| This week, what leaders need to know about the link between psychological safety and higher performance at work. Plus, why internal carbon pricing is all the rage, and how “less is more” is the new trend in fashion. |
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| Employee happiness. The Shortlist has written many times about what it takes to create and maintain a satisfied workforce. Of course, that involves the obvious—financial fulfillment, good healthcare, opportunities for career growth. But what about psychological safety, a well-being factor that has jumped the queue in this pandemic era? |
| Key to innovation. Employees who feel psychologically safe at work feel more comfortable asking for help, sharing suggestions, or challenging the status quo. That’s good for the team. But it’s also a boon for companies: studies have shown a link between this sort of well-being and creative performance, which can lay the groundwork for innovating quickly, realizing the benefits of diversity, and adapting well to change. The catch, alas, is that those workplaces are in the minority. Just 43 percent of the respondents in a McKinsey Global Survey reported a positive climate within their team. And business leaders often do not demonstrate the behaviors that can instill this climate in their workforce. |
| It doesn’t have to be so. Although the pandemic has heightened many employees’ fears for their physical safety, they may still bond with colleagues over a sense of mission at work. In fact, employees may form a closer relationship with colleagues over shared concerns. According to an interview with experts that McKinsey conducted over the summer, what’s required for psychological safety is an absence of interpersonal fear; this emboldens employees to speak their minds. |
| Top down. Not surprisingly, fostering the safety to speak up starts at the top, and some leadership styles are more conducive to this than others. The classic authoritative, command-and-control management style was detrimental to psychological safety in workplaces, according to the McKinsey Global Survey. By contrast, two other styles—support and consultation—help promote it. The real magic happens when teams with support or consultation models in place encourage workers to aim higher than they think is possible, the so-called challenge style. That creates a “flow state,” in which employees feel energized and able to complete their work, taking risks in the process. The flip side—no support or consultation—usually results in workplace apathy. |
| What’s next. Fostering psychological safety requires leaders at all levels to learn and demonstrate the behaviors that help their employees thrive. Getting there requires more than one-off training programs—it calls for immersive leadership-development experiences and frequent check-ins with managers. |
| Last word on stress. Where does stress fit into all of this? For individual employees or leaders, sustained stress may get in the way of performance. But it’s a natural response that can also boost problem solving and growth. Here’s a look at some misguided views of stress, the downsides of not recognizing or managing it, and some keys to harnessing “optimal” stress. |
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| OFF THE CHARTS |
| Carbon charges: Is the pricing right? |
| More and more companies are experimenting with internal carbon pricing, setting a charge on the amount of carbon dioxide emitted from assets and investment projects so that they can see how, where, and when their emissions could affect their profit-and-loss statements and investment choices. The practice is more prevalent in the energy, materials, and financial-services industries, followed closely by the tech and industrial sectors. |
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| INTERVIEW |
| What ‘less is more’ means for fashion |
| Linda Dauriz, who joined Tiger of Sweden as its new CEO in 2019, is driving the digitization of the Stockholm-based clothing brand’s operating model. She spoke with McKinsey about the trends shaping the fashion and retail industries in 2021, including her view that, going forward, consumers will focus their spending on fewer, higher-quality garments. “We’ve all spent way too much time at home wondering when we will ever be able to wear everything we have in there again,” said Dauriz. “A new appreciation is coming for higher-quality, more sustainable fabrics, and real craftsmanship.” |
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| THREE QUESTIONS FOR |
| Elizabeth Mygatt |
| Elizabeth Mygatt, an associate partner in McKinsey’s Boston office, advises clients on organizational transformation, with a focus on design, governance, and decision rights.
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| What defines future-ready organizations, and what characteristics do they share? |
| Companies recognize that the pandemic offers a once-in-a-generation opportunity for change, presenting executives with a unique “unfreezing” opportunity. Yet even as leaders take action to reenergize their people and organizations, the most forward looking see a larger opportunity to build on pandemic-related accomplishments and reexamine the organization’s identity, operating model, and ability to grow. |
| The experimentation underway suggests that future-ready companies share three characteristics: they know what they are and what they stand for, they operate with a fixation on speed and simplicity, and they grow by scaling up their ability to learn, innovate, and partner outside their broader ecosystem. By embracing these fundamentals, companies improve their odds of thriving in the postpandemic world. |
| What concrete steps can future-ready organizations take to break away from the pack? |
| In terms of identity, people want to be part of something bigger than themselves. Companies that focus only on profits will lose ground to organizations that create a strong identity that meets employees’ needs for affiliation and meaning. |
| Future-ready organizations accomplish this in three ways: they clarify their purpose, they know how they create value and allocate resources accordingly, and they create strong and distinct cultures that help attract and retain the people they need. |
| While the COVID-19 crisis has made speed a priority for many organizations, it has also reinforced how difficult speed is to harness. Operating models need to be fast, nimble, and frictionless to create ways of working that foster agility and simplicity. They should enable a network of empowered, dynamic teams to find pockets of value—including at the company’s “edges,” where employees are closest to customers—and build the organizational muscle to make decisions faster than the market. |
| As connectivity and automation increase, and as the expectations of younger generations change, businesses must prepare for nimble and constant adaptation if they hope to grow. The best way to do this is by harnessing a vibrant ecosystem of partners outside the company’s traditional boundaries, building data-rich technology platforms that support growth and innovation, and accelerating learning to fuel the talent engine that businesses will need to succeed. |
| What are the trends we see from leading companies? |
| In our research, we noted that top-performing companies didn’t concentrate their efforts on any single category but instead tended to experiment boldly across all of them, suggesting interdependency across categories. An analysis of 30 leading US companies showed more frequent bold moves around purpose (83 percent made bold moves), ecosystems (83 percent), and data-rich tech platforms (73 percent). In an increasingly winner-takes-all economy, where even above-average performance won’t guarantee returns above the cost of capital, we expect the bar on organizational innovation only to rise. |
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| PARTING THOUGHT |
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| — Edited by Barbara Tierney |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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