement
implementaa
The most
most adaptable
adaptable boards
range
structural, process,and interpersonal
interpersonal changes.
changes.
range ofof structural,
process, andChanges made by the board since the COVID-19 crisis began,1 by type of board, % of respondents
Respondents at most adaptable boards (n = 143)

All other respondents (n = 268)

Structural changes
Invested in technology and/or tools to enable
more digital collaboration
Established an ad hoc crisis-management
committee
Implemented new crisis-management
processes
Significantly increased the responsibilities
of its standing board committees
Created new board
committee(s)2Process changes
Increased the frequency of interaction between
the board and management between meetings
Increased flexibility in the board’s
agendaIncluded strategy as a topic on every board
meeting’s agenda
Implemented changes to existing board
processes
Strengthening collaboration
Strengthened collaboration between the board
and senior-management teamStrengthened collaboration between the board
chair and CEO
Realigned the board and management team arounda shared vision for the company’s future
Realigned responsibilities between the board andsenior-management team
Improved team dynamics among members of
the board
Adjusting board composition
Increased the diversity of the board’s skills
and/or capabilities
Increased the board’s demographic and/or
geographic diversity
1

37
19

38

19
10

61

36
23

6

23

26

59
32

48

28

49

27

50

25

58

16
16
11

37
36

9

10

49

38

15

8

Question was asked only of board directors; respondents who answered “none of the above” or “don’t know” are not shown.
That is, other than the ad hoc crisis-management committee.

2

How boards have risen to the COVID-19 challenge, and what’s next

65

Innovation and growth remains themost common topic on the board
agenda—though corporate resiliencerose in the ranks and became analmost equally important topic.
significantly larger share of directors at the mostadaptable boards say their boards’ decisions andactivities have a high or very high impact on theorganization’s value creation during the crisis.
When looking closely at this group’s responses,
we see that they report significantly better
performance on a number of other dimensions:— Time commitment. At the most adaptableboards, directors reported the same average
number of meetings in 2020 as did their peers
on other boards. Yet their overall time spent onboard work is much greater: these directors
report a 50 percent higher number of days spent
on board work in 2020, compared with all others.
And while this group expects to spend one lessday in 2021 than they did last year, that number(37 days) is still much higher than the days
expected by all others (27 days).
— The board’s agenda. According to respondents,
their boards allocate a similar amount of their
meeting time to specific topics (such as strategy,
risk management, and finance6) as they did
in 2019; but risk management has moved up
in the overall ranking of topics, and boards
now spend as much of their time on it as they
do on organizational issues, such as talentmanagement, organizational structure, andculture. Yet respondents at the most adaptableboards report slightly different priorities: forexample, they spent significantly less of theirtime on performance management than others.
666

When looking at specific topics, the mostadaptable boards appear to be faster atchanging their agendas to meet the moment.
According to directors on adaptable boards,
they are much more focused on corporate
resilience than their peers (69 percent say it’son the agenda, versus 54 percent), and they
are almost twice as likely as others to cite
disruptive business models. Fast forward one
year, and the most adaptable boards expect
the biggest increases in their focus on theorganization’s purpose; political, geopolitical,
and macroeconomic risks; and the effects ofclimate change.
— A new way forward. Finally, the more adaptableboards are more likely to stick with the newer
ways of working in the long term (Exhibit 8). Of
15 changes to the ways boards work, muchlarger shares of the adaptable directors saytheir boards will continue with eight of them;
most notably, they will continue with changes
that signal increased value-enhancing board
involvement, rather than merely rubberstamping decisions—for example, including
strategy as a topic on every meeting agenda,
strengthening collaboration, and increasing
interactions between boards and management
teams in between meetings. Indeed, almost
90 percent of respondents at the mostadaptable boards say their collaboration withsenior management was effective or very
effective during the crisis.

The survey asked about the following topics and how respondents’ boards allocate their time to each one during their meetings: strategy;
performance management; finance and accounting; risk management; organizational structure, culture, and talent; investments and M&A; core
governance and compliance; and shareholder and stakeholder management.

McKinsey Global Surveys, 2021: A year in review

Web <2021><COVID boards survey>
Exhibit <9>8of <9>Exhibit

Over
Over thethe long
longterm,
term,adaptable
adaptable boards
boards areare moremore likely
likelyto
tostick
stickwithwithmany
manynewer
newer
ways
of
working.
ways of working.
Changes to a board’s ways of working that are most likely to remain over the next 3 to 5 years,1
by type of board, % of respondents
Respondents at most adaptable boards (n = 143)

All other respondents (n = 268)

Running at least some board meetings remotely

64

Increased use of technology and/or digitalcollaboration tools
More frequent interactions between the board
and senior-management team between meetings
Strengthened collaboration between the board
and senior-management team

47
23
47

Improved board processes2

33

Including strategy as a topic on every board
meeting’s agenda

26

Increased flexibility in the board’s agenda

25
13

Increased overall time commitment to board work

13

Improved team dynamics among membersof the board
1

57
50

18

Strengthened collaboration between theboard chair and CEO

58

46
45
40

35
29
21

20

Out of 15 changes that were offered as answer choices. Question was asked only of board directors; respondents who answered “none of the above”
or “don’t know” are not shown.
For example, more frequent updates on company insights, shorter reports.

2

In other ways, the adaptable boards and others
are aligned on how boards will continue to evolve.
Both groups of respondents agree on the most
likely changes: their boards will continue runningat least some meetings remotely (62 percent of all
respondents say so), and their use of technology anddigital tools to collaborate will increase (50 percent).

While it’s not clear yet which of the substantialchanges that boards made during the COVID-19
crisis will continue to gain momentum, there isa general consensus that the ways boards workin the future will look quite different. Based on
our experience, boards can keep the momentum
going and serve as catalysts for change by doing

the following: taking a more flexible and agile
approach to agenda setting, which will help boards
account for timely or emerging topics (for example,
corporate purpose and environmental, social, andgovernance issues), new risks to the business, or
strategic alternatives as the need arises; dedicating
their additional time spent on board work to valueenhancing activities outside of formal meetings(for instance, prereading of materials; attending
training and development sessions; or participating
in one-on-one meetings with other board directors,
key executives, or other company stakeholders);
and interacting more often with the executive
team through formal and informal one-on-one
interactions. For instance, having the chair of theaudit committee coach the company’s CFO.

The survey content and analysis were developed by Celia Huber, a senior partner in McKinsey’s Silicon Valley office;Frithjof Lund, a senior partner in the Oslo office; and Nina Spielmann, a senior expert in the Zurich office.
The authors wish to thank Minna Schmidt for her contributions to this article.
Copyright © 2021 McKinsey & Company. All rights reserved.

How boards have risen to the COVID-19 challenge, and what’s next67© Andriy Onufriyenko/Getty Images

The role of boards infostering resilience
The lessons learned from the current crisis can help corporate boards
strengthen the organizations they serve.

68

McKinsey Global Surveys, 2021: A year in review

Boards of directors play a critical role in ensuringthat management is well prepared for a wide
range of potential shocks. In the fourth episode ofour series on board perspectives around the mostimportant issues facing organizations, the Inside theStrategy Room podcast looks at the role thatboards play in building resilient companies. Frithjof
Lund, who heads our board services work, leads a
discussion with Gordon Orr, a nonexecutive memberof several companies’ boards and a McKinsey
senior partner emeritus, and Martin Hirt, the global
co-leader of McKinsey’s Strategy & Corporate
Finance Practice. This is an edited transcript of the
discussion. For more conversations on the strategy
issues that matter, you can listen to the episode andsubscribe to the series on Apple Podcasts, Spotify,
or Google Podcasts.
Frithjof Lund: If there has ever been a year when
corporate resilience was tested, it was 2020.
Martin, you have led a lot of our research on resilientcompanies. What does resilience mean inthis context?
Martin Hirt: Broadly speaking, resilience refers to
a company’s ability to weather a crisis well. Thatmeans being prepared to deal with an unforeseen
event such as an accident or, more commonly now,a major global health or economic crisis.
Gordon Orr: I don’t think resilience is only about
unforeseen events. As boards, we would not criticize
ourselves for failing to anticipate a pandemic in
2020, but for not having included in our portfolio ofpotential risks something that would have thekind of business impact that COVID-19 has had anddeveloped the key actions to take.
Martin Hirt: I would concur: resilience is about
preparing for both unforeseen and predictable crises.
Companies aware of how various types of eventswould affect their economics are generally better
prepared. That is what drove our research. We
looked at how organizations fared during previous
economic crises and defined resilient companies
as those in the top 10 percent of shareholder returnoutperformance through and after the crisis. We

The role of boards in fostering resilience

tried to understand at a very granular level whatthese companies did that differed from others andhow those actions played out over time.
Gordon Orr: The share price metric is clearly critical,
but assessing how well a board or management
perform during a crisis has to encompass
externalities, not only preparedness and actions
taken midcrisis. During this crisis, share pricechanges of the companies on whose boards I
sit have ranged from a 50 percent decline to anincrease of 200 percent, and the biggest difference
has been the nature of demand. An airline flyingout of Hong Kong is now more than a year into
demand at 1 percent of historic levels, whereas amanufacturer of PCs has seen the highest
demand for its products in years. The resiliencechallenge at the computer manufacturer
has been about ensuring the supply chain works,
whereas for the airline it was more aboutbalance-sheet resilience.
Martin Hirt: So it makes sense to differentiate
between the actions companies take before a crisis
strikes to prepare themselves where the timing
is uncertain, and the actions they take once theseexternalities hit.
Gordon Orr: I agree. Shareholders tend to see
the board’s annual enterprise risk assessments
as tick-the-box exercises to meet stock exchange
requirements. But if they are done well, they arefoundational elements of being prepared, because
you discuss the range of risks the organization
faces and how those risks play into the financials.
The overarching takeaway from that process isoften, “Do we have enough capacity in the balance
sheet to deal with the shock?” At crisis time,
it is too late to start paying attention to the balance
sheet. You have to have been thinking aboutthat in advance.
Martin Hirt: There is an additional layer of how theboard engages with management so the needed
actions are taken. In about 2006, we worked witha large Australian real-estate company whoseboard had asked us to help them think through how

69

their economics, balance sheet, P&L [profit andloss], and cash flow could be affected by certain
events. After the financial crisis, in about 2010,
they told us they only implemented half of therecommendations. They said, “In hindsight, we wish
we had done everything because what we did do
saved us.”Gordon Orr: Well, the development of the risk map
and plan is not done in isolation of management.
In fact, management and the risk team do the heavy
lifting and we, as the board, stress-test. A particularchallenge we had this year is that it wasn’t justthe COVID-19 crisis—we also had a geopolitical andsocial stability crisis. Over the past four or five
years, companies have been facing increasing levelsof geopolitical risk, particularly in the technology
space, and some of those issues have intersectedwith COVID-19 around market access and securityof supply. Multiple dimensions are amplifying
the effects of the pandemic and each other, andincreasing the chance of something that might havebeen incremental turning into a major discontinuity.
Frithjof Lund: At what point and how shoulda board intervene to ensure the company isdeveloping resilience?
Gordon Orr: That generally is first debated in depth
in the audit and risk committee, working withthe finance team and the strategy team. That isthen synthesized and elevated to the full board
for discussion to stress-test and challenge. In
crises, the dynamic between the chair and the
CEO becomes incredibly important because theytalk several times a week and then inform theboard, shareholders, and potentially get the board
together to make decisions. Do we reach out to thegovernments for support? Do we need to commu­
nicate with investors? Do we need to resize abusiness significantly? As a board member, this is
the moment when you show up. This is what a high-‘Shareholders tend to see the board’s annual enterprise risk assessments as tickthe-box exercises to meet stock exchange
requirements. But if they are done well,they are foundational elements of being
prepared.’–Gordon Orr

70

McKinsey Global Surveys, 2021: A year in review

quality board member prepares for because theseare difficult decisions you have to make quickly.
Martin Hirt: One important resilience factor wehave seen, especially in this pandemic, is how
quickly companies shifted their operating modelat the top—how they collaborate, how they makedecisions and at what pace, and how they support
those processes with war rooms or teams providing
a synthesized version of external information,
structured into scenarios so decisions can be taken
confidently. In your experience, what role does
the board play in triggering those operating-modelchanges, Gordon?
Gordon Orr: The judgment between acting too fastor hanging on in the hope that things turn aroundis tough. The board’s role, at a first level, is to be acounterweight to what management proposes: Why
are you saying “A” when the opposite of “A” is equallyvalid? Secondly, the board has to stand back andtake a strategic perspective because management
is likely doing firefighting at this point. The board
should ask, “Will things ever get back to the way
they were before? What does the post-COVID world
look like? Will the business model we used evercome back?”
Martin Hirt: One of the big insights we had fromworking with hundreds of corporations during
this crisis is that, especially when uncertainty isextremely high, not just focusing on firefighting(although firefighting is important) and not justfocus­ing on the long term but focusing on key deci­
sions along the entire timeline is crucial. I found,for example, that many teams struggled to decide
whether to accept stimulus, because many
companies that had been quick to accept govern­
ment support during the financial crisis started
regretting it within months because it came with big
strings attached and getting out of it was not easy.
That is one example of a decision that has to betaken in two or four weeks’ time but has potentiallymultiyear implications.
Other critical decisions, of course, are related to
employee health and safety. Then come the decisions
about resource reallocation. One interest­ing insightThe role of boards in fostering resiliencefrom our research was that before
and at the start of the last crisis, resilient companies
divested 50 percent faster than their peers. They
were willing to accept lower asset prices in orderto create liquidity or make new acquisitions that
repositioned them ahead of trends in order to comeout of the crisis in a better position.
Frithjof Lund: You have talked about what boards
should do, but what are the big pitfalls boards
should avoid? Some boards, for example, made fairly
high demands for information updates in the earlystages of this crisis.
Gordon Orr: It has been very helpful for boards to
get more information. The board and management
need to have a common understanding of themost important information and at the right level ofdetail. For me, that means a dozen key performance
metrics that tell you the input volumes and demandand how the company is addressing externalities,
and getting that information weekly. It is alreadygoing to management so just add a few more people
to the distribution list. And yes, recognize thatwhen we get back to normal, returning to the monthly
rhythm of information sharing will be fine.
Martin Hirt: The information sharing is an interestingone. It builds on the points we discussed earlier
about the way boards and management teams lookat key decisions during a crisis and the timeframes
they consider. One of the differentiators we see is
how well management teams use scenarios. It starts
with the number of scenarios. If you have three or
five, I would say you are operating in one scenario.
You need to have an even number [so you do
not naturally gravitate to the middle scenario],and structure the information in such a way thatmanagement and board directors don’t have to start
every conversation with a lot of context setting
but are operating in the same frame. Updating thosescenarios with the latest information, on the basisof a set of assumptions understood by everybody, isfoundational. Once boards and management
teams are on the same page, decisions can be taken
very swiftly.

71‘The question is, will the insights that theboard and management gained about
the operating model during a crisis beinstitutionally preserved, or will they
have to be relearned?’–Martin Hirt

If there is information asymmetry—which scenario
are we operating in and what does it mean?—it causes misunderstandings. In a crisis, there isa huge premium on decision speed and accuracy.
In the military, the team that prepares theinformation and feeds it in a consistent way is calleda plan-ahead team. It is different from the crisis
management team, which is taking actions, executing
decisions, reacting tactically in the field. The planahead team sits next to the decision maker and its
only function is to take information from all sources ofintelligence and work it into these scenarios.
We have learned a lot about how these teams work
best. For example, you should structure themaround issues so when a decision comes at you—Do
we take government stimulus? Do we ramp down
our process-intensive operations that will require along ramp-up time later?—it flows to that teamand around these decisions the scenarios are applied.
You have a structure that feeds decision-readyinformation to the board and the management team.
Gordon Orr: On the teams point, effective boards
now are working as teams, and it helps if the large
majority of board members have been together fora while, with an understanding of the business,the industry, management, the level of trust in eachother that the synthesis coming up to the fullboard is of high quality. The orchestration by
the chairman as the team leader becomes very

72

McKinsey Global Surveys, 2021: A year in review

important, particularly as you shift to virtual
meetings. Members who joined the board recently
and lack the experience of going through multiplebalance-sheet cycles with management become achallenge for that team dynamic.
Martin Hirt: In order to be an effective team, people
have to be trained. How does the board’s operating
model change during a crisis, Gordon? What typeof capability building and preparation have you seen
be effective?
Gordon Orr: Skill building and training is anotherone of those things investors think boards do totick the box. But boards do it because they want toget better. When you look at digital, for example,
the board needs to be smart enough to challengemanagement. There are various ways of addressing
that, such as an expert talking to the board. It
could shape the decision on where we hold board
meetings. If we want to understand the Indian
market better, the board can spend time there asa group. It would be a red flag to investors if
boards were not conducting a regular programof skill development.
Frithjof Lund: In terms of the chair’s role and the
new dynamic between management and theboard, how much of that do you think will persist
beyond the crisis?

Gordon Orr: The role of the chairman has becomemuch more time consuming and that may stay in theform of outreach to investors, governments, andother stakeholder groups. Many countries are pilingmore and more responsibilities on the board, which
is becoming a challenge. Environmental, social, andcorporate governance [ESG] is an enormous new
topic in terms of board time. Cybersecurity is another.
Being a board member is not a full-time job but it isgetting closer to that, particularly in Europe. You areasking people to show up for 12 board meetings ayear, plus committees, and to do this for a fraction of
the compensation they received before.

that when the virus is domestically under control,
economic activity jumps back, uncertainty drops,and economic growth returns to previous levels, if
not higher. It is also relatively clear that the recovery
will happen sometime in late 2021 or first quarter of2022 for most countries that have been ahead of thegame in ordering vaccines. Where the uncertainty
remains high is how long the stimulus will continue.
After the financial crisis, some governments cut
off the stimulus too quickly, which stifled theireconomies. If that happens now, we could see awave of bankruptcies and financial difficulties
coming toward us.

Martin Hirt: I would add an individual component.
Now that boards and management teams haveworked together through the crisis, there is a levelof bonding and understanding each other.
But management teams and boards change. The
question is, will the insights that the board
and manage­ment gained about the operating model
during a crisis and how to shift to it quickly
be institutionally preserved or will they have tobe relearned?

But what I would stress from a board perspectiveis that the trends that have been accelerated
through this crisis are almost certain to stay. The
question is, are you acting on the writing on thewall? Traditionally, one of the most difficult thingsfor corporations is reallocating capital andresources toward new initiatives. Helping themanagement team accelerate that process
is absolutely critical right now.

Frithjof Lund: If we look ahead, what are the top
things boards should ensure are in place to handle
future crises?
Gordon Orr: If there is one thing to remember fromour conversation, it is the importance of preparation
across a broad set of potential risks. Second is
to lean in to decision making. Taking them sooner isgenerally better. And because of geopolitical risk,
avoid the small and risky investments: initiatives that
could create value but are potentially highly risky,
where you could get a disproportionate negative
impact on the business in return for relatively
small gains.
Martin Hirt: As we think about future crises, weshould not forget that we are still in this one. Thereis still a lot of uncertainty. We have seen in China

Frithjof Lund: Aside from the stimulus ending too
quickly, what sources of potential future crises
should boards have on their radar?
Gordon Orr: Geopolitics is not going away. ESG andthe potential inability of businesses to keep up
with the expectations of society and investors
could cause major discontinuities. And third are themassively greater levels of government intervention
in business and potentially the return of active
industrial policies by governments in many sectors.
Martin Hirt: There is a longer-term issue we all haveto reckon with, which is that stimulus has been
given out at astonishing rates. Some may say, “Whenit comes to central bank accounting, you can justcancel the whole thing out.” That may not be realistic
for some governments. So how we deal with the billfrom this crisis is a potential future crisis.

Martin Hirt is a senior partner based in McKinsey’s Greater China office. Frithjof Lund is a senior partner based in Oslo. Gordon
Orr is a nonexecutive member of several boards and a McKinsey senior partner emeritus based in Hong Kong.
Copyright © 2021 McKinsey & Company. All rights reserved.

The role of boards in fostering resilience73December 2021
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