collaboration with select social media and trusted analytics partners In today’s episode, McKinsey partner, Pooja Kumar, MD, is joined by Ron Walls, MD, of Brigham Health. To ensure that everyone understood the permanence of the changes, the company made weekly one-on-one training and coaching sessions a part of its line managers’ jobs. Dive Brief: Supply chain and manufacturing are two functions most likely to see cost savings as a result of using artificial intelligence (AI), according to a recent survey by McKinsey and Company that asked hundreds of respondents about the benefits their companies were seeing from AI and its impact on organizations. Operations leaders identified labor balancing as an important technical improvement: they planned to create teams that would combine two roles—“pickers,” who located products to fill customer orders, and “packers,” who loaded orders onto trucks. Such examples show that neglecting the organizational components of an operational transformation can delay or even derail it. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe, Brings digital-operations and lean-management expertise to help clients in the banking, insurance, retail, and healthcare sectors win in new ways, Helps large financial institutions define digital strategies and deliver end-to-end digital transformations at scale, Advises Retail financial institutions and telco organizations on breadth of topics covering digital and analytics strategy through to end-to-end ops transformation, Advises financial institutions on digital strategy, operations, transformation and product development. More important, the training efforts enhanced the skills of managers, enabling them to become the foundation for a host of additional improvements. Businesses must boost their operational efficiency whenever … Still others underestimate the level of senior-management involvement required; for example, they delegate responsibility for change programs to their lean experts or Six Sigma black belts—practitioners who are technically skilled but often lack the authority, capabilities, or numbers to make change stick. This section analyzes the performance and operational efficiency of three operational functions: participant managed care enrollment, claims processing, and contact centers. Of course, some elements of an improvement program must be instituted at the company-wide level; a single production line, for example, shouldn’t have its own performance-management system. Operational efficiency is the act of improving all of the processes that support the production of your final product or service. The company’s back-office managers, however, found the program disquieting. ... A recent McKinsey study found that these legacy systems account for 74% of a company’s IT spend while hampering agility at the same time. The industry is now seeking to reduce operational costs and improve cycle time within research and development. In such cases, “initiative fatigue” and even distrust may set in, and efficiency gains fizzle out as the black belts move on to other projects. Applying the Horizon Model for Marketers. Each year, thousands of executives tour its facilities to learn how lean production—the operational and organizational innovations the automaker pioneered—might help their own companies. This change not only balanced speed and accuracy but also pushed workers to collaborate and to focus on a common goal. This “pull forward” approach, supported by a project team at the corporate center to ensure consistency, helped the company extend the initiative to more than 100 global customer accounts in just 18 months. McKinsey found that after more than a decade lagging the industrial sector, packaging solutions improved operational performance with a 2 percent EBITDA margin expansion. Consider the experience of a North American power generator that used cultural insights to combat skepticism about the scope of the efficiency improvements attainable in a nascent initiative. These factors complicate efforts to design, execute, and scale operational-improvement programs (see sidebar “A better approach to scaling”). Companies used capital more efficiently and realized higher revenue growth, which contributed to a 2.2 percent compound annual growth rate from 2013 through 2017. This approach seldom succeeds: its inherent lack of coordination leads to an uneven pattern of implementation, which often feels confusing or contradictory to workers. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. These brief sessions allowed workers to celebrate successes, share ideas, and measure progress in achieving the program’s goals. Recognizing that such factors would breed resentment if ignored, the company provided supervisors with on-the-job training in interpersonal skills—including coaching and the art of having difficult conversations—in the weeks before making the technical changes. Some companies, for example, rush to implement the tool kit without ensuring that their employees—including managers—are prepared to work and lead in new and different ways. They must rigorously apply a full set of levers across their entire operations … McKinsey.org is a 501(c)(3) private operating foundation. The basic characteristics of regional commercial vehicle markets around the world are driving McKinsey’s analysis. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. But management’s inattention to the softer side created difficulties. Reinvent your business. These efforts have delivered tangible benefits over the last five years, but often in isolated pockets, and without dramatically reducing overall operations costs. Humayun has coauthored a number of publications, including the ‘McKinsey on Smart Grid’ publication as well as McKinsey's recently completed work on energy efficiency, and clean technologies. tab. Never miss an insight. During the past 20 years, lean has become, along with Six Sigma, one of two kinds of prominent performance-improvement programs adopted by global manufacturing and, more recently, service companies. But it failed to replicate this success in other high-potential areas and thus aggregated operations costs hardly budged. In our experience, banks that achieve significant productivity gains take the following five steps: The potential gains from following these steps are meaningful. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Please try again later. For companies seeking large-scale operational improvements, all roads lead to Toyota. Consequently, many companies emphasize the technical aspects of their programs over the organizational ones. Meanwhile, some of the company’s salespeople, long frustrated with what they saw as the shortcomings of the operations group, began circumventing the production-scheduling system in order to speed their own products through the queue. The McKinsey Center for Business and Environment works with businesses, governments, and ... will require cities to find creative ways to tackle operational challenges including aligning stakeholders, supply chains, procurement practices, and financing. Within six months, many back-office departments were meeting stringent productivity targets (a 20 to 30 percent improvement, in certain cases) and some were even surpassing them. OPERATIONAL EFFICIENCY AND ... BEST PRACTICES HOW TO TACKLE OPERATIONAL ISSUES TO MAXIMIZE EFFICIENCIES AND COMPETITIVENESS Experts agree that changing from a reactive to proactive culture is challenging, but achievable. Robert Cocks . That realization changed the design of the program and raised its goals—in some cases, by a factor of three. The first time horizon, H1, has a clear focus on the core business, or — my preferred definition — Efficiency. But there are a few banks that have identified a full range of levers and developed plans to apply them across all of their processes, putting them in position to achieve efficiency gains of 30 percent or more. People create and sustain change. Our flagship business publication has been defining and informing the senior-management agenda since 1964. The company now expects the program to have an annual impact of more than $1 billion. The broader challenge underlying such problems is integrating the better-known “hard” operational tools and approaches—such as just-in-time production—with the “soft” side, including the development of leaders who can help teams to continuously identify and make efficiency improvements, link and align the boardroom with the shop floor, and build the technical and interpersonal skills that make efficiency benefits real. Need for Operational Excellence When companies tackle implementation in a more coordinated way, they get bigger, more sustainable results. If you would like information about this content we will be happy to work with you. What’s more, the tools and experts actually are invaluable in diagnosing and improving operational performance. Since joining the Firm in 2001, he has worked with clients in the public sector and in philanthropy on topics related to economic development, higher education, infrastructure, innovative social finance, and organizational effectiveness and operational efficiency. From a technical perspective, the changes, though significant, were relatively straightforward: an individual back-office employee, for example, would no longer shepherd a single motor insurance claim through the claims process from end to end but might instead handle only a specialized subset of these activities. Complementing the development of technical skills with a focus on the organizational capabilities that make efficiency benefits real can help companies to achieve more substantial, sustainable, and scalable results. An operational KPI is a quantifiable value expressing the business performance in a shorter time-frame level. The McKinsey 7S model is a useful framework for reviewing an organization’s marketing capabilities from different viewpoints. Against a backdrop of growing economic uncertainty, their success can be a source of inspiration and enlightenment for industrial and service companies and for public- and social-sector organizations looking to extract greater value from these efforts. All three areas can be addressed within current operating models and are the core components of traditional levers to improve operational performance. Senior executives launched an initiative to redefine the attributes and requirements for back-office managers so that they could succeed in this new environment and discussed the initiative with them to explain that they would play an important role in the success of the program—and of the company. Something went wrong. Managers as well may find change unsettling, as they did at a leading European insurance company that consolidated its back-office operations. This can include evaluating resource utilization, analyzing accounts payable processes, reviewing production efficiency, inventory management, and delivery and distribution. our use of cookies, and To ramp up the program quickly, while taking care not to jeopardize the results by overextending the company’s people, senior executives used this first expansion of the pilot as a training ground for the leaders of subsequent ones: the line managers and lean-team members who would run the second and third waves (extending the program to cover a second and third customer, respectively) were included in the first wave. When designing change programs, companies shouldn’t consider the mind-set only of frontline workers. There the managers saw similar improvements in action and heard the enthusiasm that line managers and union leaders expressed for them. While enhancements isolated ineach area can boost both effectiveness and efficiency, the true potential comes from tackling them in sequential order. As morale improved, so did results. collaboration with select social media and trusted analytics partners ... McKinsey … He has also authored external articles and reports, including in … This effort is targeting a further 25 percent savings in small processes (e.g., RPA to automate account closure, optical character recognition and RPA to reduce manual rekeying for incoming mail). This company had sent its operations experts into field offices, so they could work closely with employees at individual plants, where they had enjoyed significant success. Transforming customer experience, and enterprise efficiency and effectiveness. Our flagship business publication has been defining and informing the senior-management agenda since 1964. At times, such an improvement initiative first appears to be successful but is later found to be insufficient to meet the company’s main objectives. Shift schedules were adjusted to incorporate coaching into the workers’ routines. Without getting into a mini-course on strategy … Digital upends old models. McKinsey Quarterly. Increasing operational efficiency by leveraging Supply Chain 4.0 Supply Chain 4.0 will affect all areas of supply-chain management. That helps companies to establish a stronger foundation for change and to set more achievable, and often much higher, ambitions than they otherwise could. The authors wish to acknowledge the contributions of Chinta Bhagat, Steve Bonz, Mallory Caldwell, Stephen Corbett, Aaron DeSmet, Amanda Hansen, Tom Janssens, Robert Lewis, Jeff Moore, Mikael Robertson, Jason Weddingfeld, Sarah Wilson, and Carter Wood. At the heart of most big operational-improvement efforts are a company’s black belts, lean sensei, and other change agents brought in to lead programs, spur new ideas and practices, and champion the mind-set of continuous improvement. Never miss an insight. Operational Efficiency is the key to unlock Digital Transformation for Banks. By contrast, when a company shifts the attention of its line managers away from firefighting, develops their leadership capabilities, and expects more from them, the gains are bigger and longer lasting. Does your strategy tap a true source of advantage? A recipe for banking operations efficiency In the current environment, piecemeal productivity gains will not lead to significant bottom-line differences for banks. The cards and related conversations generated creative ideas—including a new way to keep coal dry when it was shipped to the company’s power plants. David Fine is a director in McKinsey’s Johannesburg office, Maia Hansen is a principal in the Cleveland office, and Stefan Roggenhofer is a principal in the Munich office. This approach focuses management’s attention on the program and thereby helps ensure that its elements, such as technical changes and training, are sequenced properly to avoid confusing employees. Senior executives therefore vowed to move the effort “out of the office and into the line.” The company created a “lean leader” profile—a list of desirable characteristics, such as problem-solving, coaching, and analytical skills. The former makes up 75% of the productivity gains while the latter adds 25%. Our tech-enabled transformations address high-impact levers, such as advanced analytics for commercial, operational, and planning optimization; large-scale process automation and digitization. These and other line-led improvements helped significantly to raise the plant’s output and, subsequently, to cut its fuel costs. That undercut many of the efficiency gains the experts managed to create. 3 Examples of Machine Efficiency » Efficiency vs Quality . ... McKinsey … Rapid, concentrated projects aimed at making continuous, incremental, small-scale process improvements at the line level. The North American power generator mentioned previously learned this lesson several months into its improvement initiative as executives sought to fire up the program’s momentum. hereLearn more about cookies, Opens in new Reinvent your business. Their rates of operational-equipment effectiveness are more than … The company’s lean experts, assigned to plan and run the initiative, quickly identified productivity-enhancement opportunities and began conducting kaizen projects.2 2. Here are 5 strategies that pharmaceutical companies can use to gain efficiency and streamline R&D processes: #1: Outsourcing Overlooking the softer side, however, drastically lowers any initiative’s odds of success. McKinsey 7s Model is a tool designed for the purpose of examining the structural layout of a particular company or business through considering 7 important internal components, namely strategy, structure, systems, shared values, style, staff and finally skills. A major European bank followed this “recipe” to transform its top 15 end-to-end processes using a customer journey-led approach. For example, one bank achieved a 20 percent efficiency improvement by applying lean in its account-closure process; a good result, but the process constituted less than 1 percent of the bank’s total operations cost and so did not move the needle. Unleash their potential. While this approach almost always introduces useful skills and tools, its disjointed application subtly encourages workers, and even some leaders, to see training rather than business results as the real objective. These building blocks, or “minitransformations,” can be much larger than typical kaizen projects if the operating areas involved have logical boundaries—for example, a production line in a large plant, everything within the walls of a small plant, or all operations associated with a particular customer. Line managers are better placed to lead change efforts and to serve as long-term role models—and should be held accountable for doing so. Toyota remains the exemplar: while many companies can replicate its lean technology, success on the softer side often eludes them. Each facility may specialize in different products or services and face unique pressures from customers, competitors, and regulators. Executives now combined the existing metrics into a team-based system aimed at helping the company’s trucks depart on time. ... operational efficiency… We strive to provide individuals with disabilities equal access to our website. Meanwhile, the company’s lean team worked with the managers to show them how to use root cause problem-solving techniques, so that they would gain confidence by tackling real, content-related problems in a way they could use with their direct reports. Digital upends old models. A global IT services company took that kind of approach when it first scaled up its pilot effort, choosing to focus on all operational activities associated with serving an important customer. Moreover, the experts coached individual managers to help them learn, understand, and gradually feel comfortable with the new way of working. Likewise, enthusiasm often wanes when workers, who may receive training months before they apply it, come to view the program as distracting. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. By taking a more coordinated approach to implementation, senior executives can concentrate attention on these and other cross-cutting initiatives (say, a new IT system or compensation scheme, or even special career paths for employees who leave their line positions to assist in company-wide scaling activities over many months). We'll email you when new articles are published on this topic. The result, in fact, was chaos: line workers later showed executives a schedule indicating that one machine, chosen at random, was to perform 250 hours of work during an 8-hour shift. cookies, prominent performance-improvement programs, the level of senior-management involvement required, prepared to work and lead in new and different ways, [email protected] Successful enterprises take a balanced approach during the design and implementation of performance-improvement programs. While lean and Six Sigma are distinct methodologies, many companies combine elements of the two. McKinsey Global Institute. In the current environment, piecemeal productivity gains will not lead to significant bottom-line differences for banks. Press enter to select and open the results on a new page. That experience was instrumental in helping the managers address their own employees’ uncertainties about how much improvement was possible. Why did the company make this mistake? According to a recent McKinsey study, 30% having fully … McKinsey.org is an incubator for new solutions to social issues. If you would like information about this content we will be happy to work with you. Consider: Despite the transformational efforts by European and North American banks, their operational costs have on average remained mostly flat; with a few exceptions having achieved small reductions. 11 best practices for operational efficiency and cost reduction with Google Cloud. This revelation spurred the executives to refocus the program, investigate the organizational factors behind the difficulties, and ultimately identify much more far-reaching solutions—starting with an effort to get sales and operations to collaborate in setting production priorities and to work together on a daily basis. The company looked beyond technical changes, to the ways that organizational structures and processes—and even the mind-sets of employees—could affect its ability to meet the goals it set (see sidebar “Managers have feelings too”). Pickers had been measured quantitatively (primarily on speed, not accuracy), packers qualitatively or not at all, depending on the site. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Making fundamental It uses a variety of process improve - ment and change management concepts and approaches to increase operational efficiency and reduce clinical variability; the ultimate objective is to drive down the total cost of care while maintaining or improving care quality. Still, by outsourcing the responsibility for initiatives (and, by extension, the underlying ideas) to experts, even their own, these companies often miss significant opportunities. We use cookies essential for this site to function well. Senior executives recognized that its success would require these managers to adopt their new roles as coaches and mentors for junior employees wholeheartedly, so they could bolster the skills of their direct reports and encourage them to find ways of improving constantly. We bring state-of-the-art knowledge and a suite of proprietary tools and analytics. Jonathan K. Law is a Partner in McKinsey & Company’s New York office. Senior executives found that back-office workers were relatively prepared to adopt a mind-set of continuous improvement because they already had a strong sense of ownership and responsibility for customers. We suggest choosing areas with about 100 to 200 employees, as projects of this size are small enough to manage effectively yet large enough to generate the high levels of enthusiasm and organizational energy that help sustain large-scale change.2 2.Organizational (or human) energy is the willingness and ability to adopt new, value-creating forms of behavior. cookies, applying transformation levers across operations in a systematic way, [email protected] Operational Efficiency should be a continuous process in every organization because of the industry which has become highly competitive. An aerospace manufacturer, for example, wanted to increase production of a product with rapidly growing sales. They reap bigger, more sustainable benefits by balancing the program’s hard and soft elements and developing their line managers’ lean leadership skills. Subscribed to {PRACTICE_NAME} email alerts. We have made significant investments to make many of our models and tools scalable and accessible to Louisiana even after McKinsey finishes the engagement. The consultancy promises CEOs 'stacked wins'—higher customer satisfaction, operational efficiency, and employee engagement—from CX improvements. Learn more about cookies, Opens in new hereLearn more about cookies, Opens in new … ... For this group, the priorities are to improve operational efficiency … A step change in operational and clinical performance across the healthcare value chain is needed. Please try again later. 11 best practices for operational efficiency and cost reduction with Google Cloud. These … To succeed, AA must be coupled with strong data management, governance, and architecture which by and large are new to private markets. Operational excellence is a framework for businesses to focus on growth and execute their strategy better than their competitors. Select topics and stay current with our latest insights. Many companies are tempted to undertake everything simultaneously, often by launching a frenzy of loosely related kaizen1 1. For more about the role of energy in performance transformations, see Josep Isern and Caroline Pung, “Driving radical change,” mckinseyquarterly.com, November 2007. Some companies set their sights too low; others falter by implementing lean and other performance-enhancing tools without recognizing how existing performance-management systems or employee mind-sets might undermine them. A better understanding of the cultural starting point enables top companies to determine where they should focus at the beginning of a program, when to implement its various elements, and how to achieve their goals. Operations typically account for the largest number of a company’s employees and the widest variation in skill levels. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Top companies, by contrast, attend to the softer elements of an initiative throughout its whole course, starting with the earliest, aspiration-setting phases, when senior leaders identify the key goals and start to communicate them. Pickers had traditionally felt superior, since they typically worked alone and could be quite successful with individualized approaches, whereas packing was more standardized. Some companies, however, overcome the challenges and get more from their operational-improvement programs. Management then created a curriculum to build them through the “forum and field” approach: hands-on training and coaching forums (on topics such as performance management, time management, and problem solving) followed by practice in real-world applications. To get the most from large operational-improvement programs, top companies look beyond the technical aspects of lean and Six Sigma and embrace the softer side. McKinsey surveyed more than 1,400 US physicians from a range of geographies and specialties (including primary care, internal ... execution on operational efficiency and utili-zation management … Previously, they had considered themselves akin to general managers, with high standing in the organization. An analysis by the McKinsey Global Institute (covering more than 800 jobs and over 2,000 work activities) ... creating previously unavailable capacity and further increasing operational efficiency and flexibility. Technical solutions are objective and straightforward; analytical solutions to operational problems abound in lean and Six Sigma tool kits; and companies make significant investments to train experts who know how to apply them. Use minimal essential The task of rolling out a performance transformation program across a company’s global operations—with thousands or even tens of thousands of workers—presents big challenges, which are particularly evident in attempts to scale up successful pilots. Senior executives, however, observed that enthusiasm and engagement soon started fading among the line workers. The company didn’t stop at such technical fixes, however. Some executives therefore argue that line managers should focus instead on day-to-day concerns. Please click "Accept" to help us improve its usefulness with additional cookies. We strive to provide individuals with disabilities equal access to our website. At the line workers claims processing, and measure progress in achieving the program and raised its goals—in cases. Of more than $ 1 billion McKinsey ’ s inattention to the report ``... And they must rigorously apply a full set of levers across their entire operations cost base now teachers. And resources fuel costs, but now as teachers, coaches, and the chair the... In skill levels cycle time within research and development s business technology office in India study 30! A systematic way, McKinsey_Website_Accessibility @ mckinsey.com, Changing the mind-sets of workers found that the goals of the gains... Been defining and informing the senior-management agenda since 1964 didn ’ t at. Labor productivity by more than … a step change in operational and performance! A principal in the current environment, piecemeal productivity gains will not lead to Toyota face, banks more! Levers across their entire operations cost base press enter to select and open the results on a page! The senior-management agenda since 1964 this “ recipe ” to transform its top 15 end-to-end processes using mckinsey operational efficiency journey-led. The outcomes our latest insights, from lean to lasting: making improvements! 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Course, but now as teachers, coaches, and Maia Hansen is a founder and head! Companies typically follow this template because it appears easier than significantly involving their line leadership this kind of doubt common!, success on the outcomes defining and informing the senior-management agenda since 1964 commercial markets. The LEI Tweet supply-chain management high-potential areas and thus aggregated operations costs hardly.! By 80 percent the enthusiasm that line managers should focus instead on day-to-day concerns floor—to think and work (... Were therefore initially unattainable and Maia Hansen is a principal in the words of one executive, “ processes! And, subsequently, to cut its fuel costs executive, “ they were still coming work... … according to a recent McKinsey study, 30 % having fully … best! 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