Operations management converging towards strategy

21 December 2015 Consultancy.uk

Operations and strategy are coming closer together, a recent report from PwC finds. Companies, in a bid to more quickly respond to customer expectations, are seeking to transform operations through closer alignment with strategy, as well as opening up more cross-functional engagement and capability building.

Today, many of the world’s companies’ best laid plans fall fowl to rapidly changing market conditions. The difficulty of implementing strategy is being felt across the board, as customer preferences are changing through rapid technical advancement.

Survey methodology

In a recently released report, titled ‘Reimagining operations: Insights from PwC’s 2015 Global Operations Survey’, PwC sets out to learn more about how companies are using operations to drive competitive advantage today. The consulting firm notes that, given the ubiquitous nature of operations to business, bringing strategy into alignment with operations might be the secret ingredient in helping companies win in the new highly competitive and rapidly changing environment. The study involved 1,262 senior-level executives, of which 24% were COOs or Heads of Operations. 52% of those surveyed work at companies with more than $1 billion in revenue, while 13% work at companies with more than $10 billion in revenue.

Operations challenges

Operational challenges
One of the research objectives was to identify where operations are facing difficulties. A third (32%) of respondents notes that ‘identifying what customers want’ comes out on top as the most challenging. For 17% it is the second biggest challenge. This is followed by ‘changing direction’, seen as the most challenging by 22% and second most challenging by 23%. ‘Managing complexity’ – particularly troublesome for banks – comes in third overall, with 18% citing it as the biggest challenge. ‘Managing trade-offs’ in global, regional and local operations is the least challenging area, with 4% citing it as the most challenging.

Operations emphasis

Cross-functional operations
Operational excellence is today not often a company secret and best practice often quickly becoming industry standard. According to the survey, 42% of companies focus on continuous improvement of existing processes to drive their companies’ operations, slightly higher than the 37% that see entirely new ways of creating value the emphasis on operations. More and more companies (21%) however, are focusing on a balanced effort between existing and new processes.

Changes are afoot within many organisations however. The mantra that functional managers must do more with less is cutting to the bone and the mood is shifting to creating synergies between functional areas. Of respondents, 61% believe collaborating more across functions, paired with faster decision-making, is the way forward for operations streamlining.

Prioritising capabilities

Prioritising capabilities
Capabilities are, according to PwC’s definition, the ability to “reliably and consistently deliver a specified outcome, relevant to your business.” This means that a number of factors are combined, such as processes, tools, knowledge, skills, and organisation, to deliver a result. Some capabilities are unique or distinctive, setting companies apart from competitors.

The research finds that companies have different ways of bringing about capability building, and that it is more and more common (36%) for the company level strategy to prioritise a few cross functional capabilities. For 55% of companies, functional areas are in charge of defining which capabilities are a priority, while for 9% of companies, there is no priority setting for capabilities.

Operations strategically aligned

Operational strategy
The consultancy seeks to identify in how far the importance of strategy on operations is changing. The survey highlights that the business area is maturing, with foundational aspects of business becoming more and more strategically aligned. Half (49%) of respondents believe that operations leaders need to be involved in strategic decisions about products or services, increasing to 61% who say this will be the norm in 2018. 51% of companies reward operations for their implementation alignment with overall strategy, increasing to 55% by 2018. Funding operations projects on the basis of strategic company goals is seen at 38% of surveyed companies, although it is expected to occur at the majority by 2018.

Operations cross-functional and global

Cross functional engagement was also considered by the survey. 49% of respondents conduct regular, cross-functional reviews of product and/or service portfolios, which will increase to 58% by 2018. Develop future executives by asking them to lead projects involving multiple functions is seen at 36% of companies, although 54% are expecting to have implemented this strategy by 2018. In addition, 46% of companies are deploying effective information/digital technologies. In terms of being more capabilities driven, 33% say they focus on a few differentiating capabilities that drive competitive advantage, while 42% say this will be the case by 2018.


Pre-emptive business transformations show prevention better than treatment

18 December 2018 Consultancy.uk

An extensive business transformation can be one of the most daunting tasks to face an executive in modern business, causing many to put off until tomorrow what they could achieve today. However, a new analysis has unsurprisingly found it is better to jump before you are pushed, as those who transform early do so more quickly, and with less restructuring costs.

While business transformations can seem like long and arduous processes, the fact remains that in a crowded market, the early adoption of new technologies could offer priceless opportunities for companies to pull away from the competition. Illustrating this, a recent survey from the McKinsey Global Institute found that leaders in AI adoption could expect an overall output gain of 135% compared to -44% among those who held back on their transformation efforts.

Now, new analysis from The Boston Consulting Group has shown that getting a transformation programme underway early, even pre-empting a need for transformation, can improve outcomes quickly. The research, based on more than 600 companies whose market capitalisation breached at least $5 billion between 2010 and 2014, found that in almost all industries, quicker was better.

In most industries pre-emptive transformations creates more value

The only industry not to enjoy a positive boost in value creation from pre-emptive transformation was the financial services sector, in which rushing to innovate without a business need could see value fall by 3.3%. At the other end of the spectrum, however, operators in the materials segment could benefit from a 9.5% improvement in value, if they were to pre-emptively transform.

Largely, then, BCG’s research suggests that the earlier a company transforms, the better its future performance will be. If a company takes a reactive standpoint to change and transforms later, it will likely see a stagnation in performance at best, while pre-emptive transformers could see an improvement in performance of as much as 6%.

The earlier a company transforms the better

More than meets the eye

The results serve as a caution for those business leaders who believe a change completed at any moment will yield the same results, only later. According to BCG’s paper, this is because there are a number of secondary benefits to pre-emptive transformation.

The time required to transform in a pre-emptive move is found to be two months shorter – 12 instead of 14 – which in turn means the average restructuring cost also tends to be lower. In a pre-emptive change, just 1.5% of revenues go towards the transformation, compared to over 1.8% in reactive cases, while there is also 5% less likelihood of leadership change. 21% of reactive firms face leadership changes during a transformation, and unplanned leadership changes like this often have negative impacts on business outcomes as well.

Pre-emptive transformation takes less time, costs less and increases stability

In spite of these figures, however, BCG found that pre-emptive transformations remain relatively uncommon. In any given year, the researchers estimated that only 15% of outperforming companies embark on transformations, while a slightly higher 20% of underperformers and 25% of severe underperformers do so.

To an extent, this could be said to show that success breeds complacency, but it should also serve to put a fire under all three groups. For those struggling, the opportunity is clear; they can make ground on successful firms if they transform now. At the same time, successful firms should be wary of previously troubled competitors, who could suddenly be breathing down their necks if they transform sooner rather than later.