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In this article, we highlight four key pandemic accelerations that are now being incorporated into the emerging operating models of leading companies. Practical Guide to the Digital Operating Model Determining the most effective operating model for your business can prove challenging. Read the Bain Brief: New Bank Strategies Require New Operating Models Looking across a wide landscape of companies, we see that these COVID-19-driven changes fell into four broad categories, which can serve as useful pillars of an operating model built for adaptability and speed in the face of uncertainty. The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. In our experience, a set of common beliefs often helped reassure some leaders that they didn’t really need to dive into these new ways of doing business: the company already operates at great efficiency; large companies can’t possibly move as fast as a start-up; their employees can’t be mobilized and energized quickly; you can’t put customers first all the time. CEOs are actively taking advantage of this particularly malleable moment, where new ideas are becoming the foundation of new ways of doing business, to reinvent their companies in ways that simply make more sense for today’s—and tomorrow’s—economy. McKinsey estimates that the top 15 US banks spend approximately $3 billion each year, combined, on disputes processing. Climate change was a reality, Looney said, and the world would soon invest “trillions of dollars” in “replumbing and rewiring the global energy system.” To lead in this huge opportunity, BP would have to change and would need to become leaner and faster-moving to do so quickly. 1. The McKinsey honeycomb’s outer ring broadly aligns with the other elements of the Operating Model Canvas: The Suppliers box in the Canvas has already been covered in the value chain The Organisation box is covered by “Organisation” and “Capabilities and Culture” The exigencies of the pandemic have given many companies a tangible experience of operating at unprecedented speed (exhibit). CEO Christophe Weber insists that the decision was also good for business: “Doing the right thing for patients is highly motivating for our employees. 77 0 obj <>stream This bank kicked its digitalization efforts into high gear and launched fully redigitalized offerings online in just eight weeks. Executives at the company say that their emphasis on teams empowered to quickly solve the call-center crisis allowed the system to get back up in days, as opposed to the months it would have taken if the company had relied on its standard hierarchy. ... however, mask the wide variation of performance at the individual bank level. Use minimal essential Reinvent your business. Yet, Looney said, the pandemic had reinforced the company’s commitment to its new mission: “The more we understand the current situation, the more I am convinced that the decisions we took in February are right, for three reasons: increasing uncertainty surrounding the future demand for oil—and volatility in oil markets; increasing awareness of the fragility of the world we live in—and of the opportunities to build back better, greener and more resilient; increasing attractiveness of stable returns from some renewables—to which capital has continued to flow.” Purpose, above all else, enables forthright decision making at speed. Thanks to the pandemic, many companies have embarked on experiments in which they’ve organized around outcomes, in flattened structures that replace physical colocation with hybrid models. Reflection is a crucial first step because so many COVID-19 crisis changes were fueled by adrenaline rather than careful planning. Business leaders tell us that the metabolic rate of their organizations has soared. Many may not be sustainable without substantial adjustments, while others may not be useful outside of a full-on crisis such as the pandemic. FINANCIAL SERVICES Optimizing banking operating models From strategy to implementation September 2012 kpmg.com KPMG INTERNATIONAL And empowerment truly happens only when leaders let go of traditional hierarchical management. The full executive team must then decide, stack hands, and explicitly settle on what changes to the old operating model will serve as the foundation of the new normal. The company restructured its P&Ls and introduced new management rhythms, such as quarterly business reviews. While purpose can dictate clarity in priorities, it is equally necessary for organizations to build the mechanism to cascade these priorities to the front line. As our colleagues have noted elsewhere, businesses reacting to the COVID-19 pandemic have produced previously unimagined gains in speed and productivity, even as the very nature of their workplace was transformed. When the COVID-19 pandemic hit, Verizon suspended in-home installation appointments. But when it saw how critical the need was, it delivered the strengthened digital product in record time. See “2020 Annual General Meeting: Chief executive officer,” BP 2020 Annual General meeting, May 27, 2020, bp.com. Gregor Jost is a partner in McKinsey’s Vienna office, Deepak Mahadevan is a partner in the Brussels office, David Pralong is a senior partner in the Auckland office, and Marcus Sieberer is a senior partner in the Zurich office. Often, these teams were assembled to swiftly address specific outcomes, such as operational challenges born of the pandemic, which has meant decentralizing decision authority to extend it to the teams themselves. One telco, for example, originally planned to train 400 employees in agile practices and product management over three months. Developing technology that enables remote work creates new opportunities for efficiency. Clear, commonly understood processes help ensure that the flat, decentralized structure doesn’t spin out of control. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. The bank has already realized productivity gains and reduced operating costs, and leaders see the potential for much more. They fast-forward historical processes.”. Operating as one U.S. Bank is not a fancy business model or a new centralization strategy — it is merely a crisp expression of the culture we are building across our enterprise. The result: COVID-19 is shaping a new kind of operating model. Other companies have gone even further by giving employees the tools for success in a nimble organization. zeb project experience suggests that successful TOM projects in general address six dimensions (see Figure 1): Operating model design. Pioneers that had embarked on full transformations based on principles such as reallocating people and priorities shifted quickly toward projects that create value, extending decision-making authority downward and improving capability building in dynamic times well before the arrival of COVID-19. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. If the source of trust in payments is wrung away from the traditional banking system, the results will be Why banks need advanced operating models? Marcia Blenko, advisory partner of Bain's Organization practice, discusses some of the most useful design principles for building a winning operating model. Spurred by the pandemic, it instead trained 4,000 people. During the COVID-19 crisis, technology resources have been steered toward two main goals: solving customer needs quickly and facilitatingthe work of customer-facing teams. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. Verizon created new virtual training programs and retrained more than 20,000 workers during the COVID-19 pandemic. The 2020 McKinsey Global Payments Report 27 A burning platform: Revamping bank operating models for payments The payments segment is performing well for banking—but not for banks. hereLearn more about cookies, Opens in new Top leaders also tightened their own connection to the front lines, flattening the organization in response to their need for greater speed and focus. Spurred by their experience during the COVID-19 crisis, more and more companies are shifting their people model to one that values skills-based mobility and contributions instead of location-based work and standard functional expectations. Boundaries and silos have been removed; new technology has been adopted quickly, delivering digital products that customers suddenly needed; decision making has accelerated and been pushed further down in the organization. Across a wide range of industries, we see companies now trying to make some or all of these operating-model shifts permanent. The success, and in some cases the survival, of many companies during the pandemic has depended on the willingness and ability of leaders to quickly shift to and adopt behaviors and practices that best suit the new reality. The KPMG Target Operating Model is based on a deep understanding of how transformation works within, and across, an enterprise. Other companies found that the pandemic confirmed their purpose in a highly tangible way. It created microsites in the offshore location, staffed by teams that ensured that all call-center personnel received the technology needed to work from home. They needed to accomplish as much as possible with less—time, resources, people—than they had before. Previous McKinsey research supports the conclusion that such agile, speed-oriented operating models are the ones that companies need at moments of great change and instability. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. SAP’s contracts at Eskom and Transnet have been brought into question, while Bain & Co stands accused of devising a defective operating model for SARS. Some were minor adjustments, while others were radical changes to the way companies operate. A Latin American bank reduced the number of customer complaints by 25 percent while achieving an equivalent saving of 30 percent of total employees. SWIFT, a European payments company, launched what it calls the DevSecOps academy, a virtual-training system for employees to strengthen their engineering capabilities and become fit for the future. Many companies have tested aspects of such models before and during the crisis with convincing results: total clarity on priorities and goals, nimble resource allocation, and reduced handovers can boost productivity by 20 to 40 percent. Finally, deploying at scale is typically unleashed by a deep transformation in one area (a frontrunner that is a good representation of what’s possible at scale), followed swiftly by company-wide transformation. Digital upends old models. They are actively taking advantage of this particularly malleable moment, where new ideas are becoming the foundation of new ways of doing business, to reinvent their companies in ways that simply make more sense for today’s—and tomorrow’s—economy. Implementing the next-generation operating model can reduce these operating expenses by 25 to 40 percent. These shifts occurred at all kinds of companies across many different industries. One pharma company recently implemented a quarterly-business-review process to cascade priorities to its working teams. Banking business models of the future Dr. Daniel Kobler Partner Banking Innovation Leader Deloitte Dr. Stefan Bucherer Senior Manager Consulting Deloitte Reflection may take the form of a systematic review of the current state (“dispassionate assessment”), a blueprint for the new model, a value sizing, and a road map of value capture. McKinsey suggested banks should take significant steps to reconfigure and restructure their operations, including concentrating relationship managers in … The traditional compliance model was designed in a different era and with a different purpose in mind, largely as an enforcement arm for the legal function. Instead, the company developed a new tool designed to help Verizon customers install new equipment and troubleshoot issues at home with remote assistance from a technician. 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. While some smaller, more focused banks are delivering respectable growth, others continue to struggle in the low-rate environment. %%EOF McKinsey Global Institute ... or building a successful ecosystem platform requires banks to rethink their value proposition and develop an operating model that is different from their traditional business. When that option seemed unsafe, the company quickly leveraged smart glass technology that allows an expert in a remote location to tap into a piece of equipment, pull data from it, and change the settings as needed. Most transformations fail. 65 0 obj <>/Filter/FlateDecode/ID[<3718A3685D553F45BDB074F7C524E688><927B3391B50E5147899AAB174CEB5E1D>]/Index[44 34]/Info 43 0 R/Length 99/Prev 170127/Root 45 0 R/Size 78/Type/XRef/W[1 2 1]>>stream h�bbd``b`�$�A,f �& b�LF@�%D��M�J@�n�H H1�)kȔE n6�/M@�q6�XZ���Ȱ����4�?�o 6< But by forcing them into new, more urgent modes of work, the pandemic has given many companies a glimpse of how they might operate better, faster, and more adaptably in the future. Compliance organizations used to promulgate regulations and internal bank policy largely in an advisory capacity with a limited focus on actual risk identification and management. Under pressure from multiple forces, successful banks will develop a new operating model better suited to changing times. As part of these efforts, the bank reset its target services and its operating model by digitalizing product offerings, reinforcing remote services, and pushing more management power to remote workers. People are valued for their skills and contributions, not their place in a hierarchy. Leaders have spent more time in direct connection with teams, while teams of cross-functional, high-caliber talent have assembled and then reformed to address the company’s—and its customers’—most critical needs. The efforts of one Asian telco show how far some companies have been willing to bend their structure to adapt during the pandemic. Throughout the pandemic, Johnson & Johnson has been able to keep production flowing for its medical devices and consumer products by relying on technology. In the crunch of the pandemic, a singular purpose became more important than ever. One South Asia bank is accelerating its operating-model transformation because of its COVID-19 experience. For instance, they are providing employees with the IT infrastructure required to work remotely in an effective way. Faster decisions require more empowerment of the frontline team. People create and sustain change. 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