Successful business transformation requires next-generation operational excellence enabled by process insights. That was the message delivered by Jim Pallotta, associate partner service operations at McKinsey & Company, during the New York stop on the Celonis World Tour 2023.
Businesses are being driven to transform by factors including, macroeconomic headwinds, a workforce seeking purpose, a renewed focus on Lean and Six Sigma practices, technological advances and an acknowledgement that agile methods can deliver rapid innovation. Unfortunately, most transformation initiatives never reach their full potential. According to McKinsey, 70% of transformations fail due to organizations not aspiring to their full potential, delivering more slowly than anticipated, and maintaining less value in the long term.
To succeed, transformations should be end-to-end, improving financial performance, organizational health, and delivery capabilities, all of which are underpinned by next-generation operational excellence.
During his presentation to a crowded room, Pallotta said operational excellence brings together the following core elements:
Purpose for why the organization exists and a strategy to achieve this common cause
Principles and behaviors to bring about “strategic vision and establish a culture of trust, respect, and constant innovation”
Management systems that “develop leaders, build competency and drive desired behaviors”
Technical systems that “eliminate waste and deliver value to stakeholders”
Technology that “accelerates human capabilities to continuously improve”
In an article published by McKinsey, authors Ted Iverson, Ferran Pujol and Joris Wijpkema describe next-generation operational excellence as “uniting an organization around a common purpose, process, and systems.”
Pallotta said that next-generation operational excellence brings together a mix of digital solutions (e.g., virtual collaboration, performance tracking), hyper automation technologies (e.g., process automation, low-code/no-code tools) and analytics and AI (e.g., machine learning, process insights).
Process insights can be used as a tool for operational excellence in three key areas including ownership, productivity and process intelligence.
First, process insights can help organizations understand who is responsible for high-priority processes “where the value stream crosses several domains” and which can be linked back to specific KPIs and objectives in the transformation plan. They also help companies know whether people are empowered to act on insights learned from that data.
“One problem we see a lot in transformations is you have an established journey, but you don’t have an owner over who is going to do that work and who is going to manage the improvements that go with it,” said Pallotta.
Second, process insights can help determine if workers are engaged and productive.
“We know how productive people can be, because we have a historical record of how they’ve operated in the past at an individual level,” said Pallotta.
Worker engagement however, is more important than productivity. If workers are not engaged, Pallotta said it’s an opportunity for managers to dig deeper, understand why a lack of engagement exists and act with techniques such as coaching when necessary.
Based on process throughput, organizations can also identify what their theoretical time to execute is, compare that to the actual time to execute and focus improvement efforts on the areas where the biggest gaps exist. The same type of calculation can be done for accuracy. For example, Pallotta said organizations can use process insights to determine the “20% of the cases that are causing 80% of the rework.”
Third is process intelligence, which helps organizations answer three key questions:
Do they have the necessary information sources to perform a root cause analysis when a process starts to perform less well than expected?
What is the current process demand and how does this compare to the historical demand?
What is their theoretical and actual capacity?
Pallotta said that by achieving next-generation operational excellence, teams can drive “holistic and meaningful” impact, such as 30% increase in labor productivity, 25% increase in employee retention, and 20% decrease in operating costs.
He drove the point home by concluding his session with a case study about a large bank, which turned to McKinsey for help developing a 3-year strategic plan. As part of a broader transformation effort, the institution wanted to improve its top three core journeys.
By using process insight tools, McKinsey was able to perform an analysis that would normally take up to 3 months in just 6 weeks. By looking at over 100,000 customer journeys, the team was able to map the bank’s processes and identify the pain points, establishing an as-is process model that could be used as a starting point for future transformation efforts. As a result, McKinsey was able to identify $5M in opportunities within just these three journeys.
Supply chain transformation is a boardroom issue like never before. Networks, products, and mindsets all need to be re-designed to take on new challenges.
Watch: Process Transformation in Supply Chain (on-demand webinar with Celonis and McKinsey)
World Tour 2023 features 10 stops around the world including Munich, Milan, San Francisco, Madrid, Amsterdam, Tokyo, New York, London, Paris and Chicago. Each additional stop features Celonis ecosystem partners, customers and process experts from across industries sharing best practices and knowledge.