Over the past several years, CEOs have faced mounting uncertainty—and 2024 is proving no exception. On this episode of The McKinsey Podcast, Homayoun Hatami, McKinsey’s managing partner for client capabilities, and Liz Hilton Segel, McKinsey’s chief client officer, speak with global editorial director Lucia Rahilly about what matters most, amid serial crisis and disruption, and where leaders should focus their energies to enable their organizations to thrive.
In our second segment, there’s something new to stress about: microstress. Discover how little things add up with Rob Cross, author of the book The Microstress Effect: How Little Things Pile Up and Create Big Problems—And What to Do about It, in an excerpt from our Author Talks series.
The McKinsey Podcast is cohosted by editorial director Roberta Fusaro and global editorial director Lucia Rahilly.
This transcript has been edited for clarity and length.
What’s new in 2024
Lucia Rahilly: The three of us spoke a little more than a year ago on McKinsey Live about what was top of mind for CEOs at that juncture. In 2023, the operating environment seemed beleagueringly tough. In 2024, not a whole lot simpler—not exactly a year of reprieve for leaders. Homayoun, what has changed the most for CEOs over the past year?
Homayoun Hatami: Obviously, all of the CEOs we have talked to are grateful for the opportunities and the lives they have. Yet it’s fair to say, as you said, that it has become a much more difficult time to lead. We are dealing with an endless series of crises. There are two major conflicts. There is suffering in many parts of the world. There are upcoming elections in many countries. There are concerns about the global economy, with performances varying across different pockets, and there is hesitation and hope around technology.
I find the CEOs in this context to be humble. They know it’s important to lead with empathy and humanity. You ask what’s new? I think one of the biggest issues impacting business today is geopolitics. Economically, there is more and more fragmentation. There are competing interests among the US, Europe, China when it comes to technology platforms, and we can keep going on. But it’s fair to say that geopolitics has moved away from being the remit of the chief risk officers and government affairs to take the center stage on the agenda of CEOs and the boards.
Perhaps the story of the last year or the story of the decade, and maybe we’re still not done with it, is technology, notably gen AI [generative AI]. We saw just a year ago the launch of very powerful gen AI tools. Today, we are seeing a shift from pilots to enterprise-wide rollouts of an explosion of use cases across every industry as companies try to figure out how to make the most out of gen AI while managing the risk. These disruptions mean that CEOs will have to lead in a new way.
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The juggernaut that is gen AI
Lucia Rahilly: Many organizations, as you alluded to, are launching their own proprietary gen AI tools to manage some of the risks. Liz, how should CEOs be thinking about gen AI and about how to make the most of its potential?
Liz Hilton Segel: Lucia, to put it in context, the McKinsey Global Institute estimates that generative AI could be worth more than $4 trillion in value. So it’s something that everyone is talking about constantly.
In our annual survey, we asked folks, “To what degree is generative AI in use in your organization today?” A third of them said it was already in at least one business function. And that’s in contrast with about half who say AI is in use in one function in some form. So it is absolutely already in use and also very much something that people are investing in going forward.
And I think people are wondering, “Where will I get the greatest value out of it, and what changes will be necessary? Is this just about technology and new analytics? Or is this about more fundamental change in our entire organization?” And our view is that it is about more fundamental change in the entire organization.
To give you one example, last fall we worked with the bank ING. ING has over 30 million customers around the world. They’re in about 40 countries. We simply started in one country. We started in the Netherlands, and we looked at how they could get a customer-facing chatbot working. In less than two months, they had it up and running. They had about a 20 percent increase in customers seeing a lower wait time and getting better answers to their questions. And then they were able to take the step toward rolling it out all over the world.
Lucia Rahilly: Our research has shown, historically at least, that most digital transformations, including some AI-driven transformations, fail to deliver the expected impact. Why is this? And what can leaders do to realize that impact and drive performance?
Homayoun Hatami: Despite all the investments, we estimate that companies on average have captured less than a third of the full potential they should expect from their digital transformations. And we’re seeing the distance between the leaders and the laggards getting bigger. Some leaders are pulling ahead because they are building hard-to-copy capabilities. They know it’s not just about tech. It’s also a lot about change management. They know it’s not just about what some CEOs called a snackable AI feature. It’s about transformative AI that will build superpowers for their people and for their company.
The compounding effect of gen AI and digital happens when CEOs rewire their organization. And to do that, we see them do six things. First, they adopt a digital road map that is business led, not feature led. They ensure they have the right talent. They adopt an operating model that can scale from the get-go; this is not just about the pilot—you have to have the end-state rollouts and the scaling in mind. They make technology easier for people to use; this is about making the lives of employees, colleagues, and customers easier. They put experience at the heart of change. And they use data—they embed data everywhere and they focus their leadership and their investments on adoption and enterprise scaling.
The compounding effect of gen AI and digital happens when CEOs rewire their organization.
Here at McKinsey, we are using gen AI to give our people superpowers. A year ago, we launched Lilli, our own private gen AI solution. We have made it integral to the way we work. We are training our colleagues on it, and we are changing our colleagues’ behavior. From day one, we ran it with the idea of full-scale adoption.
Rising risks on the world stage
Lucia Rahilly: Let’s pivot. Geopolitical tensions have been escalating, and that introduces significant risk for companies, especially those that are operating internationally. And 2024 is a major election year, not just in the US, where Liz and I are. But globally, folks in more than 70 countries are heading to the polls over the next 12 months. Liz, how should CEOs be planning to navigate this intensifying geopolitical uncertainty?
Liz Hilton Segel: For business, geopolitical risk is center stage, especially for CEOs, their teams, and the boards. What we’re advising our clients to do is build both geopolitical muscle and bone. Geopolitical muscle is all about the capabilities of the executive and the board. The kinds of decisions that the executive team and the boards might be addressing are things like what their supply chain footprint is and how they want to think about flexibility and resilience in their supply chain footprint.
It might also be about how they approach investments in new markets and how they evaluate those investments relative to their risk and return. It could also be about the technology bets they make and the technology architecture that they have in their organization. And in terms of bone, what we mean by that is creating a set of processes and systems that allow for geopolitically informed decision making as the context of the world changes, so there is adaptability.
The complexity of climate change
Lucia Rahilly: Homayoun, last year we talked about the energy transition requiring the biggest reallocation of capital we expect to see in our lifetime. Since then, costs only seem to be rising. Climate is obviously a complex question that varies by geography. It varies by sector and so forth. But talk to us at a high level about how leaders might act to help speed the transition to net zero.
Homayoun Hatami: Climate change is the generation-defining challenge for all of us on this broadcast. To make the equation more complicated, at least in Europe, the recent energy crisis has demonstrated to us that we actually need to go after four interdependent objectives and not just one. We need to reduce the emissions. We need to improve affordability. We need to have energy security, and we need to marry all of that with industrial competitiveness. So we have to run two energy systems in parallel.
On the one hand, we have to scale the new zero- or low-carbon energy system. There were lots of commitments made at COP: folks committed to triple renewables by 2030, to double the energy efficiency improvement rates, and to establish new standards to enable the global trade in hydrogen. At the same time, on the other hand, we have to accelerate the decarbonization of existing systems. That was a big part of the discussion at COP. Estimates suggest that emissions of methane from oil and gas operations could be reduced by 30 percent at no or nearly no net cost. Of course, the next step is to translate that into measurable actions. Financing will play a big part in the resolution of this equation.
There is a $41 trillion funding gap. Addressing this gap, of course, is critical because the technologies for net zero are largely available today. There are some estimates suggesting that 90 percent of the carbon abatement that needs to happen could be achieved by using already-proven technologies, but of course we need to have the funding, and we need to focus on adoption. In the meantime, adaptation is critical, and we are seeing countries and companies take real action on health, water, food, and nature.
But to answer your question, when it comes to the actions leaders should take, I would say perhaps the most important action is to frame these choices and these trade-offs as an end. We should be able to reduce emissions and do it in an economical way, making sure there is affordability and security.
We estimate that by 2030, demand for green technologies could generate up to $12 trillion in annual revenues. This capital reallocation will happen, and it will have to happen in parts, through growth and by capturing business opportunities.
A focus on growth
Lucia Rahilly: Liz, let’s talk about growth. What can leaders do today to realize their growth ambitions and, by extension, to outperform in a more consistent and sustainable and durable way?
Liz Hilton Segel: This has really been an extraordinary period. I’ve certainly never seen anything like 2021, ’22, and ’23. Imagine you’re an executive and you run a company and you got yourself through a cyber crisis where, because of geopolitics, you had a cyberattack and you were barely able to hold on to your website, which is central to your revenue trajectory. Then you handled a major commodity price increase, and then you handled a supply chain disruption. And then you turn around and say, “Oh, wait a minute, I also have to grow.” It has been a very tricky period. When we say these things intellectually, it’s hard to absorb what it feels like when you’re somebody who has to actually navigate all of these things all at once.
What we find is that only one in four companies can both grow from the top-line point of view, outpacing their peers, and maintain profit growth. So we looked at six strategies you can pursue, from the point of view of holding up that top line while you’re still growing the bottom line.
What we find is that only one in four companies can both grow from the top-line point of view, outpacing their peers, and maintain profit growth.
And just to mention the two strategies that stand out the most. One is, how are you going about building a culture of growth, a mindset of growth, and a culture of innovation? We have found that the companies that truly master innovation excellence will typically see four more points of TSR growth than other outperformers. So really engraining within your organization a culture and mindset of growth and innovation is quite important.
The second thing is, 80 percent of most companies’ reported growth comes from the core of their business. So ask yourself these questions, “Where will I get incremental growth from the core, and how specifically can I leverage all the things we talked about earlier? How can I leverage data? How can I leverage analytics? How can I leverage AI and leverage changes to the way in which my organization approaches technology? How do all these things come together to create new pathways for growth in my organization?” These things don’t come easy, but I think that we do find that the organizations that put more attention and commitment to it do see outsize performance.
The middle management difference
Lucia Rahilly: Let’s shift gears just a bit. When we think about the CEO agenda, the idea of middle managers doesn’t immediately leap to mind. Talk about what our research says about how leaders should prioritize their middle managers in this particular environment and the impact that middle managers can actually have on organizational performance.
Homayoun Hatami: The best CEOs we see will do everything in their power to keep the best middle managers or managers exactly where they are, and to reward them, and to focus them on coaching and connecting people, because that is how they add the most value. They try to elevate the role of middle managers by giving them the space and the time to coach and to lead.
This is, for example, very important in sales. Sales managers should have the time to coach. That’s what they are there to do. If they are worried about making their individual quota as opposed to the team quota, then they’re going to get into an individualistic [mode of] behavior and not coach everyone. The goal here is to lift everyone. The other thing the CEOs do is make the managers the customer of change. For the managers to be your best allies, you have to co-create change with them. Make them embrace the road map, the why, the story of change. This is how you can get the most out of this vital group in an organization.
Finding your superpower
Lucia Rahilly: Liz, we also talk about what we call superpowers. It’s a positive word. It’s a powerful word. But what are we actually talking about when we use that term in this way and in an organizational context?
Liz Hilton Segel: Every company needs to know what their superpower is today. What is uniquely true about their skill set and competencies as an organization that enables them to have competitive advantage? And what or how do those capabilities need to change? Most businesses, most industries are being disruptive and disrupted in some form today. So whether that is disruption from a digital attacker, whether that is the business becoming more software led, there is change coming everywhere.
And as an organization, if you’re not clear on how you’re building new muscles to compete differently, odds are you’re going to be left behind. If you think of the owners of LVMH [Louis Vuitton] as an example, their superpower is all around quality and craftsmanship in the truly superior products that they have.
Or folks in the B2B space might know Danaher. It’s known for the Danaher Business System, which is central to how they have created value over time. So companies [like Danaher] have a core of how they have historically competed and created value for their shareholders.
The question is, should those things shift? And if so, how do they shift? My point of view is that executive teams should be ready and having dialogues with their boards about how those capabilities might change. And an example that we see quite broadly is the financial-services industry, our banks and credit card companies, both of which need software as a superpower going forward. Because when you look at how competition is occurring, so much more of what drives a consumer buying decision is how software is presented to them, the experience, whether it’s an electric vehicle or whether it’s a digital experience you might use to interact with your bank.
So part of the superpower that we’re helping them to develop is the software product management capability that’s required to compete in a new way. Naming what superpower you want to have is part of it, but actually mapping out that journey to go from where you are today to a new future is where all the fun is.
Leaders are people, too
Lucia Rahilly: Liz and Homayoun, you must talk to hundreds of CEOs over the course of a year. What are some of the qualities that help make for a great leader, particularly in an environment like the one we’re confronting today? Homayoun, let’s start with you.
Homayoun Hatami: When people think about the job of CEO, they typically think about charting a vision for the company, interacting and managing the board, being visible to stakeholders, fielding tough questions, and pushing hard for results. And of course, these are attributes and behaviors that we all expect from a CEO.
But there is another layer of behaviors that is not always seen and arguably has much to do with the success of these leaders. Here, we’re talking about the microhabits that will help the leaders stay “zen” and have energy, so they can inspire others. These could be things like holding the line on travel, capping the length of meetings, not checking email after 8:00 p.m., picking up the phone and talking to someone instead of emailing. It could also be going for a walk instead of doing a one-on-one. What we are seeing is that as a leader, the best way, and perhaps the only way, to take good care of your teams, your customers, your stakeholders is to start by taking good care of yourself.
What we are seeing is that as a leader, the best way, and perhaps the only way, to take good care of your teams, your customers, your stakeholders is to start by taking good care of yourself.
Liz Hilton Segel: I had the opportunity to interview [Amazon CEO] Andy Jassy and asked him about leadership at the scale of Amazon, whose revenue is like the size of the GDP of Sweden or Thailand and with an employee population the size of, I think, Philadelphia or Dallas. It’s just an extraordinary organization in size. I asked him what he looks for, and he talked about people leadership, but then talked about learning. And I think that’s appropriate for this conversation. If we think about all the things we talked about today, what they all require is an open mind toward learning and really building new knowledge and new capabilities.
Roberta Fusaro: Next up, microstress. What it is and how to soothe it, from author Rob Cross.
Rob Cross: Microstress is different from conventional forms of stress, where we think of large things that are hitting us or antagonistic relationships. The reality is that microstress can actually come at us, and often does, through people we love and care about. And this magnifies it.
The hard part that I think has shifted today, and especially through COVID-19, is the collaborative footprint of almost everything we do has shot up. Sometimes we are hit with 20, 25, 30, or more of these microstresses and small moments. We are conditioned to fight through them, but our bodies absorb them.
One possible outcome is that the stress metabolically affects how we process foods. There’s a great study that showed when you’re under this form of stress, you can eat the same meal, but the way your body metabolizes that meal with stress will add 200-plus calories.
We’re all talking about the burnout rate, right? And how exhausted everybody is, but the exact flip side of the coin is we’ve never had more ability to shape what we do and who we do it with, and yet we give it up very quickly. There’s five of these interactions that tend to drain capacity.
I’ll grab one. It’s small misses from teammates, and what I mean is it’s not so much the big slacker on our teams. These days, people may have one primary team, but then they’re put on five, six, seven other efforts, right?
So if you happen to own one of those efforts, and let’s just say the four people on your effort, because they’re under pressure, come back with 95 percent done. They seem like small misses, but four people times 5 percent each means a 20 percent impact on you, right?
You have to have mechanisms in place that hold that accountability. That doesn’t mean you have to go to each of those people individually. Small things like restating expectations, making sure people are clear on commitments, that they’re coming back to meetings with a quick summary of where we are against what we’re planning. What you’re trying to do is avoid that slow slippage of commitment.
There is a definite tendency for women to absorb more of the collaborative demands than men over time. That creates conditions for greater microstress.
Happier people have at least two and usually three groups they’re an authentic part of outside of their profession. If you fall in other groups, one is to reflect back on a passion you had in the past and use that to slingshot you into a new group. Or number two, reach back to ties that have become dormant: college friends and find ways to reignite them.
The biggest thing I learned through this work is that some people that went through large transitions went into them saying, “I’m just going to master the job first. And when I get that done, then I’m going to become myself again, then I’ll reinvest in the things that keep me human and whole.”
And they never did. They became, over time, narrower and narrower versions of themselves. In contrast, I saw people that would go through those transitions and despite all common sense, they would lean into it, and say, “I’m going to get the job right, but I’m also going to invest heavily in the community here.”
And everybody that did that well, they just discovered different things that brought them joy. They use small moments to live more richly with other people. Typically, the small micromoments are the answer as well as the problem in different ways.
