Restructuring the Business Operations

Case Study :Business Transformation

Restructuring the Business Operations

A manufacturing was suffering from slow growth and diminished market share. To remain competitive, it needed to improve its manufacturing facilities to reduce cost and increase capacity. It also need to invest in innovation to remain competitive. Praxis Value Incorporated Lean Six Sigma principles to improve the company’s plant performance, which yielded 15 percent cost savings and increased flexibility.

2 min Read | Metal Manufacturing

Challenge

Plant was losing market share to strong competitors and suffering from slowing growth in primary channels. To remain competitive, the client has to improve manufacturing facilities to reduce cost and increase capacity, and invest in innovations needed for growth and competitiveness.

The primary questions that need to be addressed were:

Can we increase the capacity existing business units? How much, and where?
Can cost per ton be reduced on the existing manufacturing lines?
Can enough working capital be freed up from operations?
What all innovations need to done for secured future?

Solution

Lean Six Sigma

Praxis Value incorporated Six Sigma DMAIC methodology and Lean principles into our five-step approach to improve plant performance. Also, designed & implemented a ‘Change Network’ to create sustainable change. This model is responsible for owning, assessing, and monitoring change before, during, and after the program is rolled out.

Prioritise Key Initiatives

Praxis Value identified 30 initiatives and prioritized them according to improvements to plant capacity and overall equipment effectiveness. Of these, we recommended twelve as the most critical initiatives. These critical initiatives were directly handhold by Praxis Value team in all the phases of the project Lean & DMAIC methodology.

Lean Six Sigma Process Simulation

In parallel to the implementation of the Lean Six Sigma business process simulation was performed to evaluate the effectiveness of the processes and refine them, and develop entirely new methods, it enabled the plant process analysis that gave the information and insight to implement with confidence.

Outcome

With Praxis Value support, plant implemented the recommended initiatives, generating 15% cost savings, Improved capacity by 28%, Increased equipment effectiveness by 22% and also helped in increasing flexibility. The company also worked with Praxis Value to put knowledge transfer programs in place so that the improvements would spread to additional plants in the system. Once the business transformation program is complete clients expects to save millions per year in terms manufacturing efficiency and headcount reduction.

Through simplified, standardized, and automated processes, we established a scalable platform of ‘growth without growing’ that will support the organization’s go-to-market strategy.

We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real

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Digital Process Twin

Article

Case Study : Industry 4.0

Digital Process Twin

Our client was facing issues when it came to optimizing a production plant for dashboards: the entire process chain, as well as all risk elements in production and supplier management, had to become more transparent. At the same time, because a sensitive material was being processed, even minor manufacturing errors resulted in complete output rejection; the scrap rate had to be lowered

2 min Read | Metal Manufacturing

Challenge

Every day, the company produces a several components. The number and complexity of process steps such as injection moulding, foaming, punching, welding, and assembly are also increased by different surface concepts. More than 500 parts are produced per shift in the foaming process alone, with a cycle time of less than one minute. This leaves little room for establishing a benchmark in terms of costs, quality, and delivery capability, as well as ensuring the transfer of work to external vendors and initiating process improvements

Solution

Focus on Performance and quality

The project team began by defining process parameters that could affect both the plant's performance and the quality of the end product. These values were derived from experience and initially covered well over a hundred different parameters, which were reduced or supplemented as the analysis progressed. The project team then ensured that the existing process data was properly aggregated and processed, as well as collecting data that had not previously been recorded. Additional sensors were also used to get the new data that was needed for the parameters that were set.

Digital Process Twin

The resulting database was then merged and analyzed in a cloud application. On this foundation, the project team created a model that accurately mapped the process of improving the dashboard production line – including all relevant parameters, their interactions, and critical values. As a result, the company now has a 'Digital Process Twin,' which monitors the entire physical process in real time and allows for early intervention based on critical process parameters.

Precise check of Value Creation Network

The project team was able to not only reduce the plant's reject rate but also make the correlations of relevant influencing factors on the quality result more transparent with the help of this 'digital twin.' In addition, the firm created a model for predicting the outcome of the next quality gate.

Outcome

Standardized, Scalable & Highly Efficient Organization

‘Digital Process Twin’ opens up completely new possibilities in value stream management, such as supplier evaluation, control, and qualification. The actual structures and processes in value creation networks can be analysed much more precisely and deeply with the virtual process model than with today’s checklists and lean manuals. On the one hand, this provided the company with a valuable tool for vetting potential suppliers.

The company can now integrate new partners much more quickly and easily, reducing reliance and making the construction of new local production sites much easier. As a result, virtual process twins are an important part of smart supply chain management.

We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real

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Predictive Asset Maintenance

Article

Case Study :Advance Data Analytics

Predictive Asset Maintenance

Client was facing due to the high production losses due to the high number of issues & stoppages in the machine. Also, to remain competitive, it needed to improve its manufacturing facilities to reduce cost, increase capacity and innovation to remain competitive. Primarily they required a process for proactive monitoring to address the business needs.

2 min Read | Metal Manufacturing

Challenge

Plant was losing on the production opportunities and the market share to strong competitors and suffering from growth in primary channels. The objective of this project was to increase the throughput by improving the OEE. OEE was at 65% at the starting of the project wherein the performance was the major concern due to stoppages.

Solution

Advance Data Analytics

Praxis Value proposed to develop an optimized algorithm by identifying the critical factors contributing to the situation. Wherein two key equipment’s were in the scope.

Predict/ detect equipment abuse events (classification model) based on historic data abnormalities.
Regression based prediction of asset performance with respect to the product grades.
Conducting Design of Experiments to identify the best optimization algorithm.

Prioritise Key Initiatives

Predictive intelligence by creating algorithm for anomaly detection by understanding core areas 25 Critical factors & 39 other factors. Praxis Value identified 12 initiatives and prioritized them according to improvements to plant capacity and overall equipment effectiveness. These critical initiatives were directly handhold by Praxis Value team in all the phases of the project.

Process Simulation

Insights into operational intelligence through implementation of repair time estimation mechanisms and failure prediction for the equipment (MTBF & MTTR). In parallel to the development of the algorithm new actionable insights for improved business operations to evaluate the effectiveness of the processes and refine them, and develop entirely new methods, it enabled the plant process analysis that gave the information and insight to implement with confidence.

Outcome

With Praxis Value support, plant implemented the recommended initiatives, Production target were achieved and for some grades it went beyond. Lean implementation helped lower operating costs by replacing planned maintenance and reactive maintenance with predictive maintenance. (Points identified by Survival Analysis & Regression based remaining useful life prediction of asset components). Further an algorithm for a new product developed on the similar equipment which saved company from further Capex.

The company also worked with Praxis Value to put knowledge transfer programs in place so that the improvements would spread to additional plants in the system. Once the business transformation program is complete clients expects to save millions per year in terms manufacturing efficiency and headcount reduction.

We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real

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Closing the capability gap in the time of COVID-19

Article

Brief

Closing the capability gap in the time of COVID-19

Building capabilities that influence workforce behaviours for the long term has never been straightforward, and the pandemic has made it far more difficult. Some organizations, on the other hand, have discovered ways to thrive in recovery and beyond.

2 min Read | MANUFACTURING, SERVICES, HEALTHCARE

Authors

Sullivan Mcdermott

Partner, Singapore

At a Glance

Companies took promising steps to address the COVID-19 situation. Significantly, these ideas address issues beyond remote working, such as capacity building & learning development.
According to one survey, US companies spend more than $150 billion on employee training each year, but the vast majority of this investment does not provide the intended results.
Capability building that works in today's virtual environments and focuses on both learning and behavioural change across broad sectors of the workforce to lay the foundation of the resilient business operations

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The COVID-19 problem has served as a reminder to business executives that a more capable workforce results in more resilient businesses. Even before the epidemic, enterprises faced the dizzying speed of change and the ever-present possibility that today’s best-performing firms would be defeated tomorrow. Against this backdrop, the virus and its shocks have demonstrated how an organization’s workforce’s capabilities and mindsets create a basis for resilience and successful adaptation.

Unfortunately, the traditional method of corporate training had been shattered long before the pandemic. Despite massive sums spent on a variety of capability-building programs, the results appear to be patchy at best. According to one survey, US corporations spend more than $150 billion per year on employee development, but the vast majority of this money does not produce the desired benefits. Indeed, according to the capabilities of this study, only one in every four senior managers considers capability investment “important to business outcomes.”

This is not to imply that there haven’t been any successes in developing capabilities to effect behavioural change. Historically, only a few institutions have had high levels of success. These initiatives typically emphasize in-person, hands-on learning with real-world business situations or competitive simulations. Unfortunately, because of remote-working and physical-distance restrictions, the pandemic forced a halt to such gold-standard projects. Leaders that realize the need to alter their workforces face a new and daunting task. This unexpected turn in the road is requiring businesses to rapidly innovate in their capability-building approach. The consequences will persist long after the pandemic is over.

That could explain why business leaders are increasingly calling for a new type of capability building that works in today’s virtual environments and focuses not just on learning but also on achieving the behavioural change that comes from the day-to-day application of new learning and skills across broad segments of the workforce. That is both the holy grail of behavioural change and the ultimate foundation for resilient business operations.

Based on a series of case studies from the epidemic, this essay examines some of the promising measures we’ve seen organizations adopt to handle the challenge posed by the COVID-19 problem. Significantly, many of these technologies go beyond simply addressing the issues raised by remote working. Today’s cutting-edge approaches to capability development are also introducing new methods for ensuring that employees put their acquired abilities to use on a regular basis. While we are still in the early stages of this workforce upskilling revolution, it is obvious that there are opportunities to apply the science of learning and behavioural change in real-world business contexts within the limits provided by COVID-19. Companies that have embraced these technologies have achieved long-term behavioural change through high-quality capability development in a remote world.

The lessons learned from these initiatives indicate three areas where critical activity should be focused as businesses attempt to recover. For starters, more workers than ever before require new skills, but the capacity to develop these talents through in-person interactions will be limited. As a result, digital delivery will need to grow quickly to fill the void. Second, given the physical and psychological gaps created by the epidemic, businesses require new tools and techniques to engage and encourage learners to modify their behaviours. Finally, the track record for sustaining behavioural change is dismal. In a setting of physical separation and isolation, it will be important to adopt novel reinforcement strategies that are both simple and robust.

Evolve Digital Delivery to Develop Remote Capabilities

Many firms now incorporate online training into their learning journeys, but few would call such programs successful. Online learning has long been considered a poor cousin to the gold-standard in-person and on-the-job capability-building programs, typically consisting of static videos, “try again” exams, and pass/fail metrics.

However, in the world of COVID-19, in-person and on-the-job capability development has become far more challenging. The COVID-19 epidemic, like so many other business activities, has increased the need to adapt and innovate with digital tools.

Given the new reality of economic pressure resulting in tighter budgets and the requirement for remote working in many areas, digital capability building will become the principal professional-development opportunity for many employees in the post-COVID-19 timeframe. As a result, the bar for digital programming efficacy has risen dramatically. Traditional passive and digital learning experiences simply will not suffice. Instead, remote-learning experiences must provide employees with the abilities they require while also encouraging persistent use of those new talents so that behaviour’s—and ultimately performance—improve.

This new challenge was accepted by one North American animal-health provider. When COVID-19 put a halt to all in-person gatherings, management shifted its focus to digital capability development for the entire enterprise. The company sought to help all employees understand what it would take for the organization to successfully tackle business recovery in a timely and efficient manner. To that aim, top management was asked to make a decision: what capabilities do our staff require? One school of thought proposed creating a bespoke capability-building program for each job type with the goal of developing technical knowledge. Another strategy was to focus on the essential mindsets and behaviour’s that every employee must have in order to do their job well. With cost and time constraints as well as a long-term focus on lasting change, the organization chose the latter method, relying on a single at-scale digital program cantered on a set of key target skills and associated behaviour’s.

The Organization built their Playbook around Five Key Elements

Putting money into the fundamentals The first step taken by management was to shift away from its previous emphasis on developing personnel expertise and technical prowess. Instead, the leadership concluded that a foundational set of behaviour’s was more vital (for example, all employees need to understand how to deliver feedback effectively and what a good implementation plan looks like). Each employee learned how to prioritize their job systematically on a daily, weekly, and monthly basis. This contained a useful but basic matrix that staff could use to classify their work, as well as practical recommendations like 15-minute calendar holds per day to help them manage themselves. The company has gently impacted the entire business by boosting capabilities in these core areas.

Digital is being positioned as the major means of capability development. The organization established the assumption that developing digital skills would be the first formal step for any employee looking to develop and expand their capabilities. Each digital program on offer had a unified story line that was fascinating and consistent from lesson to session. Rather than simply memorizing concepts, students were required to put them into practice. Instead of designing a decent milestone plan, for example, users were asked to study a sample milestone plan and give important comments for improvement. Following the establishment of the foundation through the digital program, employees were invited to access a library of extra resources generated by the organization’s executives to reinforce each principle and provide contextual examples from the company itself.

Setting priorities from the top down Nobody was spared from the digital-learning path. One weekly senior-team meeting started with a scorecard that displayed team and individual completion rates, including those for C-suite executives. The goal was not to shame, but to encourage by demonstrating that everyone was on the same journey. This resulted in increased buy-in and accountability. At the end of six months, 93 percent of the company’s employees had participated in the digital course and were on target to finish it by the end of the year. Every employee was expected to devote 30 minutes to an hour per week to capability development. Some managers even schedule weekly work sessions for their staff to stop what they’re doing and focus on the learning process.

Not content exams, but those that enforce behavioural change. To encourage participation, completion statistics were tracked, but success was recognized only when genuine improvements in behaviour could be noticed. Even if 95 percent of employees completed the “having effective meetings” module, but managers perceived no increase in meeting quality, that module was not considered completed. Completing a digital skill-building program is meaningless if employees are not doing anything differently. To do this, all team members were given standardized checklists that they used on a weekly basis to assess their teams’ performance against expectations. Weekly meetings now include talks about specific strengths and areas for improvement, as well as quantitative data to help keep the main points in mind.

Creating a transformation culture with nearly the entire organization embarking on the same journey, the digital program served as a sort of backbone, or consistent foundation. Despite substantial market shifts and workplace turmoil, employees relied on a core set of expectations, terminology, and target behaviours. The organization incorporated the new terminology into everyday discourse and even produced customized videoconferencing backgrounds with course terms. Employees may have been confident that there was a road to advancement ahead of them.

Finally, this organization embraced the challenge of COVID-19 and used it as an opportunity to up its game in terms of capability creation in general. In fact, there was one silver lining to this incident. Scalability is an obvious advantage of high-quality remote capability creation over in-person alternatives. A well-executed remote program can reach broad areas of even the most dispersed workforce. The value of driving the proper kinds of behaviour’s among midlevel and frontline leader’s skyrockets in a remote-working environment. At the same time, we can’t expect changes in behaviour and skills to spread through the business as quickly as they did before. Newly lean and remote workforces will necessitate new capabilities for every employee. Next-generation digital programs can address this demand at scale in a cost-effective manner.

In Virtual Workshops, you may Bridge both Physical and Psychological Distances

One universal aspect of the coronavirus issue is the decrease in in-person connections, which has left many executives wondering how to attain the same intimacy and calibre of cross-functional dialogue, problem resolution, and behavioural change—without sitting across the table. It is not sufficient to just “cut and paste” in-person events into online ones. Content developed for in-person events is not always well adapted to virtual forms, and good remote meeting facilitation is not a common ability. Still, the demand is as acute as ever, so some organizations have gone back to the drawing board and approached the problem from the ground up. What does a successful remote capability-building program look like? What are the most critical components of such an effort?

Collaboration in a remote-working setting is challenging in many ways. Along with the material, virtual training must emphasize technological proficiency and problem resolution. Training on business-case building at one multinational industrial corporation required small teams to synthesize raw data, access a whiteboard-style collaborative website, and collaborate through videoconference to value an initiative. As a result, participants not only acquired the essential components of a business case, but they also enhanced their capacity to cooperate digitally. We believe that businesses that use this approach to successful virtual training—and mix it with safe, high-impact in-person experiences—will see a multiplier effect in the impact and longevity of altered behaviour’s.

There is even evidence that virtual environments can provide experiences that are comparable to or better than traditional in-person training. Our study with learners over the last six months demonstrates that a well-designed virtual program may match or even outperform in-person offerings in terms of efficacy. Indeed, 87 percent of learners who participated in newly tailored virtual experiences agreed that they were at least as effective as in-person events. Virtual workshops can be useful tools for organizations as they recover from the pandemic (exhibit).

The experience of one South American multinational logistics company teaches us how to maximize the effectiveness of virtual workshops. Prior to the pandemic, the organization was planning a two-year full-scale business restructuring. A key component of the project was ensuring that staff had the skills and capabilities needed to enable a successful transformation.

Then came COVID-19. It would have been easy to put off the shift as economic and health concerns mounted. Instead, the group opted to adopt a long-term approach to the business and proceed. Business leaders recognized that they would need to quickly shift their intended approach to capability building from in-person to virtual learning. Three of the guiding concepts they used to build and conduct virtual workshops were as follows:

Choose interaction over content. When training sessions fail, the traditional post-mortem report concludes that “death by PowerPoint” occurred. More than ever, the quality of facilitation and breadth of discussion, rather than any unique material on a slide, determine the success or failure of a remote-learning experience. One full-day in-person training, for example, reduced the number of slides used from approximately 80 to approximately 20. The majority of the time was spent in small groups, where participants explored thought starters that assisted them in co-creating critical insights. Employees’ experiences were improved as a result of the engagement and debate.

Take advantage of technology. Rather than apologizing for the technology up front, the company embraced it and created excitement among participants. Facilitators, for example, insisted on everyone participating in video and made significant use of smaller, intimate breakouts. Because the organization had never utilized videoconferencing previously, this training gave finance analysts the opportunity to observe their business colleagues for the first time, forging new connections. Individuals who had been on phone calls for years suddenly had the opportunity to spend hours together learning, laughing, and chatting in a secure setting. Effective virtual programs can tear down silos that have been built up over time in just a few days, influencing how employees communicate and connect even after the workshop is done.

Make your leadership clear. Because in-person workshops are difficult to organize, leadership engagement in traditional workshops is either non-existent or very limited. This strategy will not work with newly lean remote workforces that are fatigued, worried, and seeking leadership. Virtual workshops can help to bridge the leadership-employee gap more efficiently. Because there was no need for travel, the organization was able to obtain multiple hour-long blocks of time with the CEO and other senior officials to talk face-to-face with employees and participate in the program. “I chatted with my boss’s boss more today than I have in the last two years combined,” said one of the company’s buyers.

Innovate with New Reinforcements to keep Behavioural Improvements Going

Creating reinforcements to keep behavioural changes going has never been easy. The commonly held belief has been that just delivering a capability-building program results in changed behaviour. However, this connection is not supported. Prior to COVID-19, managers relied on informal feedback loops with office colleagues as a partial fix for this absence of reinforcement mechanisms. Such contacts were by no means exhaustive, but they did serve to bridge the gap to some extent.

Remote working has eliminated this and other techniques to encourage changes in mindsets and behaviour’s. The good news is that the science behind changing mindsets and behaviour’s is informative, and some businesses have leveraged these insights to develop reinforcement systems tailored to remote-working contexts. Although it is still early in the process, preliminary results have been promising.

The guiding concepts for long-term behavioural change are as relevant today as they were before the pandemic. Managers must establish clear change expectations, and staff must be encouraged and guided to achieve those objectives. There are two basic and well-proven ways to aid in this effort: direct association and enforcing both positive and negative consequences. In this case, direct association involves relating desired behaviour’s to actual business outcomes that are meaningful to employees. Similarly, positive and negative consequences give real-time course corrections to keep behavioural change on track.

Many businesses have begun to experiment with novel applications of direct association and consequence enforcement. Although it is too early to draw firm conclusions from these efforts, their successes and failures in providing vital reinforcement to behavioural-change programs demonstrate both their promise and their flaws.

After COVID-19 disrupted an in-person capability-building program, one telecom operator actively pursued reinforcement through direct association. With that option out of the question, the leadership team rapidly adapted and organized a series of virtual seminars created specifically for that format. To reinforce the information, they established employee-led “lunch and learn” events to link desired behaviour’s to the overall performance goals of the firm. Each 45-minute session focused on a specific topic that germinated from the formal workshop, was entirely discussion-based, and was closely related to events or efforts taking place that week. With few slides and no senior leaders present, the team created an approachable setting. An open and engaging dialogue helps to reduce the gap between classroom knowledge, employee behaviour, and real-time business consequences. After two months of lunch meetings, 94 percent of employees agreed with the statement, “I am getting the assistance I need to build my capabilities to manage or be a member of a remote team.”

Some businesses have pushed for even more innovation through highly personalized, real-time “nudges”—both good and negative. The front end of a capability-building effort at a large industrial manufacturer in North America was a mobile application. Managers could use the app to send personalised nudges to staff with exciting teasers of what they would learn, goals and encouragement for the week, and positive reinforcement when programming was completed ahead of schedule, rather than just providing the content. When a manager notices that an employee is not demonstrating expected behaviour’s, he or she can easily assign further programming and provide direct feedback. This gave tailored reinforcement to all employees, from those working remotely from home to those on the production floor.

Others have seen their efforts fall flat when they diverge from a tried-and-true strategy. A huge Japanese bank insisted on using a no customized, automated email campaign to send weekly messages to staff with rolled-up statistics and a reminder of responsibilities to be accomplished the following week. These generic emails lacked explicit and reinforceable consequences. Furthermore, they failed to create explicit behavioural-change expectations or connect them to larger business goals. Employee behaviour quickly returns to normal.

While the quest to develop capabilities has become more difficult in the remote-working world of COVID-19, the need to develop a more capable workforce has never been higher. In the long run, organizations that are willing to use this strategic lever have shown that they can improve their digital programming, invest in high-quality virtual workshops, and design formal reinforcement programs that will help them get back on their feet and be more resilient in the long run.

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A new digital transformation language

Article

Brief

A new digital
transformation language

Organizations continue to struggle with digital transformation. A technology-independent common language could be the key to strategic transformation

2 min Read | CONSUMER PRODUCTS INDUSTRY, FINANCIAL INSTITUTIONS

Authors

Dani Wong

Partner, Singapore

At a Glance

Creating a common, digital language for digital transformation could be the key to gaining a competitive edge and adaptability.
According to research, companies with above-median scores on both the ability to win and the capacity for change indexes reap real benefits
Organizations that are able to interact across functions in a way that prioritizes strategy over technology can lead to efforts that result in a more modular, flexible technology core that offers better transformation and strategic value.

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Organizations continue to struggle with digital transformation. A technology-independent common language could be the key to strategic transformation.

Adaptation is required to win the future, from disruptors and disruptive technology to pandemics, political upheaval, and climate change. To survive and thrive, leaders must determine how to sustain a competitive edge and enable the ability to win in a way that not only tolerates but also embraces change in order to produce new strategic alternatives.

In the twenty-first century, an adaptive firm is often a digitally powered business, prompting many organizations to undertake digital transformation. But why do so many makeovers fail to provide tangible results? Why is it so difficult to promote cross-functional change, plan beyond one technology at a time, or develop a strategy that can adapt as technology develops and businesses’ underlying assumptions shift? Developing a uniform, strategically linked language for digital transformation could be the answer to gaining digital advantage and adaptability.

Defining the Digital Transformation Debate

When the pandemic hit, 85% of CEOs increased their digital initiatives. Most of them can’t talk about their whole strategy and progress beyond the fact that they invested in technology. Creating a business that can thrive in the digital world is becoming more and more important for businesses to do. If CEOs cannot demonstrate that their digital transformation has resulted in new business benefits or agility, they have not truly transformed. This distinction between business and technology strategy highlights a larger phenomenon: many leaders recognize that technology should not drive business strategy. However, all too frequently, that understanding is overshadowed by the desire to ask, “What should our AI strategy be?” or to react to events by making a series of tech-first, one-time expenditures. The desire to conceptualize in terms of distinct technology can be strong.

This difficulty is exacerbated by the fact that C-suite executives have diverse focal areas and objectives. And, more than likely, a single technology will not suffice to meet their requirements; rather, a complicated combination of solutions may be required. They also often don’t talk to each other when they’re making technology decisions, or if they do, they have a hard time communicating well. If you want to make sure that projects are coordinated across different leadership roles while still being consistent, you should use a playbook.

While many organizations have a digital strategy, they lack a common vocabulary to strategize across functions, making it difficult to digitally transform and handle relevant opportunities and dangers. Indeed, a common language for digital transformation may enable C-suite executives to hold tech-adjacent and tech-agnostic conversations that transcend any one technology and go to the heart of their processes and culture, as well as how people work and connect.

Organizations can begin to break down human behavioural and structural barriers by adopting a common language. Everything in a company is interconnected. By simply communicating more effectively, leaders across functions may speak thematically about shared needs, prevent duplicating investments, address emerging risks, and modify procedures at scale.

Plan for more than one technology. Platforms, capabilities, and initiatives frequently include the secure collaboration of several digital and physical technologies. When these technologies join together, they become more than the sum of their parts, bringing new capabilities and value.

Ascend into the future. Today’s breakthrough technology will be obsolete tomorrow. A common language enables leaders to think flexibly across a matrix of business and technology needs without relying on a single technology.

Increase your strategic business worth by demonstrating your ability to change and win. This technique assists organizations in better aligning and executing on their business plan in order to achieve the intended outcomes of advantage and adaptability for the company, individuals, and technology.

According to research on the exponential enterprise, a company with above-median scores on both the ability to win and the capacity for change indices has measurable gains. Based on data from 2015–2020, these companies had a price-to-earnings ratio that was 53% higher and share price volatility that was 21% lower than industry competitors with below-median scores on both dimensions.

To guarantee that all parties can understand and contribute to the conversation, the language of digital transformation should have one foot on the business side and one foot grounded in downstream technology and operations, while avoiding technical terms. Leaders from various industries appreciate the importance of connecting the two sectors in a friendly, universal manner. “If you want to become closer to and become more crucial to the business and its goals, you need to speak the same language as the business,” says Tighe Wall, chief digital officer of Contact Energy. In the future, every organization will become more technologically and digitally focused. People who have already bridged that divide and are speaking the same language in business as they are in technology will be successful. ”

Five Digital Transformation Imperatives

We’ve identified five business outcomes that technology influences and enables that can aid in the development of that common language. Thinking thematically across these five digital imperatives—experience, insights, platforms, connectivity, and integrity—allows organizations to communicate across functions in a way that prioritizes strategy over technology, leading to initiatives that deliver a more modular, flexible technology core that better delivers transformation and strategic value. These business-techno principles can serve as guardrails to help executives avoid slipping into the trap of a technology-led conversation. They can also assist in the development of digital strategies that are tied to technical realities and workforce considerations. In essence, they serve as a link between business and technology strategists and workforce and operational leaders.

Getting into further specifics:

Experiences: Optimize interactions with users, whether they are customers, employees, or other stakeholders in the ecosystem.
Insights: Determine what data, analysis, operational models, and workforce are needed to support corporate strategies.
Platforms: Focus on the location and administration of information across a company’s or network’s network.3.0
Connectivity involves the flow of information between platforms, experiences, and insights, as well as networking with other organizations and ecosystems.
Integrity: A cyber-minded culture focuses on enhancing resilience, security, ethical technology, and trust across all internal and externally exposed corporate systems and processes to handle constantly emerging threats.

For each requirement, there will be more than one technology to examine. It can be helpful to think of the imperatives as categories or “capacity stacks.” Themes enable categories to become fixed as technology evolves. As a result, leaders can consider today’s enabling and disruptive technologies (such as cloud, IoT, blockchain, AI, cybersecurity, mobile, 5G, digital reality, edge computing, quantum, and others) while maintaining the same strategy in place for future disruptive and horizon-next technologies to meet the same strategic objectives.

Putting the Imperatives into Action: Drive Transformation by Aligning Strategy

Organizations can utilize these imperatives as a lexicon to develop a digital strategy that is aligned with the organization’s strategic north star.

Begin by evaluating how that broad goal ripples through company, technology, and workforce considerations:

What is the enterprise goal for digital transformation? Willingness to change? Possibility of victory? both?

Ask the following questions about each of the five digital imperatives:

What is the strategic business aim that best supports our company’s goals (s)?

In terms of purpose, function, security, and risk, how does technology need to support this business goal?

What are the implications for operations and the workforce of such business, technological, or security decisions? In turn, how may workforce strategies and capabilities influence the transformation strategy in a way that takes into account profound shifts across leadership teams, operating models, ecosystems, and the workforce aligned with strategy?

We may then develop a technology strategy that includes planned technology investments that are aligned with organizational and workforce transformation objectives and ladder up to the overarching organizational aim.

Let us provide an example to demonstrate what we mean. Developing a strategy for smart factories First, evaluate the company’s goal for the smart factory, such as creating small batches or personalizing things at a lower cost than conventional mass manufacturing processes. Second, develop the digital business strategy by analyzing how each of the five imperatives aligns with these manufacturing goals in terms of insights necessary, platforms and connectivity required, and, lastly, how to do so with integrity. Then, as you work your way down the list of digital imperatives, assess your technology requirements in relation to the digital business strategy. Instead of starting with the cloud as an expected investment, talk about a variety of technologies (that may or may not include the cloud) and their consequences for the workforce and operations. Better strategic alignment across the digital business plan, technology investment strategy, and organizational or workforce transformation agenda could follow.

Change, Compete, and Win: Creating Value through the Five Imperatives

While our proposed framework is novel, the reality of implementing an integrated, cross-functional approach to digital transformation is not. However, creating such an integrated approach is critical. We discovered that the technologies listed in our survey that align with these imperatives were rated as the top five most important to enable digital transformation when we analyzed data from 2,860 global business and public-sector leaders who responded to the Digital Transformation Executive Survey. Furthermore, we discovered that the more digital imperatives these organizations implemented, the higher their digital maturity and profitability. Furthermore, more digitally linked organizations outperformed in terms of strategic objectives, adaptability, and ability to succeed.

To accurately assess the value that organizations can gain from increased adoption of digital imperatives, we divided respondents into two groups: seven “digital all-rounders,” who had implemented three or more digital imperatives (13 percent of respondents), and “digitally developing,” who had implemented fewer than three digital imperatives (87 percent of respondents). While 67 percent had adopted at least one digital imperative, organizations realized greater value when they coupled them into an integrated digital strategy.

Digital all-rounders are at the helm of digitally developing organizations in the following areas:

Capacity to change: Digital all-rounders were better able to scale, achieving full-scale implementations more frequently (77 percent vs. 64 percent), and their digital capabilities aided them greatly in dealing with COVID-19 problems (35 percent vs. 24 percent).

Ability to win: All-rounders also reported higher-than-average revenue growth rates (74 percent vs. 65 percent) and citing digital capabilities as a critical differentiator (36% vs. 25%).

Many organizations, whether they recognize it or not, are already pursuing this integrated strategy. We interviewed four global leaders in charge of digital transformation in their organizations, each in a different business and technical function, industry, and geography, and discovered that they were already approaching transformation in this manner—but without a clear language and frame to guide them. During these discussions, we found out that this framework can help organizations with three different digital transformation goals: optimize one digital imperative across all three of these areas; combine multiple imperatives to build a more complete strategy; or use a combined approach that combines multiple imperatives across these strategies.

Prudential, for example, prioritized the insights imperative across business, technology, personnel, and operational strategies. They engaged underwriters in the construction of its algorithm to automate underwriting in order to get better adoption and value from the transformation. “The way they work is changing,” said Robert Huntsman, chief data scientist for Prudential Financials’ life insurance and retirement business. “Knowing that, underwriters have been involved from day one in helping to write the requirements, crafting how the model works, as well as changing their own processes for how they would interact with the model.” Now, you can get an expedited judgment on 60% of applications, lowering the amount of time an underwriter needs to spend examining an application. That represents a significant cost savings for the organization, allowing us to be more price competitive and offer our consumers the services they require more quickly. ”

Alternatively, the framework can assist organizations in developing a more integrated business strategy that incorporates platforms, insights, experience, connection, and integrity. A platform approach to improving end-to-end data integration across customer insights and experiences while keeping data integrity in mind. “We’re concentrating on linking our company from end to end to deliver an improved and more transparent experience for our consumers, customers, and ingredient suppliers,” he stated. This necessitates connecting all data from the start of R & D, all the way through the supply chain, to our retail customers, and all the way to the consumer.

British American Tobacco and Contact Energy examined a number of digital imperatives that were aligned across business, technology, and operations/workforce initiatives. Elaine Chum, area head of digital transformation, British American Tobacco, North Asia, described how she is leading her company’s online retail platform strategy in Japan to create a direct-to-customer buying experience while adhering to regulatory integrity requirements in order to drive increased sales revenue. In today’s society, she says, “I should be able to deliver within 24 hours.” We began by looking at consumer experience and constraints, and with those three imperatives in mind, we said, “Put the consumer experience at the front, middle, and back of your company’s agenda.” Consider the strategy element, internal business processes and how they can enable transformation, the technology and platforms that we own and operate in, the capabilities that we have, talent, people, resources, [and] the organizational structure, “highlighting the unique challenges of operating in a region that values stability over change and finding Japanese-speaking digital talent.

Furthermore, Wall of New Zealand’s Contact Energy is expanding the digital platform his company developed to maximize customer experience to reduce friction for its customer care employees, thus improving workforce operations. A thorough, matrixed strategy can enable this type of flexible, synergistic decision-making while keeping the larger company’s aim in mind.

A language for Today's and Tomorrow's Transformations

Our digital imperatives can help businesses make changes that are in line with their long-term goals while being able to adapt to changes in their strategy in the future. They recognize the importance of AI, cloud, and cybersecurity today, but they leave room for evolution toward “horizon next” technologies, avoiding the trap of chasing every flashy new technology. Finally, they assist in the development of adaptable business processes and technology architectures that accept dynamic change and reconfiguration in the face of ongoing disruption and risk, with the goal of compatibility for numerous conceivable futures.

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Don’t Depart Without a Strategy for Digital Operations

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Brief

Don't Depart Without a Strategy for Digital Operations

Leaders in Industry 4.0 establish clear objectives to achieve speed, agility, and efficiency

2 min Read | INDUSTRY 4.0, MANUFACTURING

Authors

Margot Todd

Partner, Singapore

At a Glance

Digitalizing activities can increase overall production efficiency by up to 20%.
Leadership teams that connect digital operations to the company's long-term strategy are three times more likely to succeed.
A greenfield facility isn't required for a digital operations transformation; in fact, over 80% of digital operations transformations take place in existing facilities.

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Industry 4.0 leaders set clear goals to achieve speed, agility and efficiency.

Leaders in Industry 4.0 establish clear objectives to achieve speed, agility, and efficiency.

Digitalizing operations can increase total production efficiency by up to 20%. Leadership teams that integrate digital operations into the firm’s long-term plan are three times more likely to succeed. A greenfield facility is not required for a digital operations transformation; around 80% of it takes place in existing factories.

With cost pressures growing in the industry, a major automaker opted to invest more than $500 million in a greenfield factory injected with digital technologies. The goal is to achieve massive improvements in operating efficiency, quality, and flexibility. Big data, advanced analytics, collaborative robots, and linked hardware will assist in achieving cost reductions of up to 20% in production and up to 30% in support operations, representing a significant improvement over the typical 2% to 3% yearly targets. In addition, the next-generation factory will serve as a model for the company’s global production network.

It’s a bold strategy. Most businesses are experimenting with digital technologies in various areas of their operations, but just a handful are moving forward with full-scale deployment. According to research, 66 percent of US manufacturing leaders are making major expenditures to digitalize operations, but only 25 percent are implementing solutions across the enterprise—and nearly half of those we questioned reported disappointing results.

That’s a squandered chance. Digital tools can help companies reduce time to market, improve agility, and save expenses. They can also change a company’s strategic direction, allowing for more innovation in operations and increasing the company’s competitive edge. Leaders increase total production efficiency by 10% to 20%, resulting in considerable savings in logistics, energy expenses, and human resources. And those gains do not necessitate the construction of a state-of-the-art greenfield factory. Approximately 80% of digital operations reforms take place in existing plants. Companies typically maintain a normal production schedule while introducing simple-to-use digital solutions that provide significant benefits.

Regardless of the potential benefits, most leadership teams are concerned that digitalizing substantial portions of a supply chain will be complex, costly, and time-consuming. In our experience, the issue isn’t one of technology. Companies face delays and increased costs due to two major factors: a lack of focus and a lack of competence. Outdated management techniques also impede effective implementation. Sixty percent of the executives we polled indicated they didn’t have a clear strategy for digitalizing operations. Four out of five investors who did not have a defined strategy struggled to generate significant value. Companies that invest in pilot’s year after year or without a strategic plan do not see significant returns on their investments.

On the other hand, leadership teams that combine digital operations with the firm’s long-term strategy are three times more likely to achieve their objectives. Let’s take a closer look at the challenges of executing enterprise-wide digital investments and how leaders are overcoming obstacles to produce significant results.

The Future of Digital

The torrent of digital technology and solutions flooding the market might make it easy to feel overwhelmed. Which ones are the most important? Big data, analytics, robots, automation, and sensors, according to executives, will enable four important advancements.

The first is intelligent automation. Robots and other automation systems will speed up operational procedures, boost flexibility, and pave the way for increasing product customisation. Fast retailing in Japan is investing in a two-armed robot that can pick up T-shirts and neatly fold them for distribution to customers—an important step toward automating subsidiary Uniqlo’s flagship warehouse. Automation will also minimize error rates and increase efficiency.

The second innovation is end-to-end visibility and collaboration across the whole supply chain, including third-party suppliers. A significant improvement in supply chain visibility will boost efficiency and improve the capacity to track products from the point of origin all the way through production and distribution.

Third, digital technology will enable intelligent supply chains through better R & D management, planning techniques, and forecasting. A shop that incorporates external data into its inventory planning, such as weather forecasts, macroeconomic trends, and partner data, for example, can respond in real time to a cold snap, an economic slowdown, or a supplier supply deficit. The advantages include a faster time to market, tighter inventory, lower stock-out rates, and higher sales.

Finally, digital technologies will assist next-generation personnel by increasing productivity, skills, and safety.

The Engine of Propulsion

Digital technology, in addition to improving existing processes, enables new products and business models, blurring the borders between operations and strategy. Two-thirds of companies invest in digital operations to improve existing processes, like automating a car assembly line. But half of the executives we spoke to are also using digital tools for a variety of strategic goals, like inventing new products and services, building new business models, and finding new ways to make money, as well.

That’s a major benefit for businesses dealing with change. Whether or not a disruptive threat is visible, successful leadership teams are beginning to shift their focus from running their core business (today’s engine) as efficiently as possible and continuing to innovate there to creating new products and business models (tomorrow’s engine) based on changing customer needs, new competitors, new economics, or all three.

During the mid-2000s, Netflix used this Engine 1, Engine 2 method. While continuing to operate its main DVD business, the company introduced a new content-streaming distribution strategy. Netflix’s Engine 2 approach eventually disrupted the DVD rental industry, but it required competing on two fronts until the streaming business took off. Investing in digital technology to automate DVD warehousing was an option for enhancing productivity at the time, but given the strategic change to streaming content, it would have been a terrible investment.

Getting Going

Companies that get the most out of their investments in digital operations take a strategic approach from the beginning. They connect investments to strategy, prioritize investments that add the most value, adjust their organizational architecture, and move at an uncomfortably rapid pace.

Integrate operations with strategy. When it comes to digitalizing operations, leadership teams have a tendency to focus on an unduly narrow set of objectives. According to our survey, 80 percent of CEOs are primarily interested in cost savings. Many companies neglect the opportunity to improve the dependability and flexibility of their supply chains as well as to seek strategic opportunities. Leaders aren’t blind to cost savings, but they are more concerned with enhancing quality, speed, reliability, and visibility across the entire supply chain.

Consider the scenario of a prominent US shop that was trying to meet expanding consumer e-commerce expectations. The management team concluded that it needed to boost its speed and flexibility in inventory management, distribution, and delivery as soon as possible. The most efficient solution was to digitalize operations. The company worked with an autonomous robot company to cut warehouse space and personnel requirements, devised a strategy to reduce retail inventory and enable rapid replenishment, and purchased a same-day delivery company. The results were astounding: a 49 percent increase in digital sales year over year, a 25 percent to 40 percent reduction in warehouse space, and an 80 percent reduction in distribution centre labor expenses.

Invest in large value producers. A highly fragmented technology and vendor ecosystem provides businesses with a plethora of possibilities to test, learn, and invest in. The danger is that the experimentation will continue indefinitely with no benefit. Digital experiments frequently begin as grassroots projects driven by creative department heads eager to improve certain procedures. Their actions make sense on their own, but the resulting jumble of programs scatters investment money and managerial focus, undermining the capacity to focus on essential business results.

Successful businesses learn to say no to further experimentation. Based on their industry and strategy, they prioritize technologies that will add the most value. This necessitates agreement on strategic priorities as well as a methodical strategy for piloting and developing novel solutions.

The previously stated global vehicle manufacturer used a strategic strategy in constructing a digital plant. The leadership team evaluated prospective digital solutions and prioritized them based on the value they would provide and the ease with which they might be implemented at scale. The resulting greenfield factory featured the highest-value technology, resulting in efficiency benefits ten times greater than the industry norm.

Create an intelligent digital organization. Companies that do not expand beyond digital trials wind up with isolated pockets of innovation and limited benefits. The technology itself can be a challenge at times, as many businesses must integrate new systems with legacy infrastructure. Bridge technology can help to solve this problem. Leading equipment manufacturers are equipping manufacturing lines with sensors to collect data for analytics and smart connectivity to provide remote support services.

Most of the time, however, the ability to scale up digital technology is the key differentiator between champions and laggards. Leaders ensure that the right people are in the proper roles, that there is enough digital talent, that there are strong governance mechanisms in place, and that the executive team is aligned with the digital operations plan. Equally important, they embrace new capabilities, such as Agile methods of working, and engage with start-ups to capitalize on cutting-edge technologies.

Successful businesses establish robust orchestration and scaling initiatives, as well as specialized teams to supervise the transformation. One multinational industrial corporation, for example, established a centralized team with three primary charters to roll out a digital operations program across numerous sites. It created the overarching digital roadmap and collaborated with initiative teams from across the organization to guarantee successful execution. It also developed important capabilities in Agile management and analytics, embedding knowledge in initiative teams across all sites. Finally, the central team determined the rate of change. In less than a year, the program has provided $50 million in run-rate value across two sites (from a total of around $450 million in recognized value at run rate).

Moving at a breakneck pace Most businesses are still assessing new technology at a snail’s pace. As innovation accelerates, executive teams must make faster decisions about which pilots to scale. They must also establish explicit criteria for rapidly terminating ineffective investments and redirecting resources.

According to our research, 80 percent of digital operations leaders have established next-generation organizational competencies to expedite change, such as Agile management, supplier-customer collaboration, and external alliances. Success stories can aid in the spread of promising technologies throughout a company. Leaders also ensure that support areas like procurement and IT are keeping up with the increased cycle times.

Executive teams accustomed to multiyear plans, extensive business cases, and thorough due diligence may find the needed pace unsettling, but the new method incorporates flexibility into the strategy process. Companies, for example, can identify their digital destination and then use a stepping-stone strategy rather than embark on a full digital transformation. What matters most in this new world is the ability to quickly pivot and change course as necessary. That’s because, as businesses begin their digital journey, the best next step may not be obvious until they’ve taken the first step.

Investing in digital operations is an exciting journey with enormous potential. As the barriers between strategy and operations become increasingly blurred, getting this transformation right can provide a significant competitive edge. The gap between leaders and laggards is already widening. Our experience has shown that a small number of successful elements can make or break a business. As a result of digital innovation, companies of the future will be tremendously smarter and faster. Those who put it to use will usher in a new era of operations.

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Getting It Right When It Comes to Business Resilience

Article

Brief

Getting It Right When It Comes to Business Resilience

Five fallacies stand in the way of a company’s ability to hedge against, absorb, and recover from systemic shocks.

2 min Read | HEALTHCARE, FINANCIAL INSTITUTIONS

Authors

Gaurav Sharma

Partner, India

At a Glance

In most industries, the quantity and amplitude of external shocks has increased, while companies' focus on efficiency has rendered them more vulnerable to shocks. Now that Covid-19 is underway, more leaders are willing to invest in their company's resiliency
While excessive risk can yield huge profits, research suggests that more resilient companies have a roughly doubled long-term survival rate.
Adopting the best resilience approach necessitates debunking five common misconceptions.
Senior executives will need to recognize the trade-offs and make decisions about their revenue portfolio and operations. With volatility expected to worsen, increasing resilience might help a company thrive through future crises.

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Five fallacies obstruct a company’s ability to hedge against, absorb, and recover from the unavoidable shocks to its system.

Most industries have seen an increase in the quantity and magnitude of external shocks, yet the focus on efficiency has rendered companies more vulnerable to shocks. In the midst of COVID-19, more leaders are willing to invest in their company’s resilience.

According to the index, while excessive risk can result in large returns, more resilient organizations have roughly double the long-term survival rate. Adopting the best resilience strategy necessitates refuting five commonly held fallacies.

Senior leaders will need to recognize the trade-offs and make decisions about their revenue portfolio and operations. With volatility expected to worsen, strengthening resilience can position a firm to prosper through future crises.

It’s no surprise that business resilience is all the rage. While the COVID-19 pandemic is horrifying on a social and economic level, it is only the latest in a long line of upheavals that highlight the vulnerabilities or brittle features of unprepared businesses. Major shocks in recent years have included international trade disputes, a drop in oil prices, and a financial crisis, all of which have pulled the rug out from under exposed enterprises. An increasing number of government actions have begun to limit the possibilities of technology behemoths such as Ant Financial, Google, and Huawei.

Companies are currently being buffeted by the coronavirus pandemic and the subsequent economic slump. The pandemic cut off vital supplies of medicine components from Asia, exposing pharmaceutical companies’ reliance on long-distance supply systems. For more than a decade, pharmaceutical corporations have sought to reduce costs by shifting a large portion of their manufacturing capacity to China and India. This had a direct impact on supply chain reliability in 2020, with production site closures and deteriorating transportation routes immobilizing supply chains and resulting in substantial medicine shortages in several nations while demand surged.

Resilience is certainly becoming increasingly crucial for businesses across all industries. And the instability is set to worsen as globalization unravels, inequality increases, new technological threats emerge, and the repercussions of climate change become more frequent and severe. However, senior executives and boards of directors do not always understand the dynamics of resilience. We challenge corporate executives to think about the following:

The majority of your concerns are overly short-term and minor.

Improving resilience does not have to come at the expense of investors.

Expanding government controls or restrictions, such as foregoing dividends or stock buybacks in exchange for bailouts, may further limit your options if you don’t get ahead of the task of becoming more robust.

The destructive obsession with efficiency

How did we end up in this situation? Recent stability has allowed for the largest growth in profits since the middle of the twentieth century. From 1990 to 2018, the profit pool of corporations in developed nations rose at a rate more than double that of the GDP. During this time, the relative regularity of the business environment allowed enterprises to pursue efficiency, which contributed to the remarkable profit increase.

However, this emphasis on efficiency has come at the expense of increased structural instability. Firms increased leverage, with nonfinancial corporate debt-to-GDP ratios in the United States rising from around 30 percent in the 1980s to just shy of 50 percent today, and used debt to increase cash pay-outs to shareholders, which have risen from 78 percent of net income in 1999 to more than 100 percent today. At the same time, several companies unified their supply chains in order to acquire greater bargaining leverage, and they implemented just-in-time and redundancy-free processes in order to eliminate waste.

While having a focused portfolio is important for long-term value generation, it has also produced hidden tension points that make some organizations vulnerable to unexpected changes in circumstances. Spirit AeroSystems, a top fuselage maker that was primarily reliant on a single customer, Boeing, ran into this issue when problems with the 737 Max aircraft prompted a major restructuring. Spirit has lately made moves to strengthen its resilience, including acquiring assets from Bombardier that will help it increase business with Airbus.

In contrast, Samsung Electronics’ experience demonstrates the growing benefit of a more diversified revenue and profit portfolio. In 2016, the battery in Samsung’s new Note 7 product caught fire in certain situations, jeopardizing the company’s leadership in the smartphone market. The announcement prompted a $5 billion recall. However, the company was able to weather the storm because of the breathing room provided by offsetting growth in its semiconductor and display panel divisions. The structure of Samsung’s portfolio allowed them to devote the time and resources required to address the core causes of the battery failure and produce a new flagship product (the Galaxy S8) with a slew of novel features to reclaim customers.

The emphasis on streamlining and efficiency has increasingly increased risk at the macro level. When we compared 1980–1999 to 2000–2018, we discovered that the volatility of the aggregate profit pool in developed economies increased by 60%. This volatility coincides with an increased chance of failure at the firm level. In the case of publicly traded US companies, the bankruptcy rate tripled between 1980 and 2018. Both aggregate volatility and firm failure rates would have been far higher if the government had not provided unprecedented levels of assistance.

The experience of banks in the aftermath of the financial crisis, particularly in Europe, serves as a cautionary tale. Prior to the 2008 financial crisis, European banks not only had fast development, but also a rising return on equity that reached the mid-double digits. Returns have since fallen to the low single digits, substantially below the cost of capital. This is due in part to Europe’s general economic malaise and the lingering effects of bad loans, but it also reflects a huge step shift in the amount of regulatory capital these corporations are now required to keep as a condition of government bailouts.

As evidence mounts that the conventional organizational risk-management playbook is no longer adequate, senior executives and boards are beginning to reconsider resilience. Even those that were able to survive the epidemic because of the extraordinary efforts of their staff and partners see the need for a more sustainable approach.

But here’s the rub: Much of the conversation, like the rush to digitize everything a few years ago, fails to analyze what resilience means for each company and what it will take for a company to improve. In recent interviews with business leaders, we’ve discovered five persistent myths that confuse the debate. The first step toward resilience is dispelling these beliefs.

Myth #1: Resilience removes Volatility

The likelihood and consequences of events cannot be coerced into a neat probability distribution in the modern era. Consider how useless most polling was in projecting recent US elections or the British vote to exit the European Union.

In such a climate, treating resilience as a virtue that eliminates earnings and share price volatility is both unrealistic and counterproductive. Instead, we distinguish between volatile, predictable variations in every firm over time and genuine risk exposure to a long-term detrimental shift in trajectory.

In fact, attempting to reduce volatility is analogous to purchasing insurance that protects against the deductible rather than the loss itself. It fails to address the larger goal of ensuring that the inevitable surprises encountered along the route do not permanently harm a firm’s capacity to deliver an appropriate return on capital invested over the cycle.

Rather than focusing on earnings certainty, management teams and boards can be more effective in determining what the true risks are that they want to hedge against. bankruptcy? Default? Downgrade in rating? A hostile takeover? An activist investor? The original sin in many resilience conversations is a failure to properly define risk appetite.

Myth No #2: The financial sheet is everything

Business leaders sometimes examine resilience primarily through the prism of the balance sheet, focusing on leverage and liquidity while neglecting other possible sources of fragility. Resilience, in reality, has five dimensions:

Strategic considerations include absolute and relative scale, demand elasticity, revenue and profit diversification, and cross-correlations.

Financial, such as leverage and liquidity, but also insurance and hedging;
Operational considerations include operating leverage, supplier concentration, and redundancy.
Aspects of technology, such as availability, workload mobility, and cybersecurity; and
Organizational resilience, which includes crisis readiness, organizational agility, and human resilience.

Adopting a holistic view of resilience recognizes the reality that external shocks generally influence firms across multiple dimensions at the same time, amplifying the magnitude of the shock. Accounting for all of these variables enables CEOs to make more informed decisions about where to invest limited resources in resilience.

Nissan’s experience exemplifies the point. Nissan employed a number of risk-reduction measures throughout the 2000s. These included creating detailed crisis playbooks with clear disaster-recovery plans and regular simulation training; having a more geographically dispersed production base and diversified supply chain than competitors; and taking proactive steps with suppliers to ensure that they had plans for switching production during a crisis. During the 2011 earthquake in Japan, these preparations paid off handsomely, with the carmaker restarting production after around two months.

Southwest Airlines’ experience highlights the multitude of elements that lead to resilience. During the epidemic, Southwest’s network, business model, and balance sheet allowed them to grow to additional routes while other airlines cut back. This also underscores the company’s systematic approach to making all client groups profitable rather than relying on subsidies from the foreign and premium business segments, which have been the hardest hit this year. The airline’s proactive risk management also served it well during the early 2000s oil price increase, when activities such as hedging helped it avoid the fate of other carriers who filed for bankruptcy restructuring.

In many circumstances, resilience is also a result of the company model’s overall simplicity and transparency. During the 2008 financial crisis, many banks were brought down by the sheer complexity and opacity of the mortgage-backed assets to which they were so heavily exposed, making effective risk assessment practically impossible. Similarly, during COVID-19, complicated and opaque supply networks exposed many enterprises to shortages of materials or components of which they were unaware were so crucial.

Myth #3: Past resilience ensures future resilience

When the dust settles from the COVID-19 problem, most businesses will be better equipped to cope with the next pandemic, just as banks are better prepared to deal with the next mortgage crisis. “Black swan” events, on the other hand, resemble recent problems.

Building true resilience necessitates questioning what could happen that would truly put the firm to the test, rather than relying on past experience. Many firms that have demonstrated resilience in responding to strategic and financial shocks have experienced massive technology outages and cyberattacks, sometimes as a result of the breakdown of just one router or server. As the trend toward digitalization and automation of processes accelerates, technology will introduce new hazards that some businesses have not yet anticipated.

It is a fool’s errand to try to discover and quantify the universe of all conceivable shocks. Instead, astute leaders will develop the organizational muscles required to assess which shocks matter most (in terms of both impact and likelihood) based on industry and firm-specific economics. Although there are many possible shocks, the number of transmission routes through which they could seriously harm a certain organization is substantially lower. This brief list might include, for example, the price of oil, fleet availability, and travel restrictions in the airline business. Every industry will have its own list, and understanding the main transmission channels for a specific organization is an important step in establishing resilience.

The structure and weighting of risk are particularly variable. Each company should understand its own risk profile, which is determined by its cost structure, client segmentation, supply chain, route to market, and other factors. In other words, approach risk as if you were a founder who was awake at night worrying about the dangers that could destroy his or her life’s work.

Myth #4: The risk function should handle Resilience

Too often, risk is viewed as a necessary but depressing box-checking exercise, then relegated to a corner of the business. Accepting this more constrained scope, risk functions may become excessively tactical and blinkered in their risk detection.

In a more turbulent world, this method falls short. Because many hazards are combinatorial in nature, firms must identify and mitigate risks for the entire business. A piecemeal reduction of specific risks in specific functions and business units is unlikely to provide the overall company resilience required (or at least, not at an acceptable cost). Furthermore, many future dangers will arise from the firm’s ecosystem of partners, and traditional risk-management processes are unprepared for this challenge.

Firms must instead elevate and integrate risk into the rhythms and rituals of their most essential decision-making processes at the C-suite and board levels. Rather than making decisions based primarily on the upside and protecting against a few discrete areas of risk, business leaders at all levels should embrace an ownership attitude that fully accounts for how decisions will affect long-term value creation across the firm.

A viable model is suggested by the experience of the Swedish bank, Handelsbanken. Handelsbanken, which was founded in 1871, is the oldest corporation listed on the Swedish stock exchange and a model of resilience. During both the early 1990s Swedish banking crisis and the 2008 financial crisis, it was the only bank in Sweden that did not require government assistance. The bank’s model of empowered local decision-making has played a crucial role in its resilience. The company has only three management layers: the CEO, the regional manager, and the branch manager, and local branch managers make the majority of decisions. Instead of getting bonuses, employees participate in a profit-sharing scheme that has been in effect since 1970, with profits redeemable upon retirement. This structure incentivizes employees to make long-term decisions that add value rather than maximize this year’s earnings.

Myth #5: Resilience does not necessitate challenging trade-offs

Can a company protect itself from future shocks without jeopardizing current earnings? True, organizations will be able to identify no-regrets initiatives that boost resilience without jeopardizing current profitability, such as increasing supply chain visibility or implementing crisis readiness. Furthermore, as previously stated, a holistic, firm-wide approach to resilience can frequently increase cost-effectiveness. Gaining a real advantage in resilience, on the other hand, frequently necessitates investment and loss of opportunity.

Business executives will need to broaden their engagement with investors in order to balance short-term and long-term value development. Many investors, for their part, are attempting to strike a compromise between the demand for long-term responsible capital stewardship and the need to avoid committing funds to systematic underperformers.

One point of contention in this discussion is disagreement about the appropriate measures. To that end, we developed the Resilience Index, a 100-point scale that assesses a company’s resilience based on the statistical relationship between crisis performance and a variety of easily observable metrics such as scale, growth, margin, asset intensity, leverage, liquidity, and geographic and product concentration. While these indicators only provide a partial assessment of resilience, understanding one’s relative position on these fundamental aspects is a good place to start when engaging in fact-based discourse with investors.

Individual companies in every field exhibit a wide variety of resilience. The bottom half of the resilience index was dominated by enterprises that lacked scale and, thus, economic benefit. During a crisis, this long tail of smaller enterprises generally struggles due to poor cash flow, restricted access to capital, and reduced negotiating leverage. It is difficult for smaller businesses to achieve resilience without first gaining competitive scale.

Other factors, like debt levels, revenue diversification, or asset ownership options, have a significant influence on larger enterprises with at least $1 billion in annual revenue. From 2000 through 2019, we tracked the shareholder returns of larger corporations that remained publicly traded. Those who took on more risk (with a resilience index below 70) underperformed in years when the overall economy contracted but outperformed in years when the broader economy expanded. As an investor would expect, their higher volatility was compensated for by modestly higher returns across the cycle.

Firms with inadequate resilience, on the other hand, pay a large price in terms of bankruptcy or acquisition. Indeed, high-resilience enterprises had nearly twice the survival rate of their low-resilience counterparts throughout this time period. In other words, a higher-risk strategy works for those who can stay afloat despite the volatility. The question is whether these benefits outweigh the danger of failure.

Building resilience necessitates challenging and subtle trade-offs. Many corporations discovered in recent decades that sailing close to the wind offered unambiguous value for shareholders (particularly during upturns), as long as they avoided catastrophic catastrophe. In the future, each company must decide how much to recalibrate and build resilience in order to continue providing value while avoiding the risk of devastating loss.

Getting Acquainted with the Grey Zones

Once you’ve dispelled these five fallacies, it’s evident that there is no one solution or quick fix, no binary black-or-white options, but rather a series of choices in the grey areas of marginal risk. Creating the appropriate degree and type of resilience necessitates a combination of long-term vision, a thorough understanding of company and industry economics, and a healthy dose of inventiveness.

Having said that, a simple three-step procedure can get things started.

Examine your risks. Begin by doing a thorough, fact-based examination of the nature and scope of your primary vulnerabilities. Make use of hard facts to uncover what generates profit in your sector and organization. Create benchmarks to better understand your resilience in comparison to the competition. Use stress-test modelling to define the limitations of your defences and verify that second-order impacts are taken into account.

Agree on your personal risk tolerance. Align the senior management team and board of directors on a shared knowledge of the firm’s resilience track record, and agree on the amount of risk tolerance in the future. Be wary of generic, half-hearted exercises that persuade leadership teams to settle for a “moderate” level of risk ambition. Insist on defining goals that are informed by the answers to difficult questions. This will almost certainly necessitate some back-and-forth with the preceding phase, and will invariably land in the grey zone of investments to control marginal risks.

Set your strategy and win over investors. Create a resilience agenda that combines low-hanging fruit and high-gain initiatives. Bring your investors along for the ride by rewriting the equity story to show how the new activities will enhance shareholder value over the course of the economic cycle.

Starting on the path to resilience will necessitate a commitment from senior executives and board members, who will have to make difficult decisions. They may view this activity as an opportunity to improve their chances of success. Who feels that the recent upheaval will abate? That appears to be a very long shot. As soon as possible, those who think there will be long-term or more intense volatility will be able to take strong countermeasures.

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Identifying Cost Drivers to Achieve Long-Term

Article

Brief

Identifying Cost Drivers to Achieve Long-Term

Non-Personnel Costing Excellence

2 min Read | FINANCIAL INSTITUTION, MANUFACTURING, SERVICES

Authors

Sullivan Mcdermott

Partner, Singapore

At a Glance

Companies work hard to keep non-personnel costs low. As a mismatch between product or service quality and internal customers' needs, as well as ineffective demand management.
Rather than avoid dealing with non-personnel costs, leaders must confront them. The goal should be to optimize non-personnel costs intelligently and sustainably.
The non-personnel cost approach has four steps. Our methodology allows companies to examine current costs and drivers and compare them to external standards.

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Intense pressures from a variety of sources, including low-cost competition and growing raw material prices, have led corporate leaders across many industries to pay closer attention to the cost side of their income statement. Capital markets and shareholders have demanded that corporations respond to these constraints by more efficiently and effectively controlling costs.

Non-personnel costs within selling, general, and administrative (SG & A) expenses are a vital but generally underappreciated area for cost reduction. These include costs for facilities, information systems, outsourced labor, transportation, travel, and utilities, among many other ordinary overhead items. If the company outsources a lot, non-personnel expenses can make up 40% to 50% of SG & A expenses. This is based on the industry and the amount of work the company does. Because these expenditures have typically gotten less attention than labor costs, the potential savings are usually substantial. However, lowering non-personnel costs and making the adjustments stick are difficult challenges. Executives must choose where to focus their efforts and how to save expenses while addressing the needs of internal and external stakeholders.

We have established a complete strategy to assist businesses in identifying and quantifying possibilities to cut non-personnel expenses, selecting targets and improvement strategies, and sustaining improvements. The strategy focuses on the “drivers” that govern the levels of non-personnel expenditures, such as head count or utilisation. This technique assists in cost reduction without sacrificing efficiency or effectiveness, while also generating widespread acceptance of the cost reductions throughout the firm.

Non-Personnel Costs are difficult to manage

Most businesses currently make major efforts to keep non-personnel costs low, such as through monitoring tenders. However, we frequently notice that these efforts are insufficiently effective, as shown by a mismatch between the quality of products or services and the needs of internal consumers, as well as insufficient demand management. Several common issues contribute to explaining why firms fail to properly control non-personnel costs:

Non-personnel costs are often not budgeted at the business level. Because each business unit or function creates its own budget, organizations lack a complete view of non-personnel costs and may overestimate their importance. Furthermore, the lack of a single “owner” of these expenditures makes them difficult to identify and regulate.

Companies rarely use tight demand-management systems to centrally control the number of non-personnel-cost commodities procured. As a result, even if the corporation negotiates cheap unit pricing at the corporate level, total expenses in categories such as air travel or IT services may be high.

Managers are unsure about the best improvement strategies to implement in order to minimise non-personnel costs, as well as the suitable cost levels to set as targets. As a result, they are often unaware that improvements can be achieved swiftly and painlessly.

Because managers and employees may want to keep access to products and services, discussions about cost-cutting opportunities are sometimes based on emotions rather than facts about the value given.

These difficulties make it difficult for businesses to control non-personnel costs using the same sophisticated methodologies that they use to calculate budgets in other areas. During good times, they tend to base non-personnel budgets on the previous year’s spending or to adjust them based on how head count has changed. During times of austerity, they decrease costs indiscriminately.

The Effort Invested in Cost Excellence Is Worth It?

Rather than avoiding the challenges of managing non-personnel costs, CEOs must confront them head on. The goal should be to achieve cost excellence by intelligently and sustainably optimizing non-personnel expenditures.

Non-personnel costs can be classified into eleven categories. The proportional relevance of the cost groups will differ depending on the industry and firm. Buildings and equipment, property management, fleet management, and employee services and human resources are often the groups responsible for the lion’s share of spending. We don’t include an IT cost group since IT costs are determined by certain causes and are already thoroughly evaluated by top management due to their size.

The overall savings opportunity for a specific organization is determined by its existing cost levels and whether or not it has already undertaken cost-cutting strategies. Marketing savings could range from 20 to 35 percent; facility management savings could range from 15 to 25 percent; travel management savings could range from 10 to 20 percent; buildings and equipment savings could range from 5 to 20 percent; fleet management, business services, and utilities savings could range from 5 to 15 percent; and employee services and HR savings could range from 5 to 10 percent. These estimates of cost savings reflect cost savings from both lower prices and lesser amounts purchased.

Measures to limit non-personnel expenses, in addition to their considerable potential for savings, can typically be adopted rapidly and with very little up-front input (for example, by changing travel guidelines). As a result, companies might see the bottom-line benefit sooner than when personnel costs are reduced. In addition, unlike other areas of cost reduction, most employees will not notice reductions in non-personnel costs such as building leases or utility prices.

The advantages go beyond simply increasing the bottom line. Reducing non-personnel costs can boost and support the expectations of capital markets and shareholders by proving that the company is adaptable enough to withstand the impact of unfavourable economic factors. Our research across multiple industries has consistently revealed that companies with low SG & A expenses as a percentage of revenues achieve greater levels of total shareholder return. Furthermore, firms with steadily declining costs generate higher levels of TSR than firms with stable or growing costs. Because non-personnel costs account for a sizable portion of SG & A expenses, market analysts consider their evolution to be a key statistic for evaluating top management’s capacity to improve internal resource allocation. They frequently analyze how a firm handles non-personnel expenditures over time and compare them to its peers’ success.

A Cost-Reduction Strategy Based on Drivers

Four elements comprise our driver-based approach to achieving excellence in non-personnel costs. The methodology enables businesses to examine their present costs and underlying factors and compare them to external standards. Companies utilise the information to set goals and enhance processes. The ultimate goals are to put the changes into action and keep the improvements going.

Examine Non-Personnel Costs & Factors that Influence them

Companies must define cost groups and subgroups, determine the total costs generated by each, and identify the key cost drivers in order to acquire a standardised view of their non-personnel-cost base across all business units and cost categories.

To help with this effort, we’ve created a standardized list of cost groups and subgroups, as well as their associated cost drivers. Exhibit 2 depicts this distribution for several expense groups. The standardised list is applicable to all business units and enterprises and serves as the foundation for internal and external benchmarking. To allow for like-to-like benchmarking, a company can change its nomenclature for each cost group and subgroup to reflect company-specific titles and cost allocations; but, its categories must correspond in substance to those on the standardised list.

To ensure consistency and quality, the central controlling function of the organization should be in charge of collecting data for benchmarking. By collecting historical data on cost drivers over the last three to four years, the organization may have a dynamic perspective on how expenses have changed over time.

Following the collection and validation of all relevant data, the organization can provide organized overviews of total costs as well as detailed breakdowns for each cost area. At this point, the company should focus on preliminary findings for key cost areas and understand how they relate to the costs and drivers of comparable organizations.

Assess nonpersonnel costs and their drivers

To obtain a standardized view of their nonpersonnel-cost base across all business units and cost categories, companies need to define cost groups and subgroups, determine the total costs generated by each one, and identify the primary cost drivers.

To facilitate this effort, we have developed a standardized list that sets out cost groups and subgroups, as well as their respective cost drivers. Exhibit 2 illustrates this breakdown for several cost groups. The standardized list can be applied to all business units and companies, and thereby provides the basis for internal and external benchmarking. A company can customize its terminology for each cost group and subgroup to reflect company-specific names and cost allocations; however, its categories must correspond in substance to those on the standardized list in order to permit a like-to-like benchmarking.

To ensure consistency and quality, the company’s central controlling function should be responsible for collecting data for the benchmarking. The company can obtain a dynamic perspective on how costs have changed over time by gathering historical data on cost drivers during the past three to four years.

After collecting and validating all the required data, the company can develop structured overviews of the total costs as well as in-depth breakdowns for each cost group. At this stage, the company should focus on the initial findings for key cost groups and understand how they compare with other companies’ costs and drivers.

To Acquire Relevant Insights, Compare Expenses & Drivers

Traditional efforts to benchmark a company’s non-personnel expenditures frequently fail to produce actionable insights because these costs are difficult to evaluate, whether internally (across multiple business units and over time) or externally. Companies can do an effective like-to-like comparison of cost groups and drivers by drawing on a standardized list of cost groups and drivers and its extensive database of non-personnel costs across industries.

Simply comparing a sales organization’s travel costs across numerous years, for example, would not give significant information. The high-level, absolute cost statistics could fluctuate for a variety of reasons, including head count and the regularity with which personnel in a specific location or position travel. Gathering data on the number of sales full-time equivalents, the number of trips per year, and the expenses of each trip, on the other hand, allows the organization to identify the true drivers of variances in travel expenditures. For example, it may be discovered that, despite relatively flat absolute travel costs over time, costs per sales FTE have actually climbed. Similarly, instead of comparing absolute prices of company vehicles across business units, organizations should evaluate the number of FTEs eligible to hire vehicles and the cost per rented vehicle per eligible FTE.

Establish Goals & Measures for Improvement

Companies can use the benchmarking information to identify the best cost-cutting targets and the best improvement actions to achieve those aims.

Companies should use benchmarking results, as well as insights on typical savings possibilities acquired from experience, to develop top-down targets. In addition, they should conduct qualitative interviews with managers to determine which cost groupings and subgroups offer the most substantial potential. To make the selection and implementation of cost-cutting strategies easier, the savings targets for each cost group and organizational unit should be defined as precisely as possible.

Companies can determine improvement measures for each cost group and subgroup using this fact base. In order to determine acceptable measures, we examine both the efficacy and efficiency of the linked expense items.

The effectiveness evaluation aims to discover opportunities to substitute less costly suppliers (such as lower-cost insurance providers, travel agencies, or airlines) or meet the needs of internal consumers with lower-quality services (for example, by reducing the scope of management reports).

The efficiency review looks for ways to eliminate or reduce activities (for example, by using more severe demand management or novel technologies to minimise the quantity of products purchased or leased) or to reduce the frequency and level of services (for example, by deploying videoconferencing technology to lower the number of business trips).

By using this approach, we have created over 200+ suggestions and best practices for picking improvement measures relating to certain cost groups and subgroups. These ideas have been used by top companies to find ways to improve that have a big impact.

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Improving the Profitability while increasing the throughput

Article

Case Study : Simulation & Modelling

Improving the Profitability while increasing the throughput

Client was in a situation facing the high cost of production. Market price of the Metal went down which was approximately close to the COP. The company was looking forward for the initiative that can reduce the cost while increasing the throughput

2 min Read | Manufacturing

Challenge

The company was looking forward for the initiative that can reduce the cost while increasing the throughput. Also, to understand and resolving a number of plant bottlenecks, transform & optimize the company’s metal production area, finished good productions as it had a high degree of fragility to external changes low profitability and ROI.

A step towards a Lean organization focusing to improve and reduce cost make and deliver part of the supply chain (Reduction in Operating Cost).

Praxis Value team needed a reliable and adaptable tool to examine the individual process and the whole production system.

Solution

Simulation Modelling

We preferred simulation modelling because it provided a high return on investment and allowed us to see their system evolve. When compared to standard computational and mathematical approaches, the long-term consequences may be assessed with more precision.

Agent Based Multi Method Modelling

Praxis Value created a Lean VSM followed by the 2D &3D simulation model individually for all the business units to fully consider all the interdependencies, constraints, dynamics, and variability in the overall system. It enabled organizations to solve issues in any field, integrate models, input numerous data sources, and execute models from any location, allowing for total collaboration and real-time decision making.

Real Time Optimization

Simulation models were used to determine baseline capacity with variability, simulate system dynamics, identify bottlenecks, plan production ramp-up, guide expansion, facilitate continuous improvement, evaluate P/E investment, and achieve real-time production optimization.

Outcome

Manufacturing flow was modelled in whole plant simulation, utilised for capacity planning (identifying, assessing, and prioritising projects), quantitative bottleneck analysis, and evaluating improvement alternatives. By performing what-if scenarios and optimising results, real-time operational decision support.

Our simulation services provided the tools needed to make the best probabilistic and multi-scenario informed choice, resulting in Cycle time reduction by 20%, Queuing time reduction by 50%, Manpower Reduction by 15% – 20%, throughput improved by 20% following with better visibility of day-to-day operations, scheduling alternatives, and lower manufacturing costs.

We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real

Advance Analytics

Turning your data into valuable insights and Building predictive analytics directly into business process workflows

Cost Reduction

Cost Reduction and increasing savings without impairing any business operations or productivity.

Business Transformation

Building automation, raising productivity, cutting costs and accelerating growth—enabling more efficient production.

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Reduce Indirect Cost with Zero-Based Approach

Article

Case Study : Cost Reduction

Reduce Indirect Cost with Zero-Based Approach

Champions never rest on their laurels, but instead focus on the next stage goal. A company with around 5000 people across multiple sites is likewise on the lookout for a “North Star.” It all starts with an operations strategy and the initiatives that follow it, which should be applied at every location to improve efficiency. In addition to the OPEX problems, the corporation reorganized all manufacturing facilities using the “zero-based organization” method in collaboration with Praxis Value.

2 min Read | Metal Manufacturing

Challenge

Our client’s production networks are highly varied, with multiple languages, work procedures, and (organizational) cultures, and they are always looking for standardization and improvement opportunities: Why don’t locations meet their efficiency goals, despite the fact that traditional productivity is extremely high? Is it possible that there are too many or too few indirect employees? How can the processes be effectively customized to the organization? And how will management be able to govern and guide this across the sites?

The team was also presented with similar difficulties. As a result, it set very specific goals for its “zero-based” project: not only should the organization’s current state be clearly described, but also the future, ideal arrangement for all locations be defined. Already on the way there, it became clear that 40% of the potential could be transformed into coordinated actions and actual savings.

Solution

Zero Based Approach

The organization discovered the gaps between the present quo and the future ideal of the zero-based North Star in collaboration with Praxis Value. The project team was able to establish a standardized, scalable, and more efficient organization step by step with the support of Praxis Value's own zero-based strategy. On this path, four project phases are particularly important: the study of the activity structure using the Praxis Value activity roadmap, the identification of potential, the development of an organizational design including dimensioning, and the implementation strategy (roadmap).

Analyse Structure & Determine Potential

Now it's time to interpret the activity structure correctly. Where do you see opportunity, and where does the organization look to be lean? First and foremost, benchmarks are quite useful, and the project team will commit itself to them in the following phase: internal benchmarks evaluate the same activities across other facilities and departments of the organization. This is supplemented with an external viewpoint, such as industry and function benchmarks based on empirical data.
Employees were also made aware of improvement levers in the process, organization, or service portfolio - the benchmark, for example, reveals higher potential in order processing. At the same time, there are several interfaces in the process, as well as duplicate activities and underutilized IT systems. According to Praxis Value's experience, inefficient processes account for 80% of cost reduction opportunities, whereas pure organizational changes account for 20%.

Blueprint & Dimension Target Organization

The ideal organizational structure is "designed" by the project team. It accomplishes this by establishing design criteria (for example, the number of management levels and management ranges), determining the appropriate level of central and decentralized functions, and determining the best organizational dimension. The Blueprint Organization is summed up in a standardized and scalable organizational structure at the end.

Outcome

Standardized, Scalable & Highly Efficient Organization

Following the clarification of the goal, the “how” is implemented. Individual transformation paths are required because, depending on the area, a works council may be required or country-specific requirements must be followed. As a result, the group created its own Praxis Value idea for each location’s implementation, with a path from the current state to a target image that is extremely close to the “zero-based north star.” From project inception to roll-out in all sites, the organization established a realistic time frame of two years. Collaboration with the plant managers on site was a critical success factor in the implementation.

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Myth #1: Resilience removes Volatility

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