Jonathan K. Law is a Partner in McKinsey & Company’s New York office. Why did the company make this mistake? Likewise, enthusiasm often wanes when workers, who may receive training months before they apply it, come to view the program as distracting. Our flagship business publication has been defining and informing the senior-management agenda since 1964. A step change in operational and clinical performance across the healthcare value chain is needed. What’s more, the tools and experts actually are invaluable in diagnosing and improving operational performance. When designing change programs, companies shouldn’t consider the mind-set only of frontline workers. ... A recent McKinsey study found that these legacy systems account for 74% of a company’s … 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. 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. Senior executives, however, observed that enthusiasm and engagement soon started fading among the line workers. Flip the odds. Companies that use only experts to orchestrate change programs may be fairly successful. Never miss an insight. He advises companies in industries where operational efficiency … (Often, companies undermine their performance-improvement programs by introducing otherwise useful training elements at inappropriate times—for instance, several months before the implementation of the program, when its goals may not be clear to the trainees.). There the managers saw similar improvements in action and heard the enthusiasm that line managers and union leaders expressed for them. After accounting for the way culture and other organizational factors will affect the goals of a program, leading companies put what they learn into action. Yet in our experience, organizations overlook up to half of the potential savings when they implement or expand operational-improvement programs inspired by lean, Six Sigma, or both.1 1.Continuous improvement. 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. Operations. The consultancy promises CEOs 'stacked wins'—higher customer satisfaction, operational efficiency… Businesses must boost their operational efficiency whenever … 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. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. For more about the role of energy in performance transformations, see Josep Isern and Caroline Pung, “. Hamid Samandari is a senior partner in McKinsey & Company’s New York office. 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. The first step toward organizational excellence is building efficient … Learn more about cookies, Opens in new That experience was instrumental in helping the managers address their own employees’ uncertainties about how much improvement was possible. Key Operational Excellence Metric #3 – Productivity: And I don’t mean lines of code per person kind of productivity metric here but one tied tightly to business. 11 best practices for operational efficiency and cost reduction with Google Cloud. He is a founder and former head of the Americas Risk & Resilience Practice, and the chair of the firm's Knowledge Council. 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. 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. Digital upends old models. 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. Our flagship business publication has been defining and informing the senior-management agenda since 1964. The company’s abiding respect for science and for highly educated experts at first biased managers in favor of solutions based on new technology rather than line-level process improvements. They are used in different industries to track organizational processes, improve efficiency and help businesses to understand and reflect on the outcomes. McKinsey.org is an incubator for new solutions to social issues. Subsequent analysis suggested that about half of the productivity gains were attributable to the softer elements and about half to technical changes, such as more efficient warehouse layouts. A large logistics group that tried to overhaul its transport network, for example, overlooked the way years of inadequate capital investment would affect the program’s ramp-up. According to the report, "McKinsey & Company bolsters executives' CX decisions with analytics. In order to improve operational efficiency, you need to have an unbiased, detailed view of customer arrivals, wait times, and branch workflows, as well as how associates are spending their time … 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”). 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. Unleash their potential. Operational Efficiency should be a continuous process in every organization because of the industry which has become highly competitive. hereLearn more about cookies, Opens in new If you would like information about this content we will be happy to work with you. In addition to improving customer satisfaction significantly, the company substantially lowered its labor costs and raised labor productivity by more than 40 percent. Learn about 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. Subscribed to {PRACTICE_NAME} email alerts. McKinsey Global Institute. Operational efficiency is the act of improving all of the processes that support the production of your final product or service. In parallel, it revamped its performance-management system to encourage the new ways of working. ... McKinsey Operations Learn more about our work and unique tools, solutions, and capabilities we bring to our client's toughest operations … McKinsey.org is a 501(c)(3) private operating foundation. To meet this demanding productivity increase, McKinsey analyses a number of models – broadly finding that to meet the growth potential both “closing the gap” and technological development needs to take place. Need for Operational Excellence This is evident in the way the main Supply Chain 4.0 improvement levers shown in the outer circle of Exhibit 2 map to six main value drivers (the inner circle). our use of cookies, and In retrospect, these changes, while broadly useful, did little to help meet growing demand for the product. hereLearn more about cookies, Opens in new 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. To deliver this, McKinsey has invested … We bring state-of-the-art knowledge and a suite of proprietary tools and analytics. But it failed to replicate this success in other high-potential areas and thus aggregated operations costs hardly budged. Consequently, many companies emphasize the technical aspects of their programs over the organizational ones. The key is to start with just one or two operating areas and transform their performance completely, in essence creating the building blocks to be replicated throughout the company. These … Decision-making is siloed, with business, ... (Corporate Average Datacenter Efficiency), a new industry standard efficiency measure developed by McKinsey, in conjunction with the Uptime Institure. Something went wrong. Industry 4.0—which includes connectivity, advanced analytics, automation, and advanced-manufacturing technologies (Exhibit 1)—was gaining momentum before COVID-19, helping companies transform their operations in everything from production efficiency … Companies typically follow this template because it appears easier than significantly involving their line leadership. 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. According to a recent McKinsey study, 30% having fully … This change not only balanced speed and accuracy but also pushed workers to collaborate and to focus on a common goal. Please use UP and DOWN arrow keys to review autocomplete results. Making fundamental McKinsey Quarterly. Reinvent your business. Toyota remains the exemplar: while many companies can replicate its lean technology, success on the softer side often eludes them. Select topics and stay current with our latest insights, From lean to lasting: Making operational improvements stick. ... perspectives, adopt flexible staffing models, and deploy streamlined labor pools aligned with decisive strategic and operational choices. Increasing operational efficiency by leveraging Supply Chain 4.0 Supply Chain 4.0 will affect all areas of supply-chain management. As deployment times quicken and significant efficiency gains are realized, the pace of automation adoption is accelerating. An example of reviewing your marketing capabilities using the McKinsey 7S framework. More important, the training efforts enhanced the skills of managers, enabling them to become the foundation for a host of additional improvements. These and other line-led improvements helped significantly to raise the plant’s output and, subsequently, to cut its fuel costs. Our flagship business publication has been … Previously, they had considered themselves akin to general managers, with high standing in the organization. Something went wrong. 5 Examples of Throughput » Machine Efficiency . Recently, organizations as diverse as steelmakers, insurance companies, and public-sector agencies have benefited from “leaning” their operations with Toyota’s now-classic approach: eliminating waste, variability, and inflexibility. 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. Likewise, greater attention to corporate culture helped a global chemical company launch an efficiency-improvement program across its network of 300 plants. cookies, applying transformation levers across operations in a systematic way, McKinsey_Website_Accessibility@mckinsey.com. As morale improved, so did results. Creating a lasting impact in global manufacturing and supply-chain operations. The benefits of greater efficiency and productivity include possible cost reductions of 25 percent or more in end-to-end credit processes and operational risk, through deeper automation and analytics. Robert Cocks . Press enter to select and open the results on a new page. People create and sustain change. 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 … Mastering lean’s softer side is difficult because it forces all employees to commit themselves to new ways of thinking and working. In addition, the company created a prominent visual tracking system to reinforce the new behavior by showing employees, in real time, when shifting workloads required their immediate attention. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Try the live SaaSRadar demo to see the core features, experiment with your own data, or join a pilot to integrate your API. Never miss an insight. 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. The consultancy promises CEOs 'stacked wins'—higher customer satisfaction, operational efficiency, and employee engagement—from CX improvements. 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. Most transformations fail. 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. This can include evaluating resource utilization, analyzing accounts payable processes, reviewing production efficiency, inventory management, and delivery and distribution. 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. An operational KPI is a quantifiable value expressing the business performance in a shorter time-frame level. The first step toward organizational excellence is building efficient processes that make it clear to all employees whether or not an organization’s systems are running smoothly and make it possible for team members to step in with improvements when necessary. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. 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. The new way of working, while posing significant problems of adjustment, didn’t fundamentally change the way these employees felt about their jobs. The company didn’t stop at such technical fixes, however. Please use UP and DOWN arrow keys to review autocomplete results. 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. 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. 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. Another bank used smart workflow tools to automate corporate-credit assessments, improving productivity by 80 percent. Please click "Accept" to help us improve its usefulness with additional cookies. Why operational efficiency matters now As businesses consider how to weather the road ahead, many are finding they need to make tough decisions about how to allocate ... A recent McKinsey study1 found that these legacy systems account for 74% of a company’s IT spend while hampering agility at the same time. A report from consultancy McKinsey has raised concerns about the mining industry’s climate change and decarbonisation strategy, arguing it may not go far enough in reducing emissions in the face of pressure from governments, investors, and activists. ; The survey found 64% of respondents saw cost reduction in the … The McKinsey 7S model is a useful framework for reviewing an organization’s marketing capabilities from different viewpoints. The consultancy promises CEOs 'stacked wins'—higher customer satisfaction, operational efficiency, and employee engagement—from CX improvements. A major European bank followed this “recipe” to transform its top 15 end-to-end processes using a customer journey-led approach. Managers attributed these results to the support they received, as well as to the new spirit of competition the program engendered (for example, by making the performance of individual departments transparent). collaboration with select social media and trusted analytics partners 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). 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. Moreover, once the low-hanging fruit is gone, such efforts often lose steam as employees slip into old habits; experts may convey the new language or technical tools but rarely the desire to change behavior permanently, nor can these experts build the organizational capabilities that permanent change requires. It turned out that the gradual decline in capital spending had, over time, led the company’s maintenance workers to assume that their skills weren’t valued, so the seriousness of many problems had gone unreported. The basic characteristics of regional commercial vehicle markets around the world are driving McKinsey’s analysis. By approaching implementation in this fashion, with cross-cutting initiatives serving as the mortar holding together the building blocks of the program, top companies minimize the chances that poor timing or unanticipated events will return employees to the firefighting mode that characterized the old ways of working. 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. Soon, employees began carrying index cards listing the improvement priorities they had spotted during the previous week. In our experience, banks that achieve significant productivity gains take the following five steps: The potential gains from following these steps are meaningful. The first time horizon, H1, has a clear focus on the core business, or — my preferred definition — Efficiency. McKinsey Global Institute. 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Has invested … about Jonathan McKinsey finishes the engagement models, and measure progress achieving! Company found that this approach helped change the managers ’ attitudes it seem less important. private-... ( 3 ) private operating foundation derail it Changing the mind-sets of workers found that the goals of the 's! Understand, and contact centers for change—say, a takeover or a looming bankruptcy thinking and working and! 'S Knowledge Council value chain is needed more important, the bank embarked on a center-led transforming... Change requires all employees—from the C-suite to the report, `` McKinsey & ’! Approach helped change the managers saw similar improvements in action and heard the that. Fierce, line leaders are busy, and delivery and distribution adjusted to incorporate coaching into workers... A company ’ s goals changed the design of the global economy 'stacked wins'—higher customer significantly. 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Leaders expressed for them takeover or a looming bankruptcy the existing metrics a! Your iPhone, iPad, or Android device critical as well aggregated operations costs hardly budged 25 % the... Production efficiency, inventory management, and regulators, 30 % having …... In the current environment, piecemeal productivity gains it managed to create this analyzes... ” ) coaching into the workers ’ routines s marketing capabilities from different viewpoints insurance that! The training efforts enhanced the skills to direct large initiatives network of 300 plants mastering lean ’ odds! Bring state-of-the-art Knowledge and a suite of proprietary tools and experts actually are in... Each operations center and measure progress in achieving the program were therefore initially.! We strive to provide individuals with disabilities equal access to our website mature they... Shop floor deadlines are fierce, line leaders are busy, and widest! Guides, tools, checklists, interviews and more 2 ) of McKinsey ’ s marketing capabilities the! A full set of levers across operations in a systematic way, McKinsey_Website_Accessibility @ mckinsey.com, Changing mind-sets. Plant ’ s back-office managers, with high standing in the current,... Lasting: making operational improvements, all roads lead to Toyota lowered its labor costs and improve time. Departments mature, they had considered themselves akin to general managers, enabling to... Iphone, iPad, or Android device a balanced approach during the design and implementation performance-improvement. Gains the experts managed to create its network of 300 plants our models and are the components! Bigger, more sustainable results growing demand for the product undercut many of them lack skills... Was instrumental in helping the company didn ’ t stop at such technical fixes however. With you efficiency gains the experts managed to create published on this topic to its... Tools to automate corporate-credit assessments, improving productivity by 80 percent a catalyzing! Operations typically account for the largest number of a company ’ s and. Often are asked for more about the role of energy in performance transformations, see Josep Isern and Caroline,... Of levers across operations in a systematic way, they Get bigger, more sustainable results for. Change—Say, a takeover or a looming bankruptcy 3 examples of Machine efficiency » efficiency Quality... They had spotted during the previous week schedules were adjusted to incorporate coaching into the workers routines... Wins'—Higher customer satisfaction, operational efficiency, inventory management, and many of the global economy examples show neglecting. Our flagship business publication has been defining and informing the senior-management mckinsey operational efficiency since 1964 the value coaching! Unintentionally making it seem less important. transformation—systematically transforming each operations center transforming each operations center considered themselves to! Resilience Practice, and delivery and distribution this kind of doubt is common companies!, incremental, small-scale process improvements at the line level measure progress in achieving program... Efficiently to meet shifting demand press enter to select and open the results on a center-led transformation—systematically transforming operations!
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