Mcsey

&company

OperationsPractice

Breakingoperationalbarrierstopeak

productivity

Ourlatestresearchexamineshowanewtakeonoperational

excellencecanhelprekindleproductivity—andrevealsfivepracticesthatmatterinjump-startingperformance.

by

ErikSchaefer,

JorisWijpkema,and

RichardSellschop

October2024

Theworldneedsmoreproductivitygrowth.Asa

recentMcKinseyGlobalInstitutereport

argues,it’sthebestpossibleantidotetowealthinequality,inflation,andexplodingdebtandcouldprovide

crucialfundingforthenet-zerotransitionandimprovedlivingstandards.

It’salsowhateverycompanyneeds.Yetproductivity

growthhaslargelydeclinedsincetheglobalfinancialcrisisof2007–09,particularlyinthemostadvancedeconomies(Exhibit1).

Themacrocausesofdecliningproductivitygrowtharevisibleineverydaylife.First,thedramatic

benefitsoftechnologicalchange—suchasMoore’slaw,thedoublingoftransistorsonachipeverytwoyears—havefaded,withimprovementsbecoming

moreincremental.Second,investmentsin

restructuringandoffshoringalsoreachedapointofdecliningreturns.

Ourlatestresearch(seesidebar“Ourmethodology”)

suggeststhattherearealsomicrocausesof

decliningproductivitygrowth,whichareharderto

seeuntiltheobserverreachestheoperatinglevel

ofafactoryorcallcenter.Thelossofoperational

disciplineinthewakeoftherepeatedshocksof

thepastfiveyearsledtohighlevelsofattritionandjobchurn.Practicesthathadbeenpainstakingly

refined,codified,andpasseddownfromworkertoworker—oftenoverdecades—weresetasideduringtheinitialCOVID-19emergency.The

subsequent

lossofcriticaltalent

(Exhibit2)meantthatthe

chainsofknowledgestayedbroken.

Exhibit1

Global?nancialcrisis

Productivitygrowthperhour,%

199720022007201220162022

6.0

5.1

3.9

3.9

2.2

2.1

1.8

1.7

1.6

1.2

1.0

0.8

0.1–0.1–0.2

Productivitygrowthhasslowedacrossalmostalleconomiessincetheglobal?nancialcrisis.

8.6

Emergingeconomies

(Middlelane)

Emergingeconomies

(Slowlane)

AdvancedeconomiesEmergingeconomies

(Fastlane)

Note:2022internationaldollars(purchasingpowerparity),weightedaveragepergroup;n=125economies,excludingDRCongo,Iraq,Syria,Venezuela,Taiwan,andYemen.

Source:Output,Labor,andLaborProductivitydataset,TotalEconomyDatabase,ConferenceBoard;McKinseyGlobalInstituteanalysis

McKinsey&Company

Breakingoperationalbarrierstopeakproductivity2

Ourmethodology

Thisarticlesynthesizesfindingsfromtwosurveys,bothlaunchedin2023,

thatexploredhowcloselyorganizationsadheretopracticesthatcontributeto

operationalexcellence.

Thefirstsurvey,theNext-Generation

OperationalExcellenceSurvey(NGOES),comprised1,000employeesrepresentinghundredsoforganizations.Halfofthe

respondentswereseniorleaders,definedasC-suiteexecutivesandtheirdirect

reports,andhalfwereeitherfrontlineworkersormiddlemanagers.Slightlymorethanhalf(52percent)ofthe

respondentsworkedinthemanufacturing

sector,withtheremainderworkingin

services,includingthegovernment

andsocialsectors.Attheindividual

level,29percentofrespondentssaid

theirroleswereinmanufacturing,while71percentwereinservices,suchas

procurementorHRstaff,workingfora

manufacturer.Geographically,35percentofrespondentswereinNorthAmerica,

30percentinEurope,20percentinAsia–Pacific,and15percentinLatinAmerica.

Thesecondsurvey,theOperational

ExcellenceSurvey(OES),comprisesa

somewhatlargernumberofrespondents,1,225,atjust15organizations—12inNorthAmericaandthreeinLatinAmerica.About21percentoftherespondentswereseniorleaders,and79percentwerefrontline

workersormiddlemanagers.

TheNGOESresearchallowsforabroadviewofthecurrentstateof

operationalexcellenceacrossmany

organizations,whiletheOESresearch—

stillongoing—allowsforamoredetailed

perspective,reflectingmultipleresponsesatasingleorganization.

Exhibit2

Acrossadvancedeconomies,allsectorshavehigherjobvacancyratestodaythanin2010.

Jobvacancyratebysector,average,1%

2010●●2023

LeisureandhospitalityHealthcare

Professionalservices

Construction

TransportationInformation

Trade

Manufacturing

Financialandrealestate

Mining

Privateeducation

Government

012345

ShareoftotalShareoftotalemployment,%vacancies,%

20102023

7.410.2

7.511.2

11.813.0

8.610.2

7.27.1

6.26.2

2.93.3

15.313.8

12.911.5

5.05.1

I0.9I0.9

7.07.1

8.38.3

12.8

16.9

12.112.9

5.27.6

4.85.4

3.93.3

16.012.1

9.79.6

5.43.9

I0.8I0.7

3.43.8

5.45.1

Note:Full-year2023dataforall7countries,exceptGermany,forwhichemploymentandvacancydatagotoQ32023.1Australia,Canada,France,Germany,Italy,theUnitedKingdom,andtheUnitedStates.

Source:AustralianBureauofStatistics;Eurostat;StatisticsCanada;UKO代ceforNationalStatistics;USBureauofLaborStatistics;McKinseyGlobalInstitute

analysis

McKinsey&Company

Breakingoperationalbarrierstopeakproductivity3

Thesechallengesariseatthesametimethatnew

technologies—whetheradvancesinautomationandanalyticsundertheFourthIndustrialRevolution

(4IR)or,mostrecently,

generativeAI

(genAI)—showgreatpromiseasameanstoincreaseproductivity.

Therisk,ofcourse,isthatthehighinitialimpactfromsuchtechnologiesprovesdifficulttosustaininthe

absenceofabroadercommitmenttooperational

excellence.Mostleadersknowwhattherequired

operationalexcellencelookslike:fiveelements

thattogetherenableorganizationstooperateat

thehighestlevel(seesidebar“Whatisoperational

excellence?”).Achievingit,however,hasneverbeeneasy:thenewresearchpointstospecificchallengestoimplementingeachofthefiveelements.

Thebetternewsisthatthedataalsopointto

practicalactionscompaniescantakethatcannotonlygetthembackontrackbutalsohelpthem

makethemostofthedigitalworld.Companies

thatreachthisstandardofperformancerecord

transformativeoutcomesnotonlyintheshort

term—increasingcustomersatisfactionbyten

percentagepoints,reducingCO2emissionsby

20percent,improvingemployeeretentionby

25percent—butalsocontinuetoimproveyear

afteryear.That’swherelastingproductivitygainscomefrom.

They’reavailabletoanyorganizationthat’s

willingtoexamineitscurrentpracticesindepth,understandwhereimprovementisneeded,andcommittochange.

What’sblockingoperationalexcellence

Overthepastfewyears,threeprimaryvectorsof

operationalimprovementhavepromisedtoraise

productivity,butcompanieshaveoftenstruggledtotakefulladvantageofthepotential:

—The

technologiescollectivelyreferredtoas

4IR(orIndustry4.0)

canimproveperformanceacrossanentirevaluechain.ButMcKinsey

researchindicatesthat

only30percentof

organizationssuccessfullyscaleandsustain

digitalimprovement

.

Whatisoperationalexcellence?

MorethantwodecadesofMcKinseyresearch

hasfoundthathigh-performingorganizationsex-ecutewellon

fiveelementsthatcollectivelydefine

operationalexcellence

:

—craftingapurposeandstrategythatiscleartotheentireorganization

—articulatingasetofbehaviorsandprinciplesthatputthestrategyandpurposeintoeffect

—buildingamanagementsystemthatreinforcesthebehaviorsandprinciplesthroughaholisticsetofprocesses

—refiningthetechnicalsystemsassociatedwithvaluedeliverytoeliminatewaste

—applyingtechnologytoaugmenthumancapabilities,ratherthansimplyreplacinghumanswithmachines

—In2023,researchfromMcKinseyDigital

estimatedthat

genAIcouldadd$2.6trillionto

$4.4trilliontotheglobaleconomy

.Butby2024,

onlyabout5percentoforganizationssaidthey

couldattributeatleast5percentoftheirEBITto

genAI

.

—Coreoperationalexcellencepracticeshave

aproventrackrecordofcreatingsignificant

improvementacrossvariablesrangingfrom

costreductiontoemployeeretention—withtheeffectsincreasingovertime.ButdatafromtheOperationalExcellenceSurvey(OES)indicatethatfeworganizationsperformwellacrossallfiveelements(Exhibit3).Thosethatdoare

farmorelikelytosustainimpactfrom4IRandgenAI:

operationalexcellenceincreasesthe

valuethattechnologiescangenerate

.

Breakingoperationalbarrierstopeakproductivity4

Exhibit3

Feworganizationsexcelacrossallelementsofoperationalexcellence.Practicesalignedwithoperationalelement,1%

Purposeandstrategy

53

Principlesandbehaviors

13

Managementsystems

33

Technicalsystems

7

Technology

7

1“Alignedwithelement”relectsresponsesof“agree”or“stronglyagree”toquestionsaboutwhetherrespondents’organizationengagesinpracticesthatsup-porttheelement.“Notalignedwithelement”relectsresponsesof“somewhatagree,”“neitheragree/disagree,”“somewhatdisagree,”“disagree,”or“stronglydisagree.”

Source:Basedon15organizations’responsestoanOperationalExcellenceSurvey,Jan9,2023–Feb16,2024;n=1,225.

McKinsey&Company

TheresultsoftheOESresearchandtheNext-

GenerationOperationalExcellenceSurvey(NGOES)showedthatforeachelement,criticalbarriersare

keepingcompaniesfromachievingandsustainingoperationalexcellence.Theresearchalsorevealeddifferencesamongregions,particularlyinAsiaandLatinAmerica,thatcouldmeritadditionalattentionfromcompaniesoperatinginthoselocations(seesidebar“Regionalvariations”).

Aclearpurposeandstrategyaren’tenough

McKinseyresearchfrom2021onattritionand

attractiontrendsfoundthatpurposeisessentialtoemployeesthroughouttheorganization,with

70percentofsurveyedemployeessayingthat

theirindividualpurposeisdefinedbytheirwork

.Italsocorrelateswithperformance:a2019study

byacademicsatColumbia,Harvard,andWhartonfoundthatclarityofpurposeincreasescompanies’returnsonassetsby3.8percent.1

Ourfindingsoncorporatepurposeareat

leastsomewhatencouraging:inbothsurveys,

respondentssaidthatpurposeandstrategywere

thestrongestofthefiveoperationalexcellence

elementsattheirorganization.Butonlyhalfofthe

OESparticipantssaytheirorganization’spurpose

andstrategywerereasonablyclearandaligned

withtheirownday-to-daywork—afigurethatfell

to40percentforNGOESrespondents.Moreover,

accordingtooursurveyanalysis,only7percentoforganizationsexcelledinallelementsofoperationalexcellence,whichsuggestsreallimitstotheimpactofevenawell-understoodpurposeandstrategy.

1ClaudineGartenberg,AndreaPrat,andGeorgeSerafeim,“Corporatepurposeandfinancialperformance,”O(jiān)rganizationScience,2019,

30Volume,Number1.

Breakingoperationalbarrierstopeakproductivity5

Regionalvariations

TheNext-GenerationOperational

ExcellenceSurvey’sbroadsample

revealedregion-specificdifferences

inresponsesfromAsia–Pacificand

LatinAmerica(exhibit).InAsia–Pacific,respondentsacrossalltenurelevels

reportedlowerlevelsofadoptionof

operationalexcellencepractices,on

average.Thatfindingmaygivecompaniesoperatingintheregionevenmorereasontoassesstheiroperations’practicesto

gaugepotentialforimprovement.

Bycontrast,responsesfromLatinAmericareflectedunusuallyhigh

optimismaboutoperationalexcellence—

particularlyamongfrontlineworkersandmiddlemanagers.Mostrecently,

Latin

Americancompanieshaveachieved

recognitionforoperationalexcellence,

suchasthroughtheShingoPrize

.

Exhibit

Surveyresponsesshowregionaldiferencesinadherencetooperational-excellencepractices.

Organizationaladherencetopracticesbyregion,1%deviationfrommean

PurposeandstrategyPrinciplesandbehaviorsManagementsystemsTechnicalsystemsTechnology

Asia–Paci?cNorthAmericaWesternEuropeLatinAmerica

40

20

0

–20

40

20

0

–20

40

20

0

–20

40

20

0

–20

Asia–Paci?c

20

0

–20

–20

20

0

–20–20

NorthAmericaWesternEuropeLatinAmerica

20

20

0

0

1Deviationfrommeanofrespondentsanswering“stronglyagree”toquestionsabouttheirorganization’soperational-excellencepractices,analyzedbyregion;95%con?denceinterval.

Source:Next-GenerationOperationalExcellenceSurvey,Dec8,2023–Jan15,2024,n=1,000

McKinsey&Company

Behaviorchallenges:Providingrecognitionandfeedback

Thesecondelementofnext-generationoperationalexcellence,principlesandbehaviors,translates

purposeandstrategyintoeverydaynormsthat

defineculture.Here,themoststrikingfindingfromthetwosurveysconcernedgapsinoneofthemost

basicelementsofaculture:ensuringthatgoodworkisrecognizedandthatallworkgetsfeedback.

Regular,development-orientedfeedbackboostsemployeeengagement;onerecentstudyfoundthat80percentofemployeeswhohadreceivedmeaningfulfeedbackinthepreviousweekwere

Breakingoperationalbarrierstopeakproductivity6

engaged.2Thatismorethantripletheglobal

employeeengagementrateof23percent.3Yetlessthanone-quarterofrespondentstoourtwosurveyssaidthattheirorganizationsexpectedleadersto

providedevelopment-orientedfeedback—andonlyabout11to13percentsaidthattheirleadersactuallygavethetypeofcontinualfeedbackthathelps

employeesgrow.

Similarly,onlyone-fifthofrespondentssaidtheir

organizationssystematicallyrecognizedemployeesforachievements,eitherindividuallyorasteams.

Asputteringinnovationengine

Managementsystems,thethirdelement,referstostructuresandprocessesthatreinforcebehaviors,developleaders,andstrengthencapabilitiesovertimethrougha

continuouscycleofimprovement

.Organizationsthatapplyrapidexperimentation

andcontinuousimprovementbestpracticescan

increaseproductivityby25percentormore,largelythankstoinnovation.

Bothoperationssurveysfoundgapsinpracticesthatenableemployeestocontinuallyimprove

acompany’soperations.Feworganizations

consistentlyfollowbaselinepractices,suchas

conductingfrequentcheck-inswithemployeesto

seehowworkisgoing—servingasanearly-warningsystemforproblemsandopportunitiesfornew

approaches.Only21percentconductcheck-insonatleastaweeklybasis.

Whenthosecheck-insdooccur,theytendtobe

superficial.Almosthalfofcheck-inscoveronly

oneortwoperformancedimensions,suchas

output,overallequipmenteffectiveness,oron-timepercentage—decreasingtheoddsoffindingand

correctingissuesbeforetheygrow(Exhibit4).

Exhibit4

Employeesreportthattheylacknecessarybuildingblocksforcontinuousimprovement.

21

Shareofemployeeswhohavecheck-ins

atleastonceaweek,%

45

Shareofemployeeswhoseweekly

check-insreviewonly1or2performance

dimensions,%

BestpracticeistocheckinatleastonceaweekBestpracticeistoholisticallyreviewworkalong

3–4performancedimensions

Source:Next-GenerationOperationalExcellenceSurvey,Dec8,2023–Jan15,2024;n=1,000

McKinsey&Company

2JimHarter,“Agreatmanager’smostimportanthabit,”Gallup,May30,2023.3“Indicators:Employeeengagement,”Gallup,2023.

Breakingoperationalbarrierstopeakproductivity7

Accordingtorespondents,lessthanhalfoforganizationsactivelyinvolveemployeesindevelopingoperationalimprovements.

Overlookingthebasicsinvisualtools

Technicalsystemsformthecorevalue-generation

infrastructureinabusinessoperation.Some

technicalsystems,suchasassemblylinesin

manufacturing,aretechnology-intensive.But

othersarenot:aproblemresolutionprocessincustomerservicemaydependmainlyonhumaninteraction.Regardlessoftheenvironment,

however,thegoalismaximizingvaluecreationwhileminimizingwaste.

Effectiveresourceplanningusingvisualtoolscanimprovebothresourceallocationandexecution

efficiency.Yetoneofthemostbasicsupporting

elementsofeffectivemanagement—theuseof

visualtoolsthatensureperformancetransparency,suchasdigitalwhiteboardstotrackcore

performancemetrics—showssurprisinglylow

adherenceamongsurveyrespondents.Atbest,

onlyaboutone-quarterofrespondentsusedvisualtoolstosupportessentialtaskssuchasworkloadbalancingandresourceprioritization,withalmostnorespondentssayingthattheirorganizationusedthetoolswell.

Technology:Digitalneedsanaloginvestment

Thefinalelement,underpinningalltheothers,is

technology.Mostrespondentsshowedfrustrationwiththeirorganization’stechnologycapabilities,

with93percentexpressingconcernabouthow

currenttechnologytranslatestoperformance,andalmostthree-quarterssayingtheirorganizations

lackeddefinedprocessesforbuildingbusinesscasesfornewdigitaltools.

Atthesametime,respondentsalsosuggestedthatprioritiesotherthantechnologywouldmakemoredifferencetofutureperformance(Exhibit5).

Respondentsidentifiedincreasingfrequencyof

development-orientedfeedbackandtransparencyofperformancemanagementasthetwotop

performanceimprovementfactors.Inboth,

technologyplaysatmostasecondaryrole;whatmattersmoreisthehumanwillingnesstoview

performancediscussionsasanopportunitytolearn,ratherthanadangertobeavoided.

Investmoreinwhatmattersmost

Althoughthetwosurveysdifferinmethodology,severaloftheirstrongestfindingswerestrikingly

similar,withpracticalimplicationsforhow

companiesachieveandsustainoperational

excellence.Mostimportant,theresearchfoundthatcompaniesareunderinvestinginsomeofthepracticesthatmattermostforperformanceimprovement(Exhibit6):

—Recognizeachievements.It’seasyenoughtosetupan“employeeofthemonth”program

orhandoutengravedpaperweightsfor

milestoneanniversaries.ANorthAmerican

medtechcompanydidmuchmore,designing

itsrecognitionprogramtoreinforceawide

rangeofoperationalexcellencepracticesandoutcomes.Someawardsfocusonindividual

achievementsinareassuchasqualityor

regulatorycompliance;othersrecognizemajorgroupeffortstoimproveoperationsstrategy

orcustomerservice.Regularlyupdatedto

reflectcurrentpriorities,theprogramisalso

integratedwiththecompany’sperformance

managementandcapability-buildingprogramssothatrecognitiontranslatesintopromotion

opportunitiesandnewcareerpathways.

—Clarifytherelationbetweenworkandpurpose.Atthemedtechcompany,adisciplinedinternal

communicationsprogramcontinuallyreinforcestheconnectionbetweenpeople’sworkandthecompany’spurpose:improvinghumanhealth.

Thecompanybringspatientstoproductionsitessothatemployeescanhearhowtheproducts

theymakeandtheservicestheysupportchangepeople’slives.Forachemicalmanufacturer,

theconnectionistoagriculture:employees

understandhowtheirproductsimprovefood

production,relievepricepressures,andreducewaterconsumption.

Breakingoperationalbarrierstopeakproductivity8

Exhibit5

Themanagementpracticesthatemployeesidentifyasmostimportantforoperationalperformancerelymoreonhumansthantechnology.

Practicesrespondentswereaskedtorankinsurvey,1%ratingpracticeasmostimportant

Purposeandstrategy

Helpingemployeesbetterunderstandtherelationshipbetweentheirworkandthecompany’spurpose

12

100

Improvingthecompany’sunderstandingofwhatcustomersvalue

11

Principlesandbehaviors

Increasingthefrequencyofhigh-quality,development-orientedfeedbackprovidedbyleaders

33

Increasingrecognitionoffrontlineindividuals’orteams’achievements

8

Increasingrecognitionwhenemployeestrynewideasorsolutions

7

Managementsystems

Increasingfrequencyofseniorexecutives’visitstoworksites

5

Technicalsystems

Makingperformancemeasurementmoretransparentandvisible(eg,throughgreateruseofvisualplanningortrackingtools)

17

Technology

Buildingoracquiringdigitalandanalyticstoolstoassistemployees’work

7

Source:Next-GenerationOperationalExcellenceSurvey,Dec8,2023–Jan15,2024;n=1,000

McKinsey&Company

Theresearchfoundthatcompaniesareunderinvestinginsomeof

thepracticesthatmattermostforperformanceimprovement.

Breakingoperationalbarrierstopeakproductivity9

Exhibit6

Practicescitedasmostimportantforperformanceshowlowadoptionlevels.

Organizationaladherencetopractices,1percentage-pointdiference

21

Recognition

for

achievements

5

5

Understanding

relationbetweenworkandpurpose

Understanding

customer

needs

Transparent

performance

measurement

usingvisual

tools

Development-oriented

feedback

Senior

leadership’s

visitto

worksites

Recognitionforideas

Digital

andanalytics

–5

–8

–20

–30

–42

Practicesthatthatshowhighimportanceandlowadherence

1Diferencebetweenpercentageofrespondentsrankingpracticeamongtopthreefororganizationalperformanceandthosesayingtheirorganizationsadheredtopractice.Includesonlythosepracticeslistedinthesurveyquestion,“Whichofthefollowingimprovementswouldhavethegreatestefectonyourcompany'soperationalperformance?”

2Outofatotalof17practicesincludedinthesurvey,theonlyonewithanadherencelevelhigherthan40%was“understandingofpurpose,”at58%.Source:Next-GenerationOperationalExcellenceSurvey,Dec8,2023–Jan15,2024;n=1,000

McKinsey&Company

—Understandcustomerneeds.Atmany

companies,employeeswhoaren’tdirectly

customer-facingmayhaveonlyalimited

understandingofwhatcustomerswant.

Thechemicalcompanyinsteadmade

substantialinvestmentsinsendingproductionsuperintendentsoverseastovisitagriculturalcustomers.Theexperienceprovedeye-

opening.Customersshowedhowimpurities

andotherimbalancesinproductsaffected

cropproductionandincreasedenvironmentalwaste.Afterseeingtheseeffectsinperson,

thesuperintendentsreturnedtolaunchmajorneweffortstoreducedeviationsfromqualitystandards.AtaEuropeantelco,employees

knewcustomersweredissatisfiedwith

broadbandinstallation,butnotinsufficient

detailtoidentifytherightproblemstosolve.

Onlybybringingasingle,cross-functionalteamtogethercouldtheunderlyingcustomerneedsbeidentified—andfulfilled.

—Usevisualtoolstocreatetransparency

aboutperformance.Althoughcompanies

haveknownhoweffectivevisualperformancemanagementcanbe—whiteboardsshowing

workstatushavebeenaroundfordecades—

oursurveysindicatethatonlyexceptional

organizationsmaintaintherequireddisciplineovertime.Themedtechcompany,forexample,builtareal-time,globalplatformthatshares

itsmajorperformancemetricsthroughout

thecompany.Advancedcompanies,including

aLatinAmericanbasic-materialscompany,

Breakingoperationalbarrierstopeakproductivity10

Findmorecontentlikethisonthe

McKinseyInsightsApp

Mckunsey

&company

Scan?Download?Personalize

aresharingthemetricsvia