Process mining and transparency are at an inflection point and foundational building blocks underpinning continual improvement programs that will help organizations navigate economic, inflation and supply chain volatility. The big question: How do you scale?
Julian Fischer, Partner at McKinsey & Company, Germany, has insights and advice for companies tackling those topics with urgency.Fischer is a partner at McKinsey & Company. Based in the Munich office, he has spent the last decade in operations leading digital transformation programs with global companies to improve service, productivity, and capital. He primarily works with clients in the life sciences industry and helps them digitize their value chains end-to-end. Fischer is responsible for McKinsey's global work on process mining.
We caught up with Fischer to talk about managing through volatility, the role of transparency, future proofing processes, learning from other industries, fundamental building blocks for change and how to scale continual process improvement.
Here's a look at the takeaways from our chat.
Process mining, efficiency and managing through macroeconomic volatility: Fischer said efficiency has become a first priority for companies since they are reluctant to pass along continual price increases to their end customers. He said:
"This really is one of the moments where driving efficiency gains is more important than ever. With the volatile macro environment, cost pressures and inflation we are seeing a number of factors coming together—especially in the operations space. The clients I work with are thinking through how to get the best results and the best efficiency in the way they operate – their processes and their teams. They are focusing on how the current workforce can add the most value and really make a difference in today's environment."
What functions are being prioritized for efficiency programs? Fischer said, "supply chain is definitely a big one on the list." For instance, the Order-to-Cash process holds a lot of opportunities for process efficiencies. "We see huge differences in the degree of automation in companies," said Fischer. "We have some companies that are still managing their processes fully manually, while we see other industries that are much farther ahead. With the right ambition level and right technology, it's possible to automate a lot of processes that are currently manual and repetitive and where the human factor does not add much value."
Where do you start? Fischer said the first step on this continual improvement journey is to gain transparency. Once you have full transparency into processes, you can understand where the best returns will be, set a baseline for efficiency targets and identify where automation can add the most value. Companies can then figure out their North Star and create a vision for the future and learn from other industries that are farther along.
Drawing on lessons from other industries is critical since many processes and functions apply across the board such as in supply chain planning. Fischer said:
"If you take an area like planning, it makes a difference whether you source an active ingredient in the pharmaceutical world or whether you are sourcing the parts to build a car, but the basic planning steps behind both are relatively similar. There are many approaches that can be transferred across industries. I always encourage the clients that I work with to search out that best practice, and explore where it can be applied to their specific business challenges.”
What industries are farthest along with process continual improvement? Fischer said consumer product goods (CPG) companies and retail are industries that can provide some early inspiration. Why? Those industries have had to manage tight profit margins for many years and aggressive efficiency targets have been a fact of life for them, explained Fischer. In addition, those industries have been more exposed to volatility in the past. Industries that have benefited from more stable macro-environments, say automotive, have had less urgency to streamline processes compared to consumer goods businesses, but now the time has come for them to also look for process efficiencies.
"When you look at the planning process at consumer goods companies today, there's a dramatically increased pace to how they plan and how they create scenarios. And they were already fast before. Other industries are now catching up to understand what these companies do and how they work. Competitors don't directly call each other to share best practices, but there are many public platforms where learnings are shared."
The role of volatility as efficiency catalyst: Fischer comments that volatility has accelerated the pursuit of cost efficiencies. He said:
"If you're operating in a very stable environment with low ups and downs, predictable customer behavior and stable supply chains, things are relatively easy. You don't need to build in the agility to react to changes. You can afford to be a little slower. The changing macroeconomic environment and the COVID-19 pandemic has changed the rules for everyone."
"Volatility will be here for the long term. Of course, it depends on which industry you're in, but volatility is here to stay."
What's in the toolbox for continual improvement and navigating volatility? Fischer said process mining will play a critical role because it provides transparency into what is happening. Task mining is also useful because it can document work outside of the process such as emails and Excel documents. Automation technologies such as Robotic Process Automation (RPA) are also helpful to scale. However, transparency is the key component.
"Automation isn't the challenge, it's rather the question. What makes most sense to automate? Where should you invest? And what does the optimal streamlined process look like when it is automated. It does not help to automate a process that is inherently messy. That doesn't really work. I can’t emphasize enough how important it is to take that first step to create full transparency."
The role of systems transformation. Fischer goes on to say: “The most exciting – and boring – topic at the moment is master data management and how systems are being maintained.”
"For me, having a clean set of master and transactional data and an integrated ERP system as a base layer is the first critical step. Every single company that I work with that has invested in that layer, is able to gain exponential benefits from their digitization use cases. Having a real mastery of the ERP system and master data management is a game changer."
Fischer adds that master data management can help identify the data that doesn't have to be updated because there will be no incremental gains. Master data management ensures that you have the right key performance indicators and accuracy of corporate systems. "It's a difficult journey but mastering that initial layer of the tech stack is the foundational step to building digitization use cases," he said. "If I look back ten years, pretty much nobody was really interested in talking about master data management, ERP systems and integration and now it's a hot topic. That is a welcome development."
Scaling transparency and process mining: Fischer said the two most critical enablers to scale process mining and provide full transparency, is having top executives’ buy-in and a clear case for change. He said:
"The current macroeconomic environment makes gaining buy-in easier than it ever has been because everybody is aware of the situation. It's a very volatile, very disruptive time. It's a time, though, where efficiency and transparency and the need to adopt the right technologies is more critical than ever. This makes it easier to find allies to help lead the change. The first task is to find somebody at the top management level who is passionate about the potential of process mining and is keen to sponsor."
A top-down approach, however, must be complemented by bottom- up participation in transparency and process mining. "There also needs to be commitment from the various business units. I think it's a combination of top down and bottom up, supported by strong use cases and clarity of the value that is at stake," said Fischer.
Scaling will also require communication: Companies need to think through their change story and how to integrate it into the way the business works. Fischer recommended that companies create a Center of Excellence (CoE) that can collaborate with business units and outline how to use process improvement for day-to-day operations.
Whether a company leans toward a top-down or bottom-up scaling approach will depend on corporate culture, but Fischer said ideally there's a combination of the two approaches with a CoE. Fischer added that once a few use cases are successful and companies redesign the way they work through process mining, it's easier to mobilize the organization.
Process excellence to future proof: Fischer said sustainability of process excellence programs will require ongoing effort and cultural change. By diagnosing process issues and redesigning them you can enable transformation programs. "Just being able to monitor processes over time helps future proof processes and ensure a newly designed process is actually being followed," said Fischer.