To enable this, it has invested in an at-scale, fully remote capability-building program for nearly 1,000 employees. 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. 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. 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. Some were minor adjustments, while others were radical changes to the way companies operate. Thousands of hourly staffers now take at-home customer-service and sales roles. 2. 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. ... however, mask the wide variation of performance at the individual bank level. tab. Top leaders also tightened their own connection to the front lines, flattening the organization in response to their need for greater speed and focus. 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. 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. 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. The KPMG Target Operating Model is based on a deep understanding of how transformation works within, and across, an enterprise. Business leaders tell us that the metabolic rate of their organizations has soared. A Latin American bank reduced the number of customer complaints by 25 percent while achieving an equivalent saving of 30 percent of total employees. ... Sonia Barquin is a consultant in McKinsey’s Kuala Lumpur office, and Vinayak HV is a principal in the Singapore office. Based on that success, the company has standardized a rapid redeployment process that will pay off long after the pandemic is over. This remote-assistance tool has proved so successful that Verizon believes it will help the company gain access to new markets. 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. Never miss an insight. We use cookies essential for this site to function well. By the end of a month, wait times on service calls were down to a few minutes. While some smaller, more focused banks are delivering respectable growth, others continue to struggle in the low-rate environment. As the COVID-19 pandemic developed, companies faced a raft of problems simultaneously: lessened demand, office closures, supply-chain derailments, and more. 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. 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. 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. cookies, McKinsey_Website_Accessibility@mckinsey.com, retraining that gives employees more options. 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. This article was edited by Rick Tetzeli, the editorial director of the McKinsey Quarterly. ... (a Dutch bank), TDC (a Danish telecommunications company), Spotify, Entel ... All operating-model design must be grounded in an understanding of how value is created in the industry and how the individual organization creates value. Implementing the next-generation operating model can reduce these operating expenses by 25 to 40 percent. And empowerment truly happens only when leaders let go of traditional hierarchical management. 44 0 obj <> endobj The real question for bank executives now is, how much time do we have? endstream endobj startxref McKinsey Global Institute. 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. 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.” Use minimal essential For many, there is simply no justification for returning to the old ways of doing business. But when it saw how critical the need was, it delivered the strengthened digital product in record time. Many business leaders are telling us that the tangible experiences they’ve had during the pandemic have given them confidence to launch broader transformations. Subscribed to {PRACTICE_NAME} email alerts. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. 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. Our flagship business publication has been defining and informing the senior-management agenda since 1964. 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.” Read the Bain Brief: New Bank Strategies Require New Operating Models hereLearn more about cookies, Opens in new our use of cookies, and To capture this opportunity, banks must take a strategic, rather than tactical, approach. Throughout the pandemic, Johnson & Johnson has been able to keep production flowing for its medical devices and consumer products by relying on technology. Payments remains among the best-performing Barclays is decentralizing decision making by making local branches satellite offices for more employees, including investment bankers, call-center workers, and people who formerly had to commute to a central office. 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. Much effort and money today goes into operating legacy processes and dealing with regulatory requirements to keep the bank running; Gartner estimates that banks on average spend roughly 60% of their IT budgets to maintain legacy IT systems vs. just 24% to grow the business and 16% to transform it. By using this Site or clicking on “OK”, you consent to the use of cookies. One pharma company recently implemented a quarterly-business-review process to cascade priorities to its working teams. McKinsey Quarterly. 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. People create and sustain change. The bank targeted the ten most important journeys, including the mortgage process, onboarding of new business and personal customers, and retirement planning. The core of the transformation is a shift to product-focused lines of business. At the same time, they have installed a new performance and change-management system to create incentives for the new way of working. Across a wide range of industries, we see companies now trying to make some or all of these operating-model shifts permanent. collaboration with select social media and trusted analytics partners 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). Build a two-speed IT operating model. Digital upends old models. A large European bank has embarked on a fundamental rethink of the way relationships and behaviors are managed both for business-to-business clients and among colleagues. 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. Leading CEOs have taken note of all this and have decided that there is no going back. But much of the redeployment has been accompanied by retraining that gives employees more options in the long run. When challenged by the pandemic, and by a world of “uncertainty,” “volatility,” and “fragility,” many companies have chosen to lead from purpose, whatever it takes. One South Asia bank is accelerating its operating-model transformation because of its COVID-19 experience. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our cookie policy. For instance, they are providing employees with the IT infrastructure required to work remotely in an effective way. The next normal arrives: Trends that will define 2021—and beyond. Small, empowered teams come together to address a specific task (or a set of tasks) and then disband. The exigencies of the pandemic have given many companies a tangible experience of operating at unprecedented speed (exhibit). 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. 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. Then along came COVID-19, which exploded all those long-held assumptions. Verizon created new virtual training programs and retrained more than 20,000 workers during the COVID-19 pandemic. Please use UP and DOWN arrow keys to review autocomplete results. Their companies have accelerated by adopting new ways to work. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. 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. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. They identified seven internal elements of an organization that need to align for it to be successful. Faced with the pandemic, companies quickly abandoned their standard process of addressing and balancing multiple competing priorities and instead zeroed in on their most critical objectives. 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. When COVID-19 hit, the telco was forced to shut down its offshore call centers. Lean management has already played a significant role in putting in place processes, capabilities, and tools to improve how businesses operate. 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. 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. 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. 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