Six lessons on how to embrace the next-generation operating model

Here is a brief excerpt from an article written by Tod Camara, Adele Hu, Alex Singla, Rohit Sood, and Jasper van Ouwerkerk for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Realities on the ground highlight what’s really needed to pull off the transformation.

Companies that hope to compete in the digital world are coming to see that it requires a fundamentally new way of working. On the customer-experience side, digital natives have raised the bar considerably; for example, banks today benchmark their websites and apps against companies such as Amazon and Uber. Internally, despite big investments in digitization, process redesign, and automation, the efficiency ratio at most large companies has stalled. Their improvement initiatives reside in different pockets, such as a digital factory or automation center of excellence, and are seldom integrated.

A next-generation operating model1 (NGOM) is needed to give companies the ability to move quickly and adapt to changing circumstances. The rewards for making the leap to the NGOM are significant: step-change improvements that produce 30 to 50 percent productivity gains, up to 80 percent reduction in turnaround time, up to 10 percent enhancement of customer experience, and 20 to 25 percent growth.

Last year, we identified the two key shifts that are necessary for companies to build the NGOM:

  • From uncoordinated improvement efforts within siloes . . . To an integrated transformation program organized around customer journeys (the interactions a customer has with a company) and internal journeys (end-to-end processes inside the company).
  • From using individual technologies and capabilities in a piecemeal way inside siloes . . . To applying them to journeys in combination and in the right sequence, thereby achieving compound impact.

Over the past couple of years, as we’ve worked with companies to develop their NGOM, six important lessons have emerged.

[Here’s the first of six lessons.]

Lesson #1: Start by working on a high-impact end-to-end journey

Some companies start their digital operations transformation with small pilots that don’t generate significant benefits. Others spend a lot of time analyzing which journey to tackle first. But there’s no single right way to get started. The key is to identify a journey that’s important and begin there.

There are two primary approaches for deciding where to begin:

  • If a “burning platform” at the company is already in mind—an issue with potential to have a big impact on customer experience, new-customer acquisition, customer service, and/or cost and productivity—simply start there. Alternatively, identify no-regret areas (every company has a few) and pick one. Set up a cross-functional, agile team to tackle the chosen area.
  • If there are several burning platforms, evaluate the potential of the next-gen levers across the most important customer journeys at the enterprise level. This will help prioritize and sequence journeys for the next two to three years after embarking on the transformation.

Whichever path is chosen, it’s important to get started quickly in order to demonstrate the from-to path for the next-gen transformation and win over skeptics by showing the value the model can generate. We have found that it’s generally better to take on customer-facing journeys before internal ones. If it’s hard to get the buy-in needed to begin with a whole journey, it’s possible to start smaller— inside a single business unit or geographic site—and later extend the effort to include the entire journey from end to end.

Companies have started with a range of high-impact journeys. A North American bank began with home- mortgage origination on an end-to-end basis. For a global property-and-casualty insurer, the starting point was policy services; for a credit-card issuer, it was customer acquisition; for a life insurance issuer, it was new-business origination; and for an airline company, it was the ticket and ancillaries sales journey. Companies in other industries have also applied the NGOM, starting with journeys such as production of steel or restocking of store shelves. Despite beginning in quite different places, all of these companies experienced comparable results along key dimensions that drive costs and revenue growth.

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Here is a direct link to the complete article.

Tod Camara is a consultant in McKinsey’s Chicago office, where Alex Singla is a senior partner; Adele Hu is a specialist in the Toronto office, where Rohit Sood is a senior partner; and Jasper van Ouwerkerk is a senior partner in the Amsterdam office.

The authors wish to thank Matthew Craddy, Somesh Khanna, Eric Lamarre, Elixabete Larrea, Chris McShea, and Debasish Patnaik for their contributions to this article.

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