Seizing the $3 Trillion Midmarket Opportunity

 

By Aviel Marrache, Christoph Lay, Hugo Garnier, Justin Lim, and Liz Sasse

Key Takeaways

Increasingly, midsize companies are underperforming large ones, but CEOs of these firms can leverage their company’s inherent advantages to kickstart growth and close the performance gap. Four steps are critical:

• Start with a big vision and fund it, potentially using a zero-based mindset to cut costs.
• Capitalize on their company’s more compact management team by quickly aligning incentives, starting with their own.
• Drive execution and prioritize projects with the greatest potential impact.
• Focus and empower staff by communicating clearly and effectively.

At scale, we estimate that ending the performance gap could boost GDP in the 23 countries we analyzed by $3 trillion over a five-year period.

Since 2018, midmarket companies have delivered only half the average annual total shareholder return (TSR) that large-cap companies have generated—and the cumulative performance gap for growth has widened since 2021. (See Exhibit 1.) For CEOs, these numbers represent a strong warning sign: a lagging TSR is a symptom of structural challenges that can translate into lower capital inflow from investors and reduced long-run growth potential.

The findings are equally unsettling for investors and policymakers. The data, taken from a BCG analysis of midmarket companies in 23 countries, shows that over the next five years, in the absence of effective action, the performance gap will result in a cumulative GDP loss of more than $3 trillion for the economies studied.

However, the challenge also serves as an opportunity. In our work with midmarket clients, we have found that they possess differentiated strengths: simpler organization structures, closer customer connections, and faster leadership alignment on bold decisions. CEOs of midmarket companies can leverage these advantages to drive innovation, enhance competitiveness, and accelerate growth—potentially transforming their firms into tomorrow’s large-caps. The make-or-break factor is the how, which will determine whether the strategies they adopt will enable them to fulfil their potential.

Midmarket companies are important. Across the 23 countries, our analysis indicates that the midmarket companies in our study directly or indirectly contribute $14 trillion in GDP and support 170 million jobs. We based these figures on publicly available company data, so they do not capture all privately held firms and may understate the true scale of the midmarket sector as an engine of growth, employment, and resilience for local economies globally.

According to our analysis, the economies poised to benefit the most from a revitalized midmarket sector include the US, the UK, Southeast Asia, and the mostly German-speaking region of Germany, Austria, and Switzerland.

The Key Challenges for Midmarket Companies

Midmarket organizations face many structural challenges, but three are particularly pressing:

• They struggle to attract and retain talent, resulting in loss of experience, team disruption, and higher ongoing recruitment costs. BCG’s analysis of LinkedIn Talent and Insights data reveals that annual employee attrition at midmarket companies is 9%, compared to 7% at large-caps. Our analysis of Glassdoor data indicates that employees see midmarket companies as offering weaker career opportunities, scoring 3.5 out of 5 on that measure versus 4.1 for large-caps.
• Capital markets are unforgiving, exposing midmarket companies to rate increases and limiting their ability to make big bets on transformation. In our analysis, only 35% of midmarket companies received investment-grade ratings, compared to 85% of large-cap companies. Midmarket companies typically have a higher debt-to-equity ratio—typically around 1.5x to 1.6x, compared to 1.2x to 1.3x for large-caps. In addition, midmarket companies tend to have greater exposure to variable-rate debt instruments, leaving them more vulnerable to changes in interest rates.
• Subscale operations create a cost disadvantage, reducing midmarket companies’ bargaining power with suppliers and providing a smaller cushion to deal with inflation spikes, tariffs, and supply shocks. Although data varies from sector to sector across the 23 countries, midmarket companies consistently face cost ratios that are 3 to 5 percentage points higher than large-caps.

(See the slideshow for a more comprehensive analysis of our research.)

These structural headwinds have long constrained the growth of midmarket companies, but they will only intensify in this AI era. Our analysis also reveals a self-imposed obstacle: midmarket companies tend to prioritize hiring for core operational and customer-facing functions such as sales and customer service. In contrast, large-caps are building for the future, ramping up recruitment in data science and machine learning skills that support AI capabilities for long-term competitive advantage. As a result, midmarket companies risk being underprepared for the next wave of competition, in which advanced digital and AI capabilities will separate the leaders from the laggards. (See Exhibit 2.)

Four Critical Steps to Close the Performance Gap

To combat these issues, CEOs need to adopt a holistic approach to the how that will drive executional certainty and bring their teams along the journey to deliver outsized results. Of course, each company must find its own path to growth—one that reflects market dynamics and its own strategic choices. Nevertheless, in the current challenging environment, four steps are especially important for midmarket companies seeking to drive successful transformation.

Start With a Big Vision and Fund It

By default, midmarket companies tend to be highly operational, focusing on near-term performance and issues that will affect current-year P&L. To close the growth gap, they should think ahead and concern for the near term with attention to a new horizon: developing a more distant, strategic vision and planning the journey that will make it a reality. A CEO who adopts this twin focus is taking the first, vital step toward kickstarting change.

A disciplined path to growth is crucial, starting with setting stretch targets for costs and adopting a zero-based organization mindset. This approach frees up funding for the transformation and, if done with discipline, helps prevent unnecessary costs from creeping back in. Targets should be ambitious, as companies tend to underestimate the value leakage that often leads transformations to fall short of their expected impact.

Organizations typically need to deliver 20% to 40% of the target impact of a transformation to the P&L within the first year if they are to generate the financial oxygen required to fund the broader journey. Doing so enables the organization to reinvest in high-impact initiatives, such as digital and AI, innovation, and supply chain resilience to emerge as market leaders in the medium term.

We observed this dynamic in action at a leading Nordic engineering services company, which launched a strategic transformation program as it struggled to generate margin improvements while facing rising needs for investment in new materials, technology, and AI. The CEO and executive team recognized that doubling margins required more than continuous improvement; it demanded a dedicated transformation mindset and bolder ambition. From the outset, the company’s leadership set clear stretch targets and reset the business’s cost base. This allowed them to fund their transformation journey through targeted reinvestments. Within eight months, the company improved its EBITDA margin from 4% to 7% and achieved 8.5% during the following year.

Hardwire the Company’s Commitment, Starting With the CEO

One significant advantage that midmarket companies possess is their ability to bring the CEO and leadership team together behind a shared transformation agenda. Every organization faces fragmentation and competing priorities, but midmarket companies have the structural agility to align quickly and act decisively, ensuring that the entire leadership team can mobilize around the same objectives.

But this collective push for growth becomes self-reinforcing only if the CEO visibly focuses on it. To drive substantive organization-wide change, the CEO must ensure that the transformation effort is a clear priority and commands a substantial share of the corporate agenda. Human nature being what it is, the CEO’s view of what is essential will quickly cascade through the leadership team and the wider organization.

It is equally important to link incentives directly to transformation objectives. Bonuses, performance reviews, and recognition should be tied to the delivery of transformation outcomes, starting with the CEO and senior leadership and flowing down to the entire organization. According to BCG’s Behavioral Science Lab, when companies directly link incentives to leaders’ personal success, transformation is 1.4 times as likely to succeed.

A global jewelry company made transformation a core priority from the very beginning of the process. The CEO and board quickly replaced the traditional balanced scorecard with a transformation index that weighted what each executive would drive alongside shared outcomes. As a result, the company delivered a quarter of the overall transformation target value to the P&L in the first year.

Make the Tough Choices and Drive Execution

Speed is essential if a transformation strategy is to gain momentum and unlock value as early as possible. This requires ruthless prioritization and discipline, ensuring that the company devotes resources and investments to projects that have the most significant potential impact. This is even more important for midmarket companies, given that their scale requires them to operate with smaller talent resource pools and to make critical investment tradeoffs.

Even so, execution needs to remain agile. To deliver tangible value early and often, leaders can break transformation into short sprints, such as 90-day cycles, while maintaining the flexibility to adjust if conditions change.

Finally, clarity beats consensus. In midmarket companies, CEOs can make big calls at speed—a characteristic that brings urgency and simplicity to the transformation. Most employees don’t need endless debate; they need direction and certainty. When leaders move quickly and decisively, the whole organization tends to follow.

A leading global fleet management company demonstrated how decisive leadership and tough choices can accelerate impact. Early in its transformation journey, it made bold decisions to divest noncore portfolio elements, simultaneously streamlining the workforce and driving back-office automation to create the financial capacity needed to reinvest in new ventures. These moves signaled clarity and conviction from the top, promoting rapid progress and confident organizational alignment. The organization saw a 50% improvement in EBITDA and a 230% increase in share price over two years.

Lead the Change and Communicate Regularly

Midmarket companies can also take advantage of their smaller size to communicate more effectively. They don’t need complex platforms to manage internal communications. Instead, they can focus on making a clear, consistent, and compelling case for change. The CEO and other leaders should set the tone that they want to cascade through the organization—being direct about what is changing, why it matters, and what the implications of the changes are. Updates should be frequent and authentic to help focus and empower staff.

Because employees want to feel informed about the change journey, regular, two-way communication through newsletters, live Q&A sessions, and other interactive channels can help sustain their engagement. BCG’s Behavioral Science Lab analysis shows that timely and topical communications can boost desired behavior by 59%.

Leaders should create feedback loops that allow the organization to listen, adapt, and reinforce progress. Change champions—employees who play an outsized role in the transformation but also serve as influencers—can disseminate messages and model new behaviors, ensuring that the change feels lived rather than broadcast. Special interventions to identify and engage top talent are equally important, as these individuals can make or break the transformation through their expertise and energy across the organization.

At a North American fintech, leadership prioritized frequent, transparent communication to mobilize employees. The company launched a tailored newsletter with CEO-led messaging and organized live Q&A sessions at town halls to address concerns. Updates reinforced that transformation was a top priority and necessary to power the company’s next decade of growth.

Employees saw the connection between transformation outcomes and productivity and growth targets, as leadership defined its expectations for the first year at the outset. Clear, timely updates minimized drift, boosted engagement, and accelerated behavior change—a competitive advantage for a midmarket company moving at speed. In 24 months, the organization saw faster growth and a 35% annualized profit uplift, and its share price outperformed that of its main competitor by 40 percentage points.

Starting the Growth Engine

In our ongoing work with midmarket companies, we consistently identify significant opportunities for growth. This leads to a broader message to policymakers: unlocking the midmarket sector’s potential at scale could transform an economy. BCG analysis finds that closing the gap between midmarket companies and large-caps across the 23 economies we studied; based only on publicly available company data, could add $3 trillion or more in cumulative GDP over the next five years. Taking all privately held firms and additional markets into account would likely yield evidence of an even greater degree of combined impact.

It’s easy to see why midmarket companies receive less attention from governments than large-caps. Large firms have stronger lobbying operations and may enjoy the benefits of being deemed national champions or too big to fail. But collectively, midmarket companies are an essential and powerful force, too—driving innovation, providing a large employment pool, and possessing enormous untapped potential. Policymakers should treat the midmarket sector not as an afterthought to be considered after helping large corporations and small enterprises, but as a critical growth engine to be fueled by improved access to capital and increased investment in workforce skills.

CEOs, however, should not delay their transformational initiatives until policymakers act. Transformation cannot wait until the environment for midmarket companies becomes more forgiving. In the absence of decisive action, structural headwinds could intensify over time, eroding competitiveness and making it harder for midmarket companies to capture future growth opportunities. CEOs should lead with bold ambition and deploy the four-step strategy to set a new, positive path for their business, potentially growing it into a large-cap stock of tomorrow.

ABOUT THE RESEARCH

The term midmarket refers to companies that occupy the range between small and large enterprises in scale, revenue, and organizational complexity. In some regions, midmarket firms are categorized as midsize or medium-size. We use midmarket as a globally recognized descriptor encompassing this segment of firms that are too large to qualify as small or emerging, yet are not as expansive as major multinationals.

We gathered data for the following 23 countries: Australia, Austria, Canada, China, Denmark, Finland, France, Germany, India, Indonesia, Italy, Japan, Malaysia, Norway, Philippines, Singapore, Sweden, Switzerland, Thailand, the UAE, the UK, the US, and Vietnam. We selected these countries to reflect both developed and emerging economies and to obtain a robust and balanced view of midmarket company dynamics across diverse market conditions.
We calibrated the definition and threshold of midmarket in each country to match local market conditions in order to identify sizable enterprises that do not have the benefits of global scale.

The authors would like to thank Quentin Monaghan, Jae Park, Phuong Huynh, Taina Puddefoot, Pamela Guadamuz, Daniela Soto, and Noah Schilling for contributing to the study.

https://tinyurl.com/53dr83b9

How to Shift Your Mindset - The Essential Cheat Sheet

 

Transforming an organization requires a fundamental shift in mindset. In many cases, this means moving away from traditional approaches and embracing new paradigms that drive growth, innovation, and collaboration. Here are a few key mindset shifts that can help you and your organization achieve greater success and resilience in a rapidly changing world.

From Profit to Purpose

Traditionally, organizations focused primarily on profit. This meant that the main goal of every meeting and new initiative was to somehow benefit financially. Shifting towards a purpose-driven mindset means recognizing that purpose drives everything, including profit. By aligning your organization’s activities with a broader mission and values, you can inspire and engage employees, foster customer loyalty, and ultimately achieve sustainable success. And the numbers support this. Purpose-driven companies often outperform their peers because they attract passionate employees and loyal customers who resonate with their mission.

From Hierarchy to Network

The traditional hierarchical structure, where instructions flow from the top to the bottom, can stifle creativity and slow down decision-making. Moving towards a network-based approach emphasizes collaboration, allowing unique ideas and skills to flourish. This shift encourages a more agile and innovative environment where all team members can contribute their expertise and insights. In a networked organization, teams are often cross-functional, and communication flows freely across all levels. This structure enables quicker responses to market changes and fosters a culture of continuous improvement. Companies like Google and Valve have adopted network-based models, which have significantly contributed to their innovative capabilities and competitive advantages.

From Control to Empowerment

In a control-based environment, the focus is often on monitoring and driving performance. However, all too often, this can lead to excessive micromanagement. Shifting to an empowerment mindset means trusting and empowering motivated employees to take ownership of their work. This approach helps to foster a culture of accountability, innovation, and higher engagement, as employees feel valued and trusted to make decisions. Time and time gain, empowerment had been shown to lead to higher job satisfaction and motivation, as employees are given the autonomy to leverage their strengths and creativity.

From Plan to Experiment

While planning for the future is important, plans that are "overly rigid" can limit an organization’s ability to adapt to change. Embracing experimentation involves utilizing available resources to adapt and innovate on a more continual basis. This mindset encourages taking calculated risks, learning from failures, and iterating quickly to stay ahead in a dynamic environment. Companies that prioritize experimentation often lead their industries due to their ability to quickly pivot and respond to new opportunities and challenges.

From Privacy to Transparency

Safeguarding knowledge, data, and information is now - more than ever - essential to maintaining   a competitive edge. However, shifting towards transparency means learning to share and be inspired by one another. Open communication fosters trust, collaboration, and continuous improvement, as team members are often much more willing to share ideas, feedback, and insights. Transparency can also lead to increased accountability and stronger relationships between stakeholders, customers, employees, and management. .

Implementing Mindset Shifts in Your Organization

Of course, adopting these mindset shifts requires a commitment to change and a willingness to challenge existing norms. Here are some steps that you can follow to help facilitate this transformation:

• Communicate the Vision - Clearly articulate the new mindset and its benefits to all team members. This means ensuring that everyone understands the purpose behind the shift and how it aligns with the organization’s goals.
  
  
• Lead by Example - Leaders should embody the new mindset through their actions and decisions. Demonstrating a commitment to purpose, collaboration, empowerment, experimentation, and transparency can help to set the tone for the entire organization.
  
  
• Encourage Feedback - Strive to create an open environment where employees feel comfortable providing feedback and sharing ideas. This practice helps identify areas for improvement and fosters a culture of continuous learning.
  
  
• Provide Training and Resources - Equip employees with the skills and tools needed to thrive in the new environment. This can differ from business to business, but generally involves offering training programs, workshops, and resources that support collaboration, innovation, and adaptability.
  
  
• Celebrate Successes - Recognize and celebrate achievements that result from embracing the new mindset. Highlighting successes reinforces the benefits of the shift and motivates others to adopt similar behaviors.

Transforming an organization requires more than just implementing new processes - it demands a fundamental shift in mindset. While they can be difficult to implement, these shifts not only enhance internal dynamics but also resonate with customers and stakeholders, resulting in a more resilient and adaptable business.

https://tinyurl.com/472xm634

Reinventing Organizations

 

By Gennaro Cuofano

“Reinventing Organizations,” a groundbreaking book by Frederic Laloux, has sparked a transformative movement in the world of work. This book introduces a new paradigm for organizational design and management, one that goes beyond traditional hierarchies and seeks to create more purpose-driven, self-managing, and adaptive organizations.

Understanding “Reinventing Organizations”

The Essence of “Reinventing Organizations”

“Reinventing Organizations” presents a compelling vision of a new way of organizing and leading in the 21st century. At its core, this book introduces three breakthroughs in organizational thinking:

1. Self-Management: Organizations in this paradigm replace traditional hierarchies with self-managing teams or circles. Decision-making is distributed, and authority is devolved to those closest to the work.
2. Wholeness: “Reinventing Organizations” emphasizes the importance of individuals bringing their whole selves to work. It encourages authenticity, personal growth, and a holistic approach to employee well-being.
3. Evolutionary Purpose: These organizations are guided by a sense of purpose that transcends profit. They seek to fulfill a higher calling or mission that aligns with their core values.

The book’s framework is informed by extensive research and case studies, showcasing real-world examples of organizations that have successfully embraced these principles.

Origins of “Reinventing Organizations”

The ideas presented in “Reinventing Organizations” emerged from Frederic Laloux’s research, where he explored various organizations that were operating on the leading edge of management practices. He noticed a recurring pattern among these organizations that went beyond the traditional management hierarchy. This research culminated in the publication of the book in 2014.

Key factors that contributed to the emergence of this new organizational paradigm include:

• Dissatisfaction with traditional hierarchical structures and their limitations in addressing the complexity and rapid change of the modern world.
• Advances in communication technology that enabled more decentralized decision-making and information sharing.
• A growing awareness of the importance of personal development, self-awareness, and well-being in the workplace.

Key Concepts in “Reinventing Organizations”

1. Teal Organizations:

• The term “Teal” is used in the book to describe organizations that embrace self-management, wholeness, and evolutionary purpose. These organizations are seen as the pinnacle of the organizational evolution described by Laloux.

2. Self-Management:

• Self-management is a core concept where teams or circles have a high degree of autonomy and make decisions collectively. Traditional hierarchical structures are replaced by more fluid, decentralized forms of governance.

3. Wholeness:

• Wholeness refers to the idea that individuals should bring their full selves to work, including their emotions, intuition, and authentic personalities. This promotes personal growth and well-being.

4. Evolutionary Purpose:

• Evolutionary purpose suggests that organizations have a sense of purpose that evolves over time. It is not fixed but adapts to the changing needs and aspirations of the organization.

5. Organizational Stages:

• Laloux outlines a developmental progression of organizations from Red (traditional command-and-control), to Amber (hierarchical), to Orange (performance-driven), to Green (collaborative), and finally to Teal (self-managing).

Case Studies and Examples

“Reinventing Organizations” provides numerous case studies and examples of organizations that have successfully embraced the Teal paradigm. Some of the most notable examples include:

1. Buurtzorg:

• A Dutch home healthcare organization that operates with self-managing teams of nurses. It has achieved remarkable efficiency and patient satisfaction levels.

2. Morning Star:

• A California-based tomato processing company with no traditional hierarchy or managers. Employees negotiate their roles and responsibilities, leading to high levels of engagement and productivity.

3. FAVI:

• A French manufacturer of brass products that transitioned to self-management. FAVI’s success is attributed to its focus on employee well-being and autonomy.

4. AES Corporation:

• A global power company that adopted a self-managing structure. AES has seen improvements in safety, employee engagement, and financial performance.

These case studies illustrate how organizations across various industries and regions have successfully implemented Teal principles to achieve outstanding results.

Principles and Implementation

Implementing the principles outlined in “Reinventing Organizations” requires a systematic approach:

1. Embrace a Higher Purpose:

• Organizations should identify a purpose beyond profit, one that resonates with the core values and aspirations of the organization.

2. Self-Management:

• Transition to self-managing teams or circles where decision-making authority is decentralized.

3. Wholeness:

• Create a culture that values and encourages the authenticity and well-being of individuals.

4. Evolutionary Purpose:

• Continuously revisit and adapt the organization’s purpose to stay relevant and aligned with changing circumstances.

5. Distributed Leadership:

• Leadership roles should emerge naturally and be based on expertise and interest rather than formal titles.

6. Transparency:

• Foster open and transparent communication to ensure that information is accessible to all members of the organization.

Benefits of Embracing “Reinventing Organizations”

Organizations that adopt the principles outlined in “Reinventing Organizations” often experience several benefits:

1. Enhanced Employee Engagement:

• Self-management and a focus on wholeness contribute to higher levels of employee engagement and job satisfaction.

2. Increased Innovation:

• Decentralized decision-making and a culture of experimentation foster innovation and adaptability.

3. Improved Organizational Resilience:

• Organizations become better equipped to respond to changing circumstances and disruptions.

4. Greater Fulfillment:

• Individuals experience greater fulfillment and purpose in their work, leading to improved well-being.

5. Higher Productivity:

• Autonomy and self-management often lead to higher levels of productivity and accountability.

6. Attracting and Retaining Talent:

• Embracing the Teal paradigm can make organizations more attractive to top talent seeking purpose-driven workplaces.

Transformative Impact

“Reinventing Organizations” has had a transformative impact on various aspects of work and management:

1. Organizational Culture:

• The book has inspired a shift towards more open, transparent, and values-driven organizational cultures.

2. Leadership:

• Leadership in organizations that embrace Teal principles becomes more distributed and adaptive.

3. Decision-Making:

• Decentralized decision-making empowers employees at all levels to take ownership of their work.

4. Well-Being:

• The emphasis on wholeness and personal development contributes to improved well-being among employees.

5. Purpose-Driven Work:

• Organizations are increasingly recognizing the importance of aligning their purpose with addressing societal and environmental challenges.

Broader Implications

The concepts introduced in “Reinventing Organizations” have broader implications for the future of work:

1. Organizational Evolution:

• Traditional hierarchical organizations are reevaluating their structures and practices in response to the success of Teal organizations.

2. Leadership Development:

• Leadership development programs are evolving to prepare leaders for the distributed and purpose-driven nature of Teal organizations.

3. Education and Training:

• Education institutions are exploring how to prepare students for the changing landscape of work, which increasingly includes Teal principles.

4. Social Impact:

• Teal organizations often have a positive social impact, aligning their purpose with addressing societal challenges.

Conclusion

“Reinventing Organizations” has emerged as a seminal work that challenges conventional thinking about how organizations are structured and managed. Its core principles of self-management, wholeness, and evolutionary purpose offer a compelling vision of a more human-centered, purpose-driven, and adaptable approach to work. As the world continues to grapple with unprecedented challenges and opportunities, the ideas presented in this book are reshaping the way we envision and create organizations. “Reinventing Organizations” serves as a beacon for those seeking to foster more meaningful, innovative, and resilient workplaces in the 21st century.