Companies around the world are struggling to confront the organizational challenges presented by global trends such as growing competition for talent, shifting centers of economic activity, and an increasingly networked business environment, a McKinsey Quarterly survey¹ shows. Although the challenges are manifold, two themes—how to move quickly and how to deal with geographic and regional diversity—emerge most frequently.

Yet more than two-thirds of the executives we surveyed say that their organizations do not have a clear view of the changes needed to meet these and other looming social and economic developments. Almost half admit that their companies have not installed the right people to lead a response, and around a third do not know who’s accountable for dealing with such issues.

Nonetheless, nine out of ten executives insist that organizational change is either “extremely important” or “very important” to building or maintaining competitive advantage.

Which global trends matter most?

We asked respondents to the survey, covering 93 countries in all the main regions of the world, to choose the three trends that will most affect their companies over the next five years. The respondents then chose the single biggest organizational challenge each trend presents for their companies.

By far the most significant trend—cited by 47 percent of the executives—is the intensifying battle for talented people. Shifting centers of economic activity and increasing technological connectivity were the next most important trends, each with 34 percent.² Only ballooning public-sector activity (4 percent) appears to be of little concern in business circles (Exhibit 1).

Some regional differences are striking. Executives in the developed countries of the Asia-Pacific region³ and in developing countries are even more concerned about the competition for talent than their counterparts in Europe and North America are. That might seem odd, given the plentiful supply of young people entering the job markets of the developing world, but other McKinsey research has shown that many of them do not have robust qualifications or appropriate skills. Executives in the Asia-Pacific region and in developing countries are markedly less worried than their counterparts elsewhere about the challenge of an aging population. Given widespread forecasts that the growth of the middle classes in emerging markets will drive their economic expansion,⁴ it’s perhaps not surprising that a changing consumer landscape is one of the top three trends for executives there; for the panel as a whole, it ranked only as number seven.

Industry contexts also influenced the responses. High-tech executives, for example, are more concerned than those in other sectors about the impact of technological connectivity and ubiquitous access to information. Manufacturers are especially struck by the growing demand for natural resources. An aging population ranks among the top three concerns of executives in the financial-services industry.

The organizational challenges

The executives say that the trends they face have prompted a wide variety of organizational challenges—in very few cases does any single organizational issue jump out of the responses (Exhibit 2). Yet the broad challenge of moving quickly and dealing with geographic and regional diversity clearly preoccupies many of the 1,317 executives who completed the survey.

More than a quarter (28 percent) of those who said that increased technological connectivity was among the most important economic trends, for example, added that changing the organizational and operational models to keep pace with technological change was the biggest challenge. A quarter of those who chose the increasing complexity and scale of their organizations as one of the top three trends are especially concerned about the need for quicker decision making and responses to external change. More than half of the executives who placed ubiquitous access to information and the way it’s changing the economics of knowledge among the top three trends are striving to share information across their businesses quickly and efficiently.

Among the plurality of executives who stress the importance of increased global competition for good people, two specific organizational challenges stand out: shortages of technical and managerial skills and ways to “monetize” best talent (as opposed to assets and capital). Shortages of skills are most acute for the high-tech respondents and least acute for those in the financial-services industry. A third of all respondents selected shifting centers of economic activity as an important trend, and for them the single biggest challenge is managing operations at different stages of growth and market development, closely followed by managing change across the whole organization.

Ill-prepared to change

Many other questions in the survey investigated organizational preparedness for the challenges ahead—and the extent to which organizations have already started to change in response. Significantly, for example, more than one-third of the executives believe that to meet the challenges their organizations face, it will be necessary to tackle a full range of “hard” and “soft” issues—changing the capabilities of employees and leaders and the value propositions for employees, processes, and structures (Exhibit 3). Changing the capabilities of employees and leaders figured most prominently in the responses of those who say their companies need only partial change. Several of the answers appear to reflect confusion about how to manage these issues. Surprisingly, perhaps, as many as 36 percent of the respondents (and 44 percent of those from the financial-services sector) say either that it’s not clear or that they don’t know who in their organizations is accountable for meeting the challenges posed by the trends. Only 19 percent of the executives say that their organizations have a clear view of how to change to meet the challenges, though more than a third (36 percent) claim that their organizations have the right people in place to lead the necessary changes.

Interestingly, more than 72 percent of those whose companies are still looking for people to lead the changes expect them to be hired externally (Exhibit 4). While some observers might interpret this finding as a sign that companies are desperately casting around for quick fixes, it seems more likely to be an acknowledgement that deep-rooted change requires leadership and skills not found inside most organizations. That point is buttressed by the finding that among those who think that their companies already have the right people, almost 80 percent admit that those people don’t have the right skills.

Asked whether their organizations had already begun to take action to meet the challenges, more than half of the respondents (53 percent) say that some changes had already been made, though almost a third report that their organizations had only got as far as talking about change. Some respondents listed specific actions that are under way, almost two-thirds of them related to personnel changes, change-management plans, or strategic rethinks.

Amid the diversity of trends, organizational challenges, and stuttering corporate responses revealed by the survey, there is one area of near-unanimity. Asked about the importance of meeting organizational challenges to building or maintaining competitive advantage, 53 percent of the respondents thought it was “extremely important” and 37 percent “very important” (Exhibit 5). A mere 2 percent indicated that these issues are of little importance. Clearly, companies must boost their organizational abilities to maintain their edge.