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 core of the transformation is a shift to product-focused lines of business. 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. 1. Business leaders looking to lock in COVID-19-era speed and adaptability would be wise to follow a simple process: reflect, decide, and deploy at scale. No one can draw a blueprint of what a bank’s risk function will look like in 2025—or predict all forthcoming disruptions, be they technological advances, macroeconomic shocks, or banking … An insurer in the United Kingdom recently shifted its delivery operating model and moved its product, pricing, underwriting, data, and technology functions into a series of purpose-driven cross-functional teams. zeb project experience suggests that successful TOM projects in general address six dimensions (see Figure 1): On average, those organizations had recorded notable improvements in customer satisfaction (up 10 to 30 percent), employee engagement (up 20 to 30 percent), and operational performance (gains of 30 to 50 percent in operational speed, target achievements, and predictability). CEO Christophe Weber insists that the decision was also good for business: “Doing the right thing for patients is highly motivating for our employees. 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. Something went wrong. 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. Learn about Perhaps even more tellingly, telcos and banks that adopted these operating models before COVID-19 were able to respond to the pandemic significantly faster, on average, than their peers. For instance, an Asian telco provider increased its customer-satisfaction score by 30 points, scored operating-expenditure savings of 20 percent, and speeded up time to market tenfold. McKinsey Global Institute. Top leaders also tightened their own connection to the front lines, flattening the organization in response to their need for greater speed and focus. Reconfigure the operating model. If you would like information about this content we will be happy to work with you. By then, the world had changed: his speech was webcast from company headquarters at 1 St. James’s Square, the annual meeting was virtual, and the United Kingdom was recording about 300 COVID-19-related deaths a day, down from a peak of some 1,200 in April. We also look at the process by which companies can evaluate the changes they made during the pandemic, decide which shifts they want to make permanent, and embark on a broader transformation to make this speed and efficiency the standard going forward. Best-practice banks are able to create more value through a structurally better IT operating model that is more efficient, scalable, and flexible and gives them a head start in digital banking. Organizing for speed requires faster decisions. While some smaller, more focused banks are delivering respectable growth, others continue to struggle in the low-rate environment. McKinsey research suggests that by 2025, these numbers will be closer to 25 and 40 percent, respectively. h�bbd``b`�$�A,f �& b�LF@�%D��M�J@�n�H H1�)kȔE n6�/M@�q6�XZ���Ȱ����4�?�o 6< Unlike in the UK, in most of continental Europe, bank accounts and corresponding banking services are historically paid-for services. On February 12, 2020, just two weeks into his tenure and before there were even a dozen reported cases of COVID-19 in the United Kingdom, BP CEO Bernard Looney spoke to a live audience at London’s Royal Lancaster Hotel and laid out an ambitious reframing of the energy giant’s mission as “Reimagining energy for people and our planet.” They fast-forward historical processes.”. Technology is a key element in ensuring the success of this kind of empowerment and extension of authority to customer-facing teams. While technology empowered remote teams, it also empowered corporate leaders. cookies, McKinsey_Website_Accessibility@mckinsey.com, retraining that gives employees more options. Those companies with a clearly defined and clearly lived purpose had an easier time with this than those with missions ill-defined or unmatched to the reality of the business. Models of organizational effectiveness go in and out of fashion, but the McKinsey 7-S framework has stood the test of time. Technology disruption and expectations are not letting up, and the banks that tackle the operating model overhaul now will be much better able to deliver new strategies and adapt in the future. It is a way to improve our reputation. The KPMG Target Operating Model is based on a deep understanding of how transformation works within, and across, an enterprise. 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. 2. The experience of the COVID-19 crisis is accelerating the transformation upon which it had already embarked. But when it saw how critical the need was, it delivered the strengthened digital product in record time. The company’s purpose is the basis of what it will and won’t do. Leaders have seen for themselves what McKinsey’s own recent research has been showing: the various elements of truly agile operating models can deliver meaningful business gains. Banking Digital Operating Model Post-login Customer Experience. India’s Tata Consultancy Services (TCS) believes that its new hybrid model, which frees associates from any need to spend more than 25 percent of their time in a TCS office, could improve velocity by about 25 percent, thanks to productivity gains. Customers wanting service had to wait as much as 36 hours for a response. Digital upends old models. 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 And people working with a clearer purpose and greater autonomy to make decisions will drive up employee-engagement scores (see sidebar, “How operating-model reinventions drive better results”). 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. Many business leaders are telling us that the tangible experiences they’ve had during the pandemic have given them confidence to launch broader transformations. 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. The result: COVID-19 is shaping a new kind of operating model. The bank’s ambition is great: it expects that this transformation will drive a 10 to 15 percent productivity surge, cut two or three layers of management, and significantly improve time to market. 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. Never miss an insight. The very strongest companies are already acting on this opportunity to reinvent themselves with deliberation and speed. These concepts upended traditional operating models and drove the success of companies as disparate as Netflix and Amazon. When the head of plasma-derived therapies at Takeda, a global pharmaceutical company, realized that it might speed the development of plasma-based COVID-19 medicines by partnering with others, it formed a nonprofit alliance with other companies. Leaders should develop a clear sense of their strategic ambitions—where to play and how to win—and the business models they wish to employ, including target customer segments, channels, pricing, and delivery models, since both the strategy and business model directly influence the operating model design. 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. 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. 1058 E Brokaw Rd San Jose, CA 95131 California (408)490-2070 See Map Hours — Wed: 9:00am-5:00pm Spurred by the pandemic, it instead trained 4,000 people. Their results clearly suggest that such models are the sturdiest for uncertain times. 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 authors wish to thank Jonathan Green, Alberto Montagner, Charlotte Relyea, Guilherme Riederer, Daniel Rona, Lars Schor, and Patrick Simon for their contributions to this article. 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. Flip the odds. Other companies have gone even further by giving employees the tools for success in a nimble organization. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. This remote-assistance tool has proved so successful that Verizon believes it will help the company gain access to new markets. We use cookies essential for this site to function well. Leading CEOs have taken note of all this and have decided that there is no going back. One South Asia bank is accelerating its operating-model transformation because of its COVID-19 experience. See “2020 Annual General Meeting: Chief executive officer,” BP 2020 Annual General meeting, May 27, 2020, bp.com. our use of cookies, and Some were minor adjustments, while others were radical changes to the way companies operate. 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. Marcia Blenko, advisory partner of Bain's Organization practice, discusses some of the most useful design principles for building a winning operating model. 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. The operating model of the future combines digital technologies and process-improvement capabilities in an integrated, sequenced way to drastically improve customer journeys and internal processes. One pharma company recently implemented a quarterly-business-review process to cascade priorities to its working teams. 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. They needed to accomplish as much as possible with less—time, resources, people—than they had before. IT is a key driver of costs and of the ecosystem design and business model. Clear, commonly understood processes help ensure that the flat, decentralized structure doesn’t spin out of control. Small, empowered teams come together to address a specific task (or a set of tasks) and then disband. Reinvent your business. McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. 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. endstream endobj 45 0 obj <> endobj 46 0 obj <. People create and sustain change. h�b```"V�s� ��ea��l`�Ѵ|����`o�� ��b�L�&͍�[�W��,���~(Б�����k������aC����5���0�1"L�ہ�0� �x�9㜿I2>�1�K�$�q��QCC���r��F'�20�7 iF�kn��.��4}D��@� IN2� Press enter to select and open the results on a new page. Subscribed to {PRACTICE_NAME} email alerts. Companies that don’t lean into this emergent shift run the risk of being leapfrogged by those that do understand why a swift, nimble, and versatile operating model is best and necessary for uncertain times like these. %PDF-1.6 %���� That said, the pandemic has made one thing quite clear: companies that want an operating model designed to handle a future of greater uncertainty and unpredictability in everything from capital markets and politics to climate change and the pace of technological change will be wise to learn from the approaches that worked best during the COVID-19 crisis. At the same time, they have installed a new performance and change-management system to create incentives for the new way of working. 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. Practical Guide to the Digital Operating Model Determining the most effective operating model for your business can prove challenging. Mumbai: Indian banks are starring at a combined lost revenues and increased costs of ₹12 lakh crore by fiscal 2024 because of credit losses and operating challenges posed by the Covid-19 pandemic, consultancy firm McKinsey & Co said in its annual banking review. Remote work itself is the tip of the iceberg. We strive to provide individuals with disabilities equal access to our website. [And] a good reputation is good business in the long term.”. They identified seven internal elements of an organization that need to align for it to be successful. And empowerment truly happens only when leaders let go of traditional hierarchical management. See “2020 Annual General Meeting: Chief executive officer,” BP 2020 Annual General meeting, May 27, 2020, bp.com. Whether a bank can pull off a deal or not, McKinsey’s Nadeau said that banks have a number of ways to boost revenue while cutting expenses, including improving digital experiences for customers and rewiring outdated internal technology in order to launch products faster and reduce IT costs. Companies reacting with less urgency are soon likely to find themselves outpaced. The real question for bank executives now is, how much time do we have? 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 the COVID-19 pandemic hit, Verizon suspended in-home installation appointments. When COVID-19 hit, this backbone process allowed the company to realign the entire organization to a new set of priorities in matter of days. To enable this, it has invested in an at-scale, fully remote capability-building program for nearly 1,000 employees. Purpose, above all else, enables forthright decision making at speed. Faster decisions require more empowerment of the frontline team. Use minimal essential Lean management has already played a significant role in putting in place processes, capabilities, and tools to improve how businesses operate. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our cookie policy. 0 Throughout the pandemic, Johnson & Johnson has been able to keep production flowing for its medical devices and consumer products by relying on technology. In addition, the introduction of cryptocurrencies, such as bitcoin, as well as the underlying ledger blockchain, is proving to be a disruptive force unto itself. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. In 2014, a major European bank announced a multiyear plan to revamp its operating model to improve customer satisfaction and reduce overall costs by up to 35 percent. As historian Yuval Noah Harari puts it: “That is the nature of emergencies. One reason: when CEO Kristin Peck gave local leaders in 45 countries greater latitude than ever, she also had a dashboard of leading indicators created to allow her and other leaders to monitor dynamic shifts in all those markets more closely. When COVID-19 hit, the telco was forced to shut down its offshore call centers. In the crunch of the pandemic, a singular purpose became more important than ever. The company quickly pulled in retail staff to help with calls. Read the Bain Brief: New Bank Strategies Require New Operating Models Learn more about cookies, Opens in new The efforts of one Asian telco show how far some companies have been willing to bend their structure to adapt during the pandemic. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. At the same time, it converted its people model into one in which existing and emerging talent is drafted into pivotal roles and upskilled in new ways of working, with a new contribution model that accounts for the different maturity of the lines of businesses. Please try again later. Takeda gave up some ownership potential by doing so but accelerated its ability to deliver on its mission. Business leaders tell us that the metabolic rate of their organizations has soared. An international bank reskilled and redeployed hundreds of employees from advisory jobs to customer-experience roles. McKinsey suggested banks should take significant steps to reconfigure and restructure their operations, including concentrating relationship managers in … Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. The bank has already realized productivity gains and reduced operating costs, and leaders see the potential for much more. Companies that seek to turn their COVID-19 shifts to speed into broader reinventions of their operating models are probably on a good path. The clearest evidence of the pandemic’s impact on business has been remote working, the dislocation of people that occurred at virtually every company. endstream endobj startxref COVID-19 is shaping a new kind of operating model. Our flagship business publication has been defining and informing the senior-management agenda since 1964. People are valued for their skills and contributions, not their place in a hierarchy. Please click "Accept" to help us improve its usefulness with additional cookies. At one European bank, for instance, leaders realized that people quarantining and staying at home created a terrible risk for the company: since its core services weren’t optimized for online, customers who once would have come in to speak with a branch officer were now likely to leave for banks that had better digitalization. As the COVID-19 pandemic developed, companies faced a raft of problems simultaneously: lessened demand, office closures, supply-chain derailments, and more. ... however, mask the wide variation of performance at the individual bank level. ... Sonia Barquin is a consultant in McKinsey’s Kuala Lumpur office, and Vinayak HV is a principal in the Singapore office. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. A Latin American bank reduced the number of customer complaints by 25 percent while achieving an equivalent saving of 30 percent of total employees. By the end of a month, wait times on service calls were down to a few minutes. The revised employee value proposition (such as more flexibility and less commuting) has given HR the ability to cast a wider net on talent. In a previous study, we analyzed 22 organizations from a range of sectors that had embarked on such journeys. %%EOF 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. One telco, for example, originally planned to train 400 employees in agile practices and product management over three months. A genuine customer orientation with fast, iterative feedback cycles can raise customer-satisfaction scores by 30 points. 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. The core of the transformation is a shift to product-focused lines of business. Implementing the next-generation operating model can reduce these operating expenses by 25 to 40 percent. To make these kinds of flatter, more collaborative models work, companies must create rigorous processes, build capabilities, and enable decision making at the lowest possible layer. McKinsey and Company in a report stated that digitalisation will enable Nigerian banks to achieve between 25 and 40 per cent cost-reduction. Under pressure from multiple forces, successful banks will develop a new operating model better suited to changing times. The exigencies of the pandemic have given many companies a tangible experience of operating at unprecedented speed (exhibit). McKinsey sees a second wave of automation and AI emerging in the next few years, in which machines will do up to 10 to 25 percent of work across bank functions, increasing capacity and freeing employees to focus on higher-value tasks and projects. Payments remains among the best-performing 77 0 obj <>stream 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. McKinsey estimates that the top 15 US banks spend approximately $3 billion each year, combined, on disputes processing. 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. collaboration with select social media and trusted analytics partners McKinsey in its review titled “A test of resilience: Banking through the crisis, and beyond,” said banks globally were questioning their business models largely on account of the prevalence of low or negative interest rates, as well as FinTechs encroaching the core banking business. 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. Then along came COVID-19, which exploded all those long-held assumptions. 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. Beliefs such as these made the need for a nimbler operating model seem optional and perhaps unnecessary. A global oil and gas company cut the time required to plan wells by 50 percent, increased overall gas production by 5 to 10 percent, and increased gas production per employee by 70 to 80 percent. Most transformations fail. 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. But much of the redeployment has been accompanied by retraining that gives employees more options in the long run. For instance, they are providing employees with the IT infrastructure required to work remotely in an effective way. But remote work itself is the tip of the iceberg. Business leaders looking to lock in COVID-19-era speed and adaptability would be wise to follow a simple process: reflect, decide, and deploy at scale. Please use UP and DOWN arrow keys to review autocomplete results. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Their companies have accelerated by adopting new ways to work. Come together to address specific tasks email you when new articles are published on this topic of fundamental has... Deliver on its mission with fast, iterative feedback cycles can raise customer-satisfaction scores by 30 points as! To function well customers wanting service had to wait as much as possible with less—time, resources people—than. Multiple sectors develop a deeper understanding of the redeployment has been accompanied by that! Purpose, above all else, enables forthright decision making at speed played a significant role in putting place! 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