Operations Practice

Today’s industrial
revolution calls for
an organization to match
Operations technologies are here. Productivity gains are not. Why?
It’s increasingly clear that to transform industrial production, industrial
organizations must also be transformed.
by Dado Misljencevic, Sven Houthuys, Tom Welchman, and Ulf Schrader

July 2024
What is humanity’s greatest innovation of A range of technologies, including most recently
the industrial age—the steam engine? Penicillin? generative AI (gen AI), have promised to transform
The internet? industrial production. But despite the real progress
some companies have made in the Fourth Industrial
These are all good candidates, yet without the Revolution, productivity growth remains stubbornly
productivity gains from another crucial innovation, low across most of the world’s largest economies
the modern business company, it’s hard to imagine (Exhibit 1).
how these inventions could have improved the world
at the same scale. What’s missing are the organizational structures
required to make technology truly work.
The trouble is that few industrial organizations have
truly cracked the productivity code to maintain Large industrial organizations have traditionally
high performance over the long run. A recent analysis focused on excellence in processes, often
found that as of 2020, the average life span of for the mass market, such as cars rolling off
a company on the S&P 500 index was down to an assembly line. But today, standard work
21 years, compared with 32 years in 1996. is much more automated. What’s left is

Web <2024>
<OrgRevolution>
Exhibit
Exhibit <1>1 of <5>

In many countries, technology isn’t raising productivity as much as

businesses had hoped it would.
Productivity in the top 5 EU countries, % CAGR

1997–2007 1.6

Total factor productivity: not enough reorganizations –0.4

Capital: not enough tech investments –0.4

Other –0.2

2012–19 0.6 1.0

Digital and analytics potential

Source: EU KLEMS (2023 release); Investing in productivity growth, McKinsey Global Institute, March 27, 2024

McKinsey & Company

Today’s industrial revolution calls for an organization to match 2

increasingly nonstandard, yet most industrial — from building internal departments to
organizations aren’t structured for nonstandard orchestrating an ecosystem, redesigning how
work—leaving them unable to change at companies integrate knowledge and radical
the pace innovation requires. innovation into their value chains by rethinking
collaboration models
The experiences of exceptional organizations
show that capturing technology’s opportunities Building on previous insights codified in
means making eight mutually reinforcing shifts methodologies such as agile and lean, the eight
that strengthen people, processes, and technology shifts collectively represent the greatest change
in tandem: since the matrix organization emerged in the
wake of the mid-1960s space race. Meeting the
— from process excellence solely focused on challenge will stretch every critical enterprise
repetitive tasks to also applying the principles of capability our colleagues outlined in Rewired: The
excellence to flexible, project-based work, McKinsey Guide to Outcompeting in the Age of
turning the unusual into business as usual Digital and AI. The question leaders now face is how
to prioritize the five actions they must take.
— from control and compliance to empowerment,
giving individuals the autonomy and information
they need, often based on digital footprints, to Turning the unusual into business
work more effectively as usual
Mass production of a standard product was the
— from gathering expertise in specialized silos to archetype for the modern enterprise. Standardization
making expertise available to all via app stores, of products supported standardization of
allowing workers to integrate highly accessible processes, culminating in management systems
digital tools for tailored solutions such as lean, which rely on elaborate codification
of “standard work.”
— from process masters to process reengineers so
that rather than simply mastering current Today, the context has changed. As automation and
processes, managers continually rethink and gen AI take over more tasks, human work increasingly
redesign how tech-enabled processes can centers on the sorts of “special projects” that
improve work once accounted for only a small share—perhaps
20 percent—of day-to-day work. The unusual
— from going to work to supervising control is becoming business as usual. Yet governance still
centers that are increasingly decoupled from consists of heavy layers of (functional) processes
physical production flows—opening new on top of project management, yielding convoluted,
opportunities to restructure network strategies slow, and resource-intensive decision making.

— from Industry 4.0 to “Industry 4 U,” which The challenge for business leaders is to flip the ratio:
yields better work environments via stronger instead of deploying 80 percent of people in
technology support, improved ergonomic processes and 20 percent in projects, they can aim
design, and an inspiring leadership culture for 80 percent in projects. A few companies have
successfully transitioned to a project-based
— from ad hoc learning to industrialized capability organizational model, such as a major life sciences
building to make rapid skill building with large company that rebuilt its internal structure to
numbers of employees a competitive advantage

Today’s industrial revolution calls for an organization to match 3

As automation and gen AI take over
more tasks, human work increasingly
centers on the sorts of “special projects”
that once accounted for only a small
share of day-to-day work.

support rapid growth. Crucially, the model balances leadership roles. Rather than directing the work
stability and agility by ensuring that every employee of people with similar training but varying levels
has a home unit centered around their skills even as of experience, project leaders would need
they are working within dynamic project teams whose to coordinate individuals with deep expertise
composition is tailored to specific skill needs. across many fields. The role of the leader
therefore changed to emphasize what the
Within this structure, three additional factors project sought to achieve—the problems to be
proved critical: solved—along with why and when. The role
of the team centered on how—collaborating to
— Build internal talent markets. Leaders can’t find the best solution.
assemble effective teams unless they know who
in the organization has the required skills.
That means both building a skills profile for each Getting empowerment right
employee and making it widely available within How do you plan in a world that is becoming more
the organization. The company’s employee and more complex? Often, the counterintuitive
directory now provides detailed skills-based answer is, you don’t. The humble baguette illustrates
information, such as certification, training this. Every morning, despite countless potential
coursework, and recent project experience, obstacles, French bakeries sell millions of
which is automatically updated after baguettes—all in what can appear to be a miracle
a project ends. of nonmanagement. Thousands of individual
decisions organically converge to produce an
— Set clear boundaries. Clear boundaries were essential good, with no need for a central baguette
established to operate within, consisting of planning department.
company priorities, product strategy, project
team mission, and short-term team goals. However, too many large and complex organizations
It was also important for senior management to have yet to emulate the baguette example. They
provide rigorous oversight; in this way, they still seek to amass expertise in a traditional hierarchy,
could identify opportunities for teams to share even though the assumption that the top of the
resources or join forces and thwart mission organization generally knows better than the bottom
creep within teams. was never more than partly true—particularly when
it comes to understanding how operations really
— Develop achievement-oriented leadership. work. The trouble is that many organizations that
Company executives recognized that effective tried employee empowerment failed and thus
leadership of a project team required different reverted to central control.
skills from those traditionally encouraged in line

Today’s industrial revolution calls for an organization to match 4

 Getting empowerment right requires a balance: alone its profitability. Instead, they need to
giving workers the independence they need to understand how the organization’s strategy
execute tasks effectively while being prescriptive translates to the factory floor.
about what those tasks are meant to achieve.
“Independence” and “prescriptive” may sound Leaders face the same question, but from the
contradictory, but as long as they are kept in close opposite perspective: the need to achieve strategic
balance, each supports the other in generating goals without the wasted effort involved in trying to
more value (Exhibit 2). Together they call for a new dictate exactly how the goals are to be achieved.
level of transparency regarding both access to
data and the data’s implications on results. Originally developed at Intel and expanded at Google,
objectives and key results (OKRs) have emerged
Guided by OKRs as an effective balancing mechanism, focusing
Yet access to data is hardly the same as being the organization’s energy on outcomes—the
informed. Frontline workers may now have tools to “what”—while allowing greater flexibility on the “how.”
see exactly how productive their machinery is for The idea is to enable subunits within the organization
different products, but that alone can’t determine to use the strategy to articulate goals and,
how best to improve the line’s productivity—let crucially, the results that will matter in achieving

Web <2024>
Exhibit 2
<OrgRevolution>
Exhibit <2> of <5>
Getting empowerment right requires a delicate balance between worker
independence and prescriptive management.

Empowerment Independence
balance by type Prescriptive

Self-management
of tasks

Communities Coaching
of practice and support

Clear vision, Democratization of data Explicit, broad,

to provide and performance intense
direction communication

Rollout of 90-day cadences

objectives and to report
key results progress

Excellent strategy
deployment plan to
clarify roles and
expectations

McKinsey & Company

Today’s industrial revolution calls for an organization to match 5

them—thereby aligning what they do each day with completion in the company’s IT system—which also
the organization’s direction. knows who the driver is, where both the driver and
vehicle are located, and which route the truck took
Defining—and achieving—OKRs calls for clear to get there. The resulting digital footprint gives
direction from senior leaders about the company’s the company a very different way of managing tasks,
strategic goals, as well as communication at all controlling quality, and handling documentation.
levels of the organization. Accordingly, an empowered
organization requires more effort from senior It also helps employees, suggesting alternative
management, not less. For the factory team looking routes when traffic is heavy or finding a different
for ways to improve the line’s profitability, OKRs delivery location if the original is inaccessible.
would need to be tailored to the site, accounting for Should priorities suddenly change, the system can
factors such as its position in the supply chain, reprioritize the worker’s tasks automatically—so
its current capabilities, the training of its operators, that the employee can more easily squeeze in a rush
and the needs of in-development products. delivery and still finish the day on time.
Frontline workers and managers can then make
intelligent trade-offs between maximizing This logistics example finds its equivalent in
profitability from current production and reducing manufacturing execution systems (MESs) that are
potential costs for future changeovers. broadly installed in factory environments. Advanced
versions can do even more, helping employees
Using activity-based analytics to drive build their skills and, ultimately, advance on their
business performance career paths (Exhibit 3).
The familiar sight of delivery trucks illustrates
even more opportunities for empowerment. When Take the example of a manufacturer of customized
a driver finishes a delivery, a quick scan tracks technology products. Company leaders learned that

Web <2024>
<OrgRevolution>
Exhibit 3
Exhibit <3> of <5>

Democratization of data supports self-management.

Real-time, normalized performance and benchmarks in every employee’s pocket

McKinsey & Company

Today’s industrial revolution calls for an organization to match 6

frontline assembly workers were often frustrated Making expertise available to
that when production problems arose, their work all via apps
wasn’t tracked in enough detail for them to find (and In day-to-day life, knowledge that once took years
fix) the underlying issues. They wanted a system to acquire is now available instantly, often through
where every line station would accurately log when an app. But too many companies have been slow to
the project arrived at the station and which follow this route. Early adopters show how using
assembly tasks were performed, and then see customized apps in manufacturing operations, for
where workers needed more training to avoid example, can help frontline employees see not
rework. The leaders realized that building such a only what they are doing but also the value their work
system would improve both product quality is creating. The challenge for companies is to create
and employee retention, without requiring more platforms that replicate these results wherever
time or attention from middle managers. possible, via apps for everything from monitoring
equipment and planning maintenance work
Indeed, technology can now assume many of the orders to guiding defect resolution or extracting
work allocation, planning, performance tracking, strategic insights for production planning.
training, and issue resolution tasks that consume
most of a middle manager’s day. The implication is That would mean investing in the standard
that many middle manager roles could soon become prerequisites. Companies need data architects to
very different, emphasizing process confirmation build a flexible technology stack, data scientists to
and team building as teams become increasingly manage analytics, external partnerships to support
self-managed (Exhibit 4). the latest app development tools and licenses, and

Web <2024>
<OrgRevolution>
Exhibit 4
Exhibit <4> of <5>

At many manufacturers, supervisors don’t have time to lead.

Daily activities, factory floor supervisor, % of work shift hours Essential to capability building

Current Ideal

Administration Process Administration Process

confirmation confirmation

10.0

25.8 Problem-solving
Problem-solving
10.8 33.3
16.7
20.8 Emergencies Team
Emergencies 5.0 building
Team
building Breaks, lunch
14.2

Breaks, lunch
12.5 10.8 11.7 28.3

31% 63%
Note: Figures do not sum to 100%, because of rounding.

McKinsey & Company

Today’s industrial revolution calls for an organization to match 7

training programs to help the workforce use apps in to be something most companies would buy. Today,
solving everyday problems—optimizing inventory, more companies build their own code, written by
debottlenecking production, or managing logistics. internal staff as part of a continuous improvement
process—which, in the digital world, often boils
It also means preparing for jobs to evolve, as down to the speed of app evolution. Building an app
traditional and tech-centric roles start to merge. to track overall equipment effectiveness (OEE) for
Today, the chief information officer (CIO) is individual machines is not a one-time commitment.
a crucial stakeholder for the COO, but tomorrow the Instead, the app could even evolve toward self-
COO could simply be the CIO. Likewise, other improving as data gets richer and modeling
leaders would have a “major” in data architecture becomes more sophisticated.
and a “minor” in their respective functional
domains. In e-commerce, for example, category
managers are increasingly data architects first, Remastering processes
under the assumption that they can quickly learn A perennial problem for organizations is the
about product categories as needed. mismatch between how a process is intended to
function and how it actually functions (Exhibit 5).
Finally, it means getting serious about building a Continuous-improvement disciplines seek to
culture of rapid, constant innovation. Software used reduce the gap, to create “process excellence.”

Web <2024>
<OrgRevolution>
Exhibit
Exhibit 5of <5>
<5>

Every manager needs to be a process engineer.

Intended vs actual process flow

How the process was designed How teams think the process runs

START END START END

The actual process

START END

How it should look

START END
Source: Celonis; McKinsey analysis

McKinsey & Company

Today’s industrial revolution calls for an organization to match 8

This problem disappears once a process is correctly found that gen AI penetration was highest among
designed and fully automated. The ultimate example organizations in India, at 81 percent, with Singapore
is the so-called lights-out factory, one in which ranking second at 63 percent and Spain third
automation takes over production. Snack company at 57 percent.
Mondelēz has fully automated dough production in
Beijing. Analytical models optimize quality, such as Companies’ network strategies thus face a refresh,
the texture of the dough, and a closed-loop system with factors such as geopolitical resilience,
adjusts the machine settings in real time. language skills, and time zones all important to the
mix. Existing shared-service centers can provide
What does it take to go fully lights-out? Humans. a starting point. Their experience in reengineering
Over the next decade, hundreds (if not thousands) transactional processes—which increasingly are
of process reengineers will be needed. Chief automated, leaving knowledge tasks organized into
process redesign officer may become the latest service hubs—gives them crucial expertise that
C-suite title, joining recent predecessors such as reverses the previous outsourcing and offshoring
chief transformation officer and chief digital model. Rather than standardize a process before
officer. And even after processes are reengineered, handing it to the service center, it’s the service
humans would likely still be essential to build center that has the competence to standardize.
and improve automation models and supervise
the system from the control room.
Industry 4.0 to Industry 4 U
That raises the question of where organizations could By 2040, advanced manufacturing economies from
find the right talent, particularly at leadership levels. China and South Korea to the European Union,
United Kingdom, and United States are set to see
contraction—or, at best, much reduced growth—in
Reshaping production networks with their active workforces as societies age. In the
control centers United States, for example, the ratio between people
The Mondelēz example illustrates how automation is aged 20 to 24 and people over 55 in the
changing the factory’s role, but that’s only the start manufacturing workforce dropped by 16 percent
of the story. The COVID-19 pandemic opened between 2014 and 2022.
everyone’s eyes to the feasibility of remote work.
Once most manufacturing tasks—including ones Raising productivity growth will be essential to
that formerly had to be done in person, such as maintain standards of living in advanced economies
quality control—require access only to data rather while raising them in emerging ones. Investments
than machinery, sites may start to lose a long- in technologies such as advanced automation and
familiar feature: the control room. gen AI, especially for routine and knowledge
tasks that previously were done by humans, could
If co-location with the production site is no longer unlock billions of dollars in economic activity.
necessary, where could control rooms be? Not just
anywhere, or where labor is cheapest. The key Even more important, it would free up workers for
criterion will likely be access to the right talent and higher-skilled work, where labor demand is already
skills, some of which are currently in short supply outstripping supply. Companies in especially affected
in developed economies. Technology capabilities sectors, such as US construction and manufacturing,
are paramount. India, for example, is the world’s are discovering the importance of an attractive
second-largest producer of graduates in science, work environment that provides opportunities to
technology, engineering, and math.1 It’s also a learn and grow. The technology that workers
heavyweight in gen AI use. A recent global survey use becomes part of an employee-centric approach

1
Brendan Oliss, Cole McFaul, and Jaret C. Riddick, “The global distribution of STEM graduates: Which countries lead the way?,” Center for
Security and Emerging Technology, November 27, 2023.

Today’s industrial revolution calls for an organization to match 9

to digitization, one that seeks to fundamentally refinement faster and more accurate so that more
change the employee value proposition. “Industry products could be developed more cheaply?
4.0” becomes “Industry 4 U.”
McKinsey research estimated that by 2030, activities
Industry 4 U is about giving workers the right tools, accounting for 30 percent of current work hours
based on technologies that they’re using in their could be automated. Reaching this world would
personal lives, along with a workplace that’s healthy require the engineer to learn new skills, particularly
and inspiring. Together, these elements add up to in softer skills such as design thinking—critical
an engaging leadership culture. At a global oil and for blending decades of hard-won expertise with
gas operator, this transition anchored a restructuring the promise of AI. Leaders recognize this need:
of the end-to-end employee experience so that for integrating gen AI into their processes, more than
the company could better attract and retain new half of employers said they plan to rely on internal
workers—an especially difficult task in an era of capability building to meet their skills needs.
increased environmental awareness and competition
from the tech industry. On its own, the company Traditionally, industrial organizations have relied on
couldn’t reverse climate change or technology shifts. apprenticeship-based capability building. That
But it could address long-standing on-the-job model worked well enough for helping small numbers
frustrations for a better working environment, of workers develop well-understood skills, but
especially during the critical first months of an it can’t meet the scale and speed needed for the
employee’s career. rapidly evolving world of AI. The good news,
however, is that the upskilling gap may now be
Listening to early-stage employees revealed a strong shrinking because of easier access and lower
need for additional support, particularly in the cost of reskilling tools. Online courses and
renewable-energy business unit. The company immersive-learning platforms make upskilling easily
responded with a comprehensive employee available on a self-service basis. Individual course
onboarding app that guided new colleagues through segments can be slotted into day-to-day business,
the first few weeks of work. Built in only three allowing for continuous learning. Gen AI even
months, the app not only created a more positive offers personalized coaching and advanced
and connected experience for new hires, translation capabilities, making highly tailored
reducing attrition, but it also resulted in a new trainings easy to access globally.
way of working for the technology team.
A global consumer goods company provides
an illustration, having undertaken a two-year global
Industrializing capability building digital transformation across its network
For an experienced process engineer with a PhD of manufacturing plants and its supply chain.
in pharmacy, today’s definition of a successful
career would likely mean leading the development Capability building formed the core of the
of a handful of drugs that, after navigating a transformation. Learning centers focused on
complex, high-risk regulatory environment, finally innovation served as crucial support systems
reach the market and are helping patients. in building a company-wide academy that now leads
everything from initial inspiration sessions to
That definition is poised to change. What if instead immersive capability building. The impact achieved
of a handful of successfully launched drugs, was substantial: productivity increased by more
that engineer could point to dozens—because deep than 15 percent across the network, for savings in
learning models had eliminated much of the the tens of millions of dollars. Additionally,
guesswork that led to development dead ends? And the identification, sizing, and mapping of several
what if newer AI models had made process hundred unique use cases paved the way for
a comprehensive transformation road map. With

Today’s industrial revolution calls for an organization to match 10

more than 2,000 learners upskilled across the entire This led the company to a major shift in mindsets.
production and supply chain network, the company Rather than think of its suppliers as vendors to be
is now well situated for further improvement. given minimal information for maximum negotiating
power, the company examined where data sharing
would yield better-quality outcomes—and help the
Orchestrating the ecosystem company focus its expertise. So, for example,
In his seminal 1937 book, The Nature of the Firm, careful sharing of pricing and cost data for types of
Ronald Coase argued that large corporations distribution meant that suppliers could provide
emerged because they reduced transaction costs: better economies of scale and delivery terms.
getting things done internally was significantly
cheaper than outsourcing or buying services or At the same time, entering a partnership means
goods externally. When data and expertise were managing an inherent risk: overdependence. In many
expensive, having a planning department that cases, this is linked to data access and ownership;
understood the organization and could access the conversely, keeping the right data can turn a potential
right information made economic sense. Today, vulnerability into a major strength. After all, Airbnb
the data can sit in the cloud, easily accessible to has data, but no beds; Google Maps has data, but
anyone—as can sophisticated planning applications no restaurants; and Uber has data, but no cars—yet
that can import the data at a mouse click and each has disrupted an entire industry.
produce a plan.
This data-centric model could help manufacturers tap
Companies now have a generational opportunity to into entirely new sources of growth, especially
reexamine the boundaries of their organizations in industries where hardware may face diminishing
in answering the most fundamental question: What returns. Rather than try to turn themselves into
should we do, and what should we work with software providers, some manufacturers may
others to do? And as transaction costs keep generate more value under an app store model, with
falling—from faxes and the internet to social media the physical product becoming more competitive
and gen AI—where should the work take place? because of the wider range of software it can support.
Understanding where the company creates This option requires resources—developing
the most value can reveal new opportunities not the store platform, identifying and protecting the
only to compete but also to collaborate more most valuable data, and managing risk
deeply, turning transactional relationships into and compliance—but could be rewarding for
genuine partnerships. manufacturers willing to commit.

For a major utility network, the critical question was

one of resilience, both operational and strategic: Preparing for the eight shifts
climate change is increasing stress on physical The question for companies isn’t whether these
infrastructure even as the energy transition, new shifts are coming. They’re already under way.
technologies, and geopolitical uncertainties are What matters is to get started, focusing on five very
transforming how energy is created and distributed. concrete tasks:
Navigating these conflicting pressures led the
company to realize that it would never be able to — Understand and shape your role in the
accumulate all the relevant expertise in-house: ecosystem. What do you do today better than
if it kept trying to do everything, it would do nothing anyone? That’s your current role in the
well. At the same time, tapping into external ecosystem. But how will that look in five years?
services had never been more cost-effective. What are your blind spots, and how do you
evolve to meet them head-on?

Today’s industrial revolution calls for an organization to match 11

 — Develop visionary and courageous leaders. — Work in teams, not in pyramids. How are
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others? Are they the right ones to steer your keep lines running, and how much is left for
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And how can you form a coalition with them? should the empowerment balance be between
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— Define and invest in your tech stack. In five years,
what technologies will you say you wish your
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will need integrating into your tech stack? Is Individually, the actions companies face are not new.
your tech stack flexible—and are you ready to According to the Oxford English Dictionary, the title
use that flexibility to accelerate innovation? “chief executive officer” was first attested in 1914.
Corporate training took hold in the late 19th century.
— Assess capability needs. Which skills of today Digital Equipment Corporation deployed a matrix
are likely to remain relevant in the future? organization in the early 1960s. The revolution is not
What new skills are coming, and how will your in the individual steps: it’s in the questions that
organization acquire them (upskill, hire, organizations must ask themselves as they consider
outsource)? How will capabilities affect your how the eight shifts affect them. Successful
network footprint? Does your capability leaders will shift from an evolutionary mindset to
strategy incorporate the skills available in your a revolutionary one and act now to fix their
ecosystem, not just on your payroll? organizations so that technology can truly
accelerate productivity growth.

Dado Misljencevic and Sven Houthuys are both partners in McKinsey’s Amsterdam office; Tom Welchman is a partner in
the London office; and Ulf Schrader is a senior partner in the Hamburg office.

The authors wish to thank Charlotte Relyea for her contributions to this article.

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Today’s industrial revolution calls for an organization to match 12