The Woking-based team have had a nightmare start to 2013 and after seven races find themselves sixth in the Constructors' Championship and arguably now slower than Toro Rosso on race pace.
After qualifying 12th with Sergio Perez and 14th with Jenson Button in Montreal, the McLaren cars followed each other home in 11th and 12th in the Grand Prix, lapped by winner Sebastian Vettel.
"It was a brutal weekend for the team," Michael told Sky Sports F1.
"To be lapped by the top cars, that is probably the most important thing for us to concentrate on. We are still developing the car and it is responding, just not as fast as we had hoped.
"I think the picture of Montreal was painted blacker than what it probably is as we have made progress over the last number of races and I think for Silverstone our thoughts are that we will definitely be more competitive than what we were in Montreal."
The Sporting Director admits the updates the team brought to Canada did not work as expected, but feels they will bring a performance boost at their home race in two weeks.
"No question they will work better than they did in Montreal," he added.
"We have a lot of things which we will do in practice at Silverstone and hopefully they will yield even more performance out of this car. In terms of taking a big step up to the front that is probably unrealistic and we just have to try and take small steps each time."
During commentary on the Canadian GP, Sky Sports F1's Martin Brundle said it is important McLaren work out what the design issues are with their current car before focussing on 2014 and Michael insists McLaren are not writing this season off yet.
"I don't think you ever get to a point where you write it off - we will always be pushing to improve the car and get good results right to the end," the 42-year-old said.
"In terms of bringing development parts to the car, the August shutdown is going to be a natural point for most teams to start ramping down this year and putting everything into 2014."
Some McLaren fans have called for changes in personnel in some of the senior positions at the team, but Michael does not expect heads to roll.
"If you focus on sacking people, to start with you have to be very careful because first of all you could sack the wrong people and secondly the people who are responsible for this car are part of this company and they are committed to it," he said.
"They are very good engineers and designers who have produced very good cars in the past and they are going to be the best people to fix this car and produce another very good car in the future."