Agile approach

In the wake of radical and rapid disruptions from Covid-19, organizations have a window of opportunity to rewrite and transform their entire operations strategies

The coronavirus pandemic has challenged supply and demand norms across sectors, and the speed of disruption exposed points of weakness and fragility in global supply chains and service networks. Yet at the same time, the crisis forced operations teams to achieve long-term ambitions that would have been considered impossible before the virus. Leading retailers boosted ecommerce capabilities virtually overnight to deliver food to millions of customers confined to their homes. One European healthcare provider jettisoned its two-year plan for the rollout of e-health services so that in only ten days it could deploy a new, remote-treatment system to thousands of patients.

These are just two examples among many that show how companies took quick action to adapt, achieving new levels of visibility, agility, productivity, and end-to-end customer connectivity—while preserving cash.

Let no learning go to waste. Many business leaders are looking for ways to embed what they have discovered during the Covid -19 crisis, and they’re now aspiring to create a new kind of operational performance, one where increased innovation enables agility, and agility creates resilience – and at lower cost.

As response efforts converge with the ambition to transform, our ongoing work and discussions with leaders in multiple industries suggest that five themes will shape resilient and reimagined operations on the other side of Covid -19.

Building operations resilience
Successful companies will redesign their operations and supply chains to protect against potential shocks.

More companies will set up dedicated supply-chain risk-management functions, working alongside the manufacturing, procurement, and supply-chain functions. The resulting actions may involve accelerating decentralization, deploying inventory closer to customers, and developing crisis-response plans and capabilities.

Companies will also revisit their global asset footprint. The once-prevalent global-sourcing model in product-driven value chains has steadily declined as new technologies and consumer demand patterns encourage regionalization of supply chains. The trend is likely to accelerate, as companies reassess the risks of globally integrated asset networks and supply chains. Services may follow a similar pattern, with providers emphasizing regional operations, slowing the last decade’s growth in global services trade.

To win in the next-normal environment, companies will need to achieve this step-change in resilience without unsustainable increases in their costs.

Accelerating end-to-end value-chain digitization
Covid 178 aA lot of what had been done to deliver on visibility was based on algorithms – but even algorithms cannot help predict an unprecedented phenomenon.

Accelerating end-to-end operations digitization will be critical in resolving the long-standing trade-off between efficiency and resilience, and competitiveness will be based on technology. Those organizations who previously invested in end-to-end visibility of supply, inventory and demand were much better prepared to accommodate the significant changes the crisis brought to each of those areas. Going forward, this will likely change the way companies are working, with daily decisions and much tighter alignment between operations and the commercial/sales functions.

In another example, many companies were able to continue production and delivery to customers by automating processes or developing self-service systems. These approaches can accelerate workflows and reduce errors in the short term, and when applied end-to-end, they can transform the customer experience and significantly boost enterprise value. For example, in call centers, the application of robotic process automation (RPA) for back-office and invoicing tasks can free up agents to deal with complex queries, areas where they could add the most value.

The crisis demonstrated again that low-cost, high-flexibility operations are not only possible – they are happening and they are beneficial. Research by the World Economic Forum, in collaboration with McKinsey, shows that companies often achieve significant and simultaneous improvements across multiple performance measures when they integrate advanced digital technologies across the value chain. Digital approaches can transform customer experience and significantly boost enterprise value when applied end to end.

Rapidly increasing capital – and operating-expense transparency
To survive and thrive amidst the economic fallout, companies can build their ‘next-normal’ operations around a revamped approach to spending that enables a different cost structure. And they will need to make these changes quickly.

Organizations can begin with an in-depth review of their operating costs. Technology-enabled methodologies can significantly accelerate cost-transparency work, compressing months of effort into weeks or days. These digital approaches include procurement-spending analysis and clean-sheeting, end-to-end inventory rebalancing, and capital-spend diagnostics and portfolio rationalization.

Operations functions can also play a central role in companies’ cash- and liquidity-management activities. Optimizing an organization’s cash position in the potentially volatile post-crisis environment will require companies to increase the visibility not only of their own cost structures, but also those of their suppliers. Leading organizations are adopting increasingly sophisticated techniques in their capital planning, assessing each project’s return on investment against multiple scenarios, and continually reviewing their capital-project portfolios.

This is a unique moment where companies likely won’t face the same trade-offs between flexibility and cost that they did in the past.

Driving the ‘future of work’
The future of work – where all people in every industry use digital technologies, data and analytics in new ways to perform their existing jobs – was a change that was already underway. With Covid-19 upending the way work is done, employees across all functions have learned how to complete tasks remotely, using digital communication and collaboration tools.

In operations, this means future of work trends will accelerate, with a marked reduction in manual and repetitive roles and an increase in the need for analytical and technical skills. This shift will therefore require an unprecedented wave of reskilling in operations roles, and organizations will need to ramp up their reskilling efforts significantly to redeploy talent at speed and scale. For example, some companies have set up internal training academies focused on specialized skills by using a combination ad of e-learning, classroom training, and on-the-job coaching.

In tandem with reskilling, companies may adapt their operating models to manage physically distributed operations teams, with staff on the ground in local markets able to draw upon the expertise of specialist colleagues who provide support remotely via digital connectivity tools.

Reimagining a sustainable operations competitive advantage
Operations can play an essential role in creating lasting competitive advantage and in meeting environmental and social-responsibility goals. We are already seeing multiple ways in which organizations are responding to these opportunities – informed by customer insights, some companies will reinvent themselves entirely in the coming years, focusing on specific technologies or market niches, or by changing their relationship to their end-customers and intermediaries. Others will transform the way they develop products, using agile processes and digital links to improve their connection with customers. Still others are adopting manufacturing technologies and supply-chain arrangements to consume less material, use less energy, and generate less waste. Importantly, these changes won’t just apply to individual organizations, instead, entirely new ecosystems will emerge that include suppliers and adjacent industry players to collectively shift into the next normal.

With the likelihood of prolonged uncertainty over supply, demand, and the availability of resources, Covid-19 may be the trigger for operations functions to adopt an agile approach to transformation. As companies transition to the next normal, they can retain these powerful and effective approaches and structures, which have helped many organizations achieve unprecedented visibility and cross-functional agility in their operations, rather than dismantle them once the crisis has passed.

Katy George
Katy George is a Senior Partner at McKinsey & Company, and leads the Operations Practice, which includes the firm’s services in manufacturing and supply chain. Katy’s 23 years of client service have focused on operational performance improvement, linking operations strategy to business strategy, and operating model design. McKinsey & Company is a global management consulting firm committed to helping organizations create Change that Matters. In more than 130 cities and 65 countries, its teams help clients across the private, public and social sectors shape bold strategies and transform the way they work, embed technology where it unlocks value, and build capabilities to sustain the change.