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The sharper edge: A leader’s guide to competitive advantage

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

Companies can distinguish themselves in many ways. Besides such classic differentiators as cost or products, today’s competitive advantages can come from a variety of sources, such as new business models, disruption, culture, and technology. But in a highly competitive environment, finding a “superpower” and nurturing it may require the entire organization to pitch in, with visionary leadership at every level. This week, we explore some effective practices to build and sustain what makes your organization unique.

AN IDEA

An image linking to the web page “What every CEO should know about generative AI” on McKinsey.com.

We need to talk about generative AI

Few business leaders can afford to ignore this game-changing technology. In the view of McKinsey experts, “CEOs should consider exploration of generative AI a must, not a maybe. Generative AI can create value in a wide range of use cases.... The downside of inaction could be quickly falling behind competitors.” Options range from deploying specific generative-AI features on a smaller scale to implementations that can transform entire businesses. For example, one company uses an off-the-shelf generative-AI coding tool to improve productivity, whereas another has built and trained a foundation model from scratch to accelerate scientific research—a high-cost, resource-intensive process. To organize for generative AI, it may be best to start by convening a cross-functional group of the company’s leaders to identify and prioritize where the technology could generate the most value.

A BIG NUMBER

That’s the number of capabilities that companies need to build to outperform the competition, according to McKinsey senior partners Eric Lamarre, Kate Smaje, and Rodney Zemmel. In their new book, Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI, the authors discuss what it takes for leaders to spark transformation across all six capabilities. A key step involves adopting a new operating model that brings business, technology, and operations closer together. “The shift to a new operating model is the signature move of CEOs in rewiring the company,” say the authors. “Only they can catalyze such large-scale organizational change.”

A QUOTE

“A steady stream of improvements, diligently executed, will have transformational results.”

That’s McKinsey senior partner Carolyn Dewar and colleagues on how continuous-improvement practices can deliver a competitive edge for organizations. “Sometimes those improvements are big, often they are small,” say the McKinsey experts. “But what’s most important is they’re frequent.” For example, to increase performance transparency—an essential practice for continuous improvement—one company tracked capital asset utilization across different areas of its operations. Finding many assets that were poorly utilized, the teams that were using them channeled their energies into making the assets more productive—generating a 20 percent productivity leap in less than two months.

A SPOTLIGHT INTERVIEW

An image linking to the web page “Author Talks: How to gain a competitive edge with organizational culture” on McKinsey.com.

“I honestly believe that culture is a critical competitive weapon,” says Harvard Business School professor emeritus James Heskett in a discussion with McKinsey. But few leaders take the time to create a strong organizational culture. “We all agree that we need to address it, but it takes too long to do it,” Heskett says. “It’ll probably have to be handed off to some other leader.” Culture may be even more difficult to nurture in a hybrid environment where people in different geographic locations and work settings need to work together productively. In such cases, “An effective culture will ensure that there is adequate advocacy, that there is the right amount of face-to-face contact, and that certain really important values come to the fore: inclusion and voice,” says Heskett.

CULTURE CLUB

An image linking to the web page “Building a culture that grows with the business: Lessons from Tibber” on McKinsey.com.

Corporate culture can be a major competitive advantage, but it can be hard to define. As the author of an Economist article puts it, “There is no substitute for being at a firm day in, day out, if you want to understand what it is really like.” One person’s idea of a good culture may be Ping-Pong tables and catered lunches, whereas another may prefer an inspiring mission statement. But most leaders would agree that a large part of building a robust culture lies in creating shared values and beliefs that govern how the organization works. This strategy has worked for smart-energy company Tibber, which credits much of its rapid growth to its sense of purpose. “At our core, I think all humans yearn for that,” says chief technology officer Richard Eklund in a McKinsey interview. “I feel we’ve arrived at an inflection point where purpose is becoming even more important than compensation.”

Lead with a competitive edge.

— Edited by Rama Ramaswami, senior editor, New York

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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 02:19 - 3 Jul 2023

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The sharper edge: A leader’s guide to competitive advantage

We need to talk about generative AI

“A steady stream of improvements, diligently executed, will have transformational results.”

Out now: New issue of the McKinsey Quarterly