The power from digitizing operations management systems – McKinsey
As COVID-19 becomes endemic in much of the
world, operations leaders in service businesses see a revolution on the horizon. Rapid digitization, the rise of contactless operations, workforce “virtualization,” and innovation in talent sourcing are all creating an urgent imperative for organizations to reconfigure their operations.
When the pandemic started in early 2020, organizations across the globe were forced to virtualize their workforces. The realization that legacy systems no longer worked effectively in this new environment led them to stretch the
organizational fabric. Two years later, some organizations have begun to reimagine the tools and assets they need to put in place to regroup and ensure they are set up to meet growth objectives.
Leaders across sectors have shared that they are seeking ways to engrain technology, specifically AI and automation, to better understand their operations.
Nearly half of respondents in the latest McKinsey automation survey said the pandemic accelerated their deployment of new automation technologies. But technologies alone are only part of the story.
In a recent productivity survey of North American executives, “changing your operating model and organizational structure” was voted as the most important people and organization lever for achieving deep and lasting change (Exhibit 1). That type of fundamental management change calls for updated management systems to reflect the new environment so that organizations continue to reap rewards from their technology investments. At the same time, these management systems can take advantage of new technologies beyond the basic desktop productivity tools available to workers.
For example, a financial-services organization was eager to deploy effective tools so its employees could spend less time on manual tasks and more time finding better ways to serve its
customers. The organization used automation technologies to reduce the time spent on processes and increase time on customer service. By reimagining management systems to both
incorporate and address technology improvements, organizations have the chance to usher in the next wave of productivity, continuous innovation, and talent management.
A burning platform for change
The impact of the pandemic and changing market conditions brought about by technology are increasing the pressure for organizations to modernize operations.
Making this transition requires access to new talent in order to empower an existing workforce to support the transformation and run future operations. In a 2021 McKinsey Global Institute (MGI) productivity survey, over 50 percent of executives said they intended to make investments in translator capabilities, such as product owner skill sets, and over 40 percent said they would make investments in digital and analytics capabilities in the next three years (Exhibit 2).
Leaders pulling ahead
The experiences of leading companies underscore the importance of a new management system. Companies that better understand and refine the employee experience have an opportunity to turn attrition into attraction. Whether employees are on-site or remote, organizations need processes that support efficient collaboration. This requires new technologies that enable people to share things easily, regardless of where they are.
Communication and document sharing platforms allow employees to collaborate easily, while virtual-conferencing software lets employees work together no matter where they are. Field-service organizations are also piloting virtual-reality solutions that enable maintenance activities to be conducted by experts hundreds of miles away: if an elevator malfunctions, the on-site maintenance team may be able to complete the task with virtual support. Employees no longer need to travel long distances
to complete basic tasks.
The opportunity for (almost) all
Despite these advances, however, many organizations are not experiencing the same productivity improvements witnessed in the industrial era. Applying this new way of thinking can help them reach that next level of productivity growth. A 2021 MGI report found that rapid digitization over the past couple of years offers the potential to accelerate annual productivity growth by approximately 1 percent between 2021 and 2024.
While automation software was expensive and out of reach for many organizations a decade ago, it is now affordable and scalable for businesses of all sizes. Digital tools have now reached a level of maturity that is ready for prime time and at-scale deployment. Pre-COVID-19, approximately 18 percent of executives suggested increasing their investment in digitization and automation by over 20 percent. Today, that portion is as high as 34 percent.
Given the dramatic shifts that the operations of most organizations have experienced in the past several years and the tools now available, optimizing manual work is no longer sufficient—the future of continuous improvement is in innovation. Whereas yesterday’s managers operated by looking over people with clipboards and manually interpreting data, many tasks can now be automated. Leaving this front-end work to machines offers humans more time and energy to interpret and use the results.
For example, advanced voice analytics software can use natural-language processing to learn the sentiment of thousands of hours of call-center conversations. This can help organizations improve their call-center training or learn which calls to route to an interactive voice response (IVR) system versus a website or chatbot. These tools can also help organizations unlock what their top-performing agents are doing right, whether that’s the sentiment of their voice or the kinds of language they are using, and how those best practices can be shared across teams.
These tools shouldn’t just be used to serve customers better but also to improve the experience of employees—which would help counter survey findings that show widespread employee willingness to quit. Ideally, a management system should measure morale with more than just annual polls. Substituting digital “barometers” that gather weekly (or even daily) data on the factors that matter to a workforce can help leaders create an environment where people can thrive and are excited to stay.
Structure and standardization for management
Management systems such as lean and Six Sigma have been used in the public and private sectors for decades to drive efficiencies and improve performance. The original need for management systems originated from a lack of standardization and process among managers and frontline employees, which led to waste, variability, and inflexibility. Standardized processes enabled leaders to put more structure around their thinking, making it easier to get hundreds or thousands of people to work consistently and reliably.
Sharing a common vocabulary made it easier to talk about processes and operations in a structured format—inspiring continuous improvements by helping colleagues to identify and implement new opportunities to work differently. At a large industrial conglomerate, value-stream mapping and performance management metrics enabled a 30 percent contribution margin increase in one year, while a major pharmaceutical company reduced its approval time by 50 percent by using lean thinking.
Over the past couple of decades, new technologies have enabled organizations to improve their management systems incrementally. For many, early success comes from making simple, “no regret” decisions that immediately impact and reduce waste in current processes. Organizations can start by using value-stream mapping or the “five whys” to identify root causes of waste, variability, and inflexibility. They can often then start leveraging the low-tech solutions they may already have. For instance, a recent McKinsey survey of IT and business decision makers at enterprises in Australia, Canada, the United Kingdom, and the United States found that more than 80 percent of respondents use low-code or no-code development platforms requiring few programming skills, enabling them to create a series of performance dialogues to engage the front line.
New technology on top of legacy fundamentals
While technology has changed, the fundamentals of management have not. Management systems for the future will not depend on new fundamentals but rather on how they innovate around the four timeless management disciplines (Exhibit 3).
These new systems will also rely on organizations’ ability to improve the tool kit to reflect the digital world and upskill the workforce. Organizations in the public and private sectors have embraced this approach to drive productivity improvements. Consider the following examples:
- A financial-services firm leveraged a mix of automation technology and process improvement systems to stabilize call-center costs in the face of increasing call volume. The firm launched an automation center of excellence (CoE) that deployed robotic process automation and intelligent document processing. It identified high-impact use cases that optimized employee time while ensuring a positive experience for the customer. By using automation to better enable employees to focus their attention on solving customer needs, the program has saved more than 20,000 employee hours. The firm built a system where its people could work alongside technology to truly meet customers’ needs.
- A European nonprofit leveraged process mapping and improvement tools to redesign their internal processes, reducing costs across the finance and administrative processes by 20 percent. The organization started with process mapping tools to identify opportunities to redesign and automate low-complexity processes, such as expense review, purchase-order approval, and budget checks. The mapping tools also identified variability in value-added versus discretionary processes across 20 different applications. The resulting efficiency improvements in administrative and finance processes saved about $2 million by reducing process complexity and improving collaboration.
- Many large enterprises are leveraging low-code solutions to enable cost reduction, improved customer experience, a more agile organization, product innovations, and improved IT capabilities. In the same IT and business decision-maker survey mentioned above,
84 percent of respondents reported that low-code solutions helped reduce costs, and 89 percent said they lead to more innovative products and services. A global bank found that its launch of a CoE for no- and low-code solutions has empowered employees to solve problems at all levels of the organization, fueling innovation in meeting the institution’s most important digital-transformation goals.
The next steps in continuous innovation
The organizations that have embraced new technologies did not transform their management systems overnight—they thoughtfully diagnosed their current state to design their future operating model.
We have identified a few essential steps to pave the way for continuous innovation:
- Define the case for change and what your team aims to achieve. Whether it’s democratizing innovation or upskilling employees to build the necessary skill sets for the future
operating model, identifying the desired outcome is essential.
- Assess the current state of the management system by truly understanding its strengths and weaknesses against timeless management disciplines.
- Gather the right cross-functional team (HR, IT, legal, and others) to design what an initial minimum viable product could look like. If a mature management system already exists, look for ways to tech-enable current methods through process mining and value-stream mapping. If no management system exists, start small with an MVP tool kit and scale over time.
To truly foster a culture of continuous innovation, organizations must now leverage technology to power and scale a refined management system. The technology is now more accessible than ever; it’s the commitment to change and the willingness to experiment that matter.
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