People + Strategy Journal

Winter 2022

Growth Sparks an Organizational Reaction

With advances in analytics and unprecedented access to real-time workforce data, founders, and the people chiefs they work with, can proactively anticipate the scaling needs of the business.

By Claudy Jules, Lee Baz-Sanchez, Ivan Dyakonov and Joachim Talloen, McKinsey
Growth Sparks an Organizational Reaction

Your founder CEO has declared bold ambitions for a significant performance shift. You want to understand how the organization's design should evolve and what capabilities should be brought into focus to implement the company's growth strategy. Investors indicate the company's vision is strong, but does your organization have what it takes?

Growth is good, but it can also be complicated. Whether scaling up a fast-growing business, expanding into new markets, or disrupting your industry, fast-growth companies appear to defy gravity in their ability to reimagine, act quickly and mobilize. Yet, as companies grow in size, scope and complexity, they strain their operating model.

Several challenges strain organizational operating models as they scale. For instance, with a lack of a shared and communicated end-state vision, top teams can sometimes struggle to align and pull the company forward in the same direction. In other cases, the organization lacks a stable backbone with defined roles and responsibilities, causing overlap and the potential for redundancy between areas. More often than not, this minimizes managerial mindsets and capabilities, as managers start questioning which decisions they are empowered to make (or delegate). Further, increasingly geographically distributed and culturally diverse teams can catalyze friction across larger teams making coordination and collaboration difficult.

Maximizing a company's value through an initial public offering (IPO), merger, recapitalization or sale requires creating a blueprint for scalability and identifying blockages to growth. Despite the penalties for failure, too many IPO-bound founders underestimate the power of taking an advanced analytic approach and as a result, their strategies fall short of what is needed to meet future growth and value objectives. Why? They overlook the value of mining their current operating model's people and organizational dimensions against future needs.

For companies looking to maximize the value of every investment, leveraging analytics to their fullest potential can help direct investments toward the organizational essentials most needed to drive growth and capture value.  

How then, as a Chief People Officer, do you leverage advanced analytics effectively to design an operating model that supports the evolution of a scaling business?

True Growth Comes from Anticipating Predictable "Growing Pains"

Founders of fast-growth companies make daily decisions that directly affect their product (or platform) and the operating model that enables forward momentum of the business. In many cases, however, they don't connect the two. It's time for founder CEOs and the people chiefs who counsel and partner with them to inject more data science into how the company scales and creates value at critical inflection points or moments of growth. With access to historical data—and the ability to derive insights from that data—Chief People Officers (CPOs)—are now uniquely equipped to mine people and organizational data to help founder CEOs understand the organizational implications of their investment decisions.

There is no question that the CPO must design and build the structures, systems and processes essential to growth-effective people management. But the reality is that more and more people and organization experiences will be based on the ability to use sophisticated algorithms to anticipate and tackle challenges such as calculating the ratio of growth in headcount to increase revenue during critical inflection points. All of this means that the tangible value-adds of the CPO reside in three actionable themes today.

Three Actions to Take Now

First, power the growth agenda by powering the people AND organization agenda. With advances in analytics and unprecedented access to historical workforce data, founders and their people chiefs can proactively anticipate the scaling needs of the business. Coupling those insights with a solid understanding of growth and organizational dynamics allows them to determine the best operating model in the future. How? Conduct a retrospective analysis of how the design of other organizations evolved during periods of fast growth. To do this, identify the right set of similar companies as benchmarks—and their accompanying revenue, customer and headcount data. Use this data to identify comparable critical moments of growth (for example, it could be a merger, an executive transition, an injection of capital or a critical joint venture).

This approach has recently enabled one fast-growth company to optimize its organizational design to achieve ambitious revenue targets. Observing the evolution of analogous organizations provided insight into the organization's overall growth speed and dynamic for specific critical capabilities, highlighting stark investments needed across several functional areas. They found that a revenue increase of 35% p.a. requires a 21% headcount growth overall, but a staggering 40% p.a. growth in the product function alone. This made investment plans significantly more fact-based and reliable. Using this method, the fast-growth company was able to acutely identify the scaling needs of their organization across critical functional areas and the requirements across these functional areas for core products in their portfolio. The organization made novel insights highlighting some stark investments needed for their products and found that a new product required a significant investment to meet strategic growth targets.

Second, put the data to work. Identify the fastest-growing roles in your peers and aspirational targets from other sectors to get insight into future roles. Digital infusions into people and organizational analytics can play an equally important role in helping leaders better mine organizational data from both existing and new sources—generating insights to meet complex organizational and business challenges. Systematic organizational reviews powered by multi-dimensional data—both structured and unstructured—broaden the number of aspects that can be analyzed. Such tools, techniques, and expertise can quickly tease out key business insights to substantially improve the accuracy of CPOs' organization-related decisions. These insights can sharpen everything from executive succession and promotions to diversity, equity and inclusion initiatives and transformation. With today's unprecedented amount of data that can be mined with emerging technologies like artificial intelligence (AI) and analytics, this can happen quickly and at scale. 

Take for instance, the analysis of future roles that helped a household appliance manufacturer set the right priorities for strategic workforce planning. The findings of this analysis went far beyond the traditional mantras of digitalization and workforce automation. Instead, the analysis of the sales function in advanced peers showed that the size of this function is not going to change in the future. Still, the skill set will dramatically shift toward customer relationship management (CRM) analytics (2.7x growth), customer experience (2.2x growth), and digital marketing (1.9x growth). Insights like this can push an organization beyond what they currently know into learning how and when to invest in core digital competencies to ensure that they will be at the forefront of digital capability building now and in the future.

Lastly, personalize data. Strike the right balance of crafting a set of design principles that make the work experience more personal and human (while driving the financial performance in your sector). The power of using a robust set of people and organizational data underscores how important evidence-based management is for leaders when it comes to their alignment on critical decisions, particularly at the start of a business transformation or reorganization. Equipped with such information and evidence, leaders can align around the business' shared objectives and key results, ruthlessly prioritize (or deprioritize) value-creating initiatives, anticipate risks and implement future changes. Moreover, in today's digital economy, CEOs and people and organization chiefs can use new technologies, including AI, to improve their decision effectiveness, and in turn, organizational growth.

With advances in analytics and unprecedented access to real-time workforce data, founders, and the people chiefs they work with, can proactively anticipate the scaling needs of the business. Coupling those insights with a solid understanding of growth and organizational dynamics allows them to determine the best operating model in the future.

It also enables them to derive valuable insights to shape strategic discussions with the founder CEO on various topics, from the revenue, customer and headcount data required to align on critical moments of growth to the forecast changes needed in function size required to enable targeted scaling-up.

Sharing insights with the founder CEO and key leaders across top management helps them collectively make better operating model and design-related decisions; these data-driven insights also aid in understanding the implications of design-related decisions on the future investments needed to grow the business and fulfill investor expectations.

Claudy Jules, Ph.D., is a Partner in McKinsey's Washington, DC, office. He can be reached at claudy_jules@mckinsey.com.

Lee Baz-Sanchez is an Associate Partner in McKinsey's London office.

Ivan Dyakonov is a Knowledge Expert for advanced people analytics in McKinsey's London Office.

Joachim Talloen is a Senior Research and Data Science in the organizational science and analytics team in McKinsey's Waltham office.