According to Boston Consulting Group, Operating for value makes value created by operations explicit by concentrating not only on reducing costs but also on creating opportunities for additional revenues through higher-quality service. The framework consists of three basic initiatives –
- Design a new Target Operating Model (TOM) using the desired customer experience as a starting point
- Draft a road map that leads to the target operating model
- Install governance structures that ensure effective implementation
Roadblocks to these initiatives include –
- Internal lines of accountability that prevent end-to-end thinking
- Work forces that lack sufficient motivation and incentives
- Legacy IT systems that complicate change initiatives
Design a New Target Operating Model and IT Architecture
In a perfect world, business model and the operating model complement each other perfectly. Unfortunately this is achieved only by best-in-class players. Moreover, for such players, high levels of customer satisfaction are usually accompanied by the best expense and loss ratios. For other players to achieve the alignment between business and operating models, they should start by defining the desired customer experience, which facilitates a true understanding of how the performance of operations process created value for the business.
There are two types of operations processes, and they create value in different ways.
- Complex operational process – create value through influencing the customer’s purchase decision and through exercising business judgment
- Standard operational process – create value mainly through their level of efficiency
Companies also need to understand how business choices drive the costs of operational processes – costs that typically rise if the business allows too many variations and exceptions to the core products and services offered. The exact nature of complex and standard processes for any company is determines partly by its business model and product portfolio.
Once the complex and standard operational processes have been identified and fully defined, the next step is to translate these processes into a sharply focused target operating model and IT architecture that keep the end-to-end perspective foremost in mind. Exploring different options for the operating model can spark discussions and help address such issues as –
- Processes that should be fulfilled by customers themselves – for example, filling in a form on the Web
- Processes that should be handled by first-line support personnel shared across business line
- Should the customer relationship be managed by corporate entity or by sales agents
Draft a Road Map that leads to the Target Operating Model
BCG’s operating-for-value framework contains eight levers for drafting a road map that leads to the new target operating model. These levers are not applied incrementally but in a holistic way.
- Optimize Processes
- Increase Automation
- Monitor Performance Indicators
- Streamline the product portfolio
- Separate standard and complex support tasks
- Optimize cross-line operations
- Optimize cross-border operations
- Outsource or offshore certain activities
Install Governance Structures that ensure Effective Implementation
Operating for value is not just a one-off project that lasts ore a few months. It is a permanent new way of approaching how operations can be continuously optimized. The key governance question concerns which specific aspects of operations should remain the responsibility of individual business lines and which aspects should be the responsibility of the group entity. The objective of the governance approaches should be to ensure that synergies are captures and that all initiatives are in line with the target operating model and IT architecture.
