How to Get to a Next-Generation Operating Model

Companies today are faced with a tough challenge: how to build value and provide compelling and responsive customer experiences while cutting costs and inefficiencies at the same time. Leveraging new digital technologies seems to be the obvious answer, but, as a recent article from McKinsey & Company argues, technology itself is only part of the solution. What companies need to do is let go of the way they’ve always done things and commit to a next-generation operating model; that is, a way of running the business that brings together digital technologies and operations capabilities in an integrated, holistic, and well-sequenced way.

A shift in approach.

For most companies, adopting such a model requires two big shifts in their established operational approach. The first is to use customer journeys as the organizing principle for improvement efforts, rather than to run uncoordinated efforts within conventional departmental siloes. In other words, this shift involves breaking down traditional business units and instead thinking holistically about customer journeys and the internal processes that support them. For example, in the case of a customer wanting to open a bank account, rather than focusing on the individual units involved (operations, marketing, credit, and IT) it’s preferable to look at that journey as a single, end-to-end element which should be handled as a whole and not broken down by department.

online banking

The second major shift is to move away from employing individual technologies or capabilities in a piecemeal way, and instead focus on working with multiple capabilities in a strategic sequence to compound the impact and achieve maximum results. The McKinsey article calls these capabilities “levers,” and provides a breakdown of the five most important levers that organizations typically use in improving the operations and processes that support customer journeys. Read on for an overview of the five levers.

  1. Digitization

Broadly speaking, digitization refers to the process of using digital tools and technologies to improve journeys. These tools can have a powerfully transformative impact on customer-facing journeys, notably by providing options for self-service and thus giving customers independence and autonomy in their interactions with companies. Digitization can also streamline time-consuming manual and transactional tasks, thus speeding up responsiveness.

  1. Advanced analytics

An increasingly critical component of business decision-making today, advanced analytics involves using sophisticated, autonomous tools to process data and uncover patterns and insights from which actionable recommendations can be made. The intelligence that analytics provides can greatly enhance journeys that require non-linear thinking; for example, insurers with advanced analytics capabilities in place are seeing huge improvements in areas like fraud management and smart claims triage.

  1. Intelligent process automation (IPA)

This emerging set of new technologies brings together robotic process automation and machine learning to trigger fundamental process redesign. In other words, for processes that involve data aggregation from multiple systems or standardized data input, IPA can take the place of human effort.

  1. Business process outsourcing (BPO)

outsourcing

The practice of using resources outside the main business to fulfill specific tasks and functions (for example, back-office document processing) has become a popular one in recent years. Often a useful measure for improving cost efficiency, BPO is typically best when used for manual processes that are not primarily customer-facing and do not have an impact on strategic choices or value propositions.

  1. Lean process redesign

This versatile methodology helps companies streamline processes, create a culture of continuous improvement, and eliminate waste, redundancies, and inefficiencies. It applies well to almost all processes, including short- and long-cycle, transactional and judgement-based, and client-facing and internal.

How should companies implement these levers?

The McKinsey article offers three important design guidelines companies should keep in mind when thinking about how and when to use the above levers:

  1. Each lever should be used to maximum effect.

For companies to reap the rewards of the next-generation operating model, they must be willing to push the limits. Too often, companies think they are applying capabilities to the fullest, but they are actually falling short of their true potential. Leveraging a few predictive models, for example, is not the same as truly harnessing the power of analytics. Companies, and their executives in particular, must be vigilant in monitoring the use of levers, and they must be prepared to challenge teams who are complacent in the belief that they are “doing all they can.”

  1. Each lever must be implemented in the right sequence.

So many variables are involved that it’s virtually impossible to build a “universal recipe” for sequencing these levers, but companies should know that the best results can be achieved when the levers are able to build on each other. Systematic analysis, which is looking at the opportunity to apply remaining levers in turn and the resulting impact, can help companies figure out which levers depend on the successful implementation of others to be most effective.

  1. The levers should interact with each other to achieve a compound effect.

Just as levers need to be applied in the right sequence, they also need to work in tandem to be most successful; that is, it’s not simply a case of one lever picking up where another leaves off. Some companies have adopted “heat maps,” which offer an organization-wide perspective on how each lever will impact each journey, as a tool to help in looking at the levers and their effects holistically.

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