Operational Transformation is a big leadership challenge. It requires CEO’s and Boards to have the vision and capability to shift the business in a way that may feel dramatic today but will be considered visionary in the future.
I have spent most of my career in complex and operationally heavy industries, like Supply Chain, Transportation and Logistics. What I have seen over this time is the immense difficulties in making impactful change in these environments, a situation that has only amplified due to Covid-19. And now, when organisations must be considering their transformation journey to be fit for the future, they are struggling to shift from transactional and crisis management to transformational operations driving stronger performance for even the most critical priorities of the business.
Are your operations at an inflection point?
Firstly, if you are on a transformation journey, you will most likely find your existing mature traditional company structures and leadership styles are not designed to easily achieve substantial change, often the internal politics, resistance and slowness of change prevent an organisation achieving its goals.
This is coupled with the fact that many heavy industrial organisations are generational, with business models designed to replicate (not create) and have not changed in decades other than to be faster and cheaper.
As per my blog a few weeks ago, the threat of disruption is very real and even the most capital-intensive operations are at risk. Therefore, I believe the risks associated with operational transformation are arguably far less than the status quo.
Make causal change
I believe leaders and boards must stop solely focusing on attacking the symptoms and instead make causal change. This causal change is the authentic commitment to your transformation strategy, however from an operations perspective, this transformation is significant, but necessary.
It requires transformational leadership, sound judgement, and a new way of thinking about risk management to amplify risk at a business model level, rather than at project level.
Shift the business so that every measure serves a valuable purpose
Many operationally heavy organisations are currently measuring success and business performance on the wrong metrics. These are often a collection of vanity metrics that simply report on operational tasks in silos with a combination of these used to infer business performance. These metrics are often what is easy and not what is important, and do not help you understand your own performance in a way that informs future strategies, or achievement of the enterprise purpose.
You may even be seeing the effect of this misalignment today. Is your business under stress operationally with large volumes of work but productivity (as it’s currently measured) and in turn financial performance all down, and most likely you have employee retention issues? Don’t worry, it’s very common, and whilst Covid-19 has contributed to this situation, it is not the root case.
What I am seeing is the traditional means of measuring performance is not future fit, it caters for siloed operations, unfit structures, and transactional mindsets, and does not provide overall business performance indicators. This means your attempts to fix the perceived problems will unlikely work, at least not in a sustainable way and worse still, it may reinforce siloed behaviours digging you deeper.
To fix this, it’s time to step back, and activate your strategy to transform your operations. We’ve spoken a lot about Strategy, Culture and People in previous blogs which are all part of this transformation, but today we are focussing on Process, Systems and Structure as it relates to operational transformation.
So, how do you transform operations?
Essentially you need to lead a pivot from just measuring execution metrics to measuring business performance through the collective processes of the organisation, with strategic purpose and intent. Here is an example, assume you are a Port:
Most ports use operational metrics like; how many lifts a crane is making in an hour, the dwell time of a container in a yard or how long it takes for a truck to cycle through the port collecting or dropping a container.
Whilst these are important metrics, they are part of a system – not the system itself.
Moving to measuring business performance through the successful execution of operational flow, combining all the processes aligned to the customer proposition, from across the whole business. Provide high visibility and transparency of the aligned processes, empowering everyone to recognise their value contribution to the customer, and their peers.
Every silo becomes seamlessly connected to the overall purpose of the business causing a considerable shift in operational efficiency, safety, culture, and customer satisfaction, whilst creating strong growth foundations. You will locate bottlenecks, performance issues and financial constraints easily and the overall effect will be improved EBIT, safety, and culture
To start, you need to assess your business processes towards their contribution to the value proposition of the customer, and their alignment to the overall purpose of the business.
Here are some practical steps for assessing and measuring the processes in the business to provide a holistic operational performance indicator. This checklist is sourced and then edited from Business Enterprise Mapping:
- Process effectiveness measures performance of the processes to customers’ requirements, how well is it contributing to solving the customers process and the unique way it does it.
- Process alignment measures the alignment between the customer demand, the process outputs, and the supplier inputs. This step is the most essential to move towards continuous flow of operations, removing the silos and seamlessly connecting the business systems.
- Process Reliability measures the capability of supply to meet demand requirements for every minute of every day for each process relative to its potential.
- Process Cycle Time measures the time required for inputs supply to outputs delivery.
- Product Cost measures the total cost to produce and deliver an output, including inputs, processing, and resource costs. Along with building and serving a loyal customer, a process must deliver the return on invested capital that delivers a successful economic outcome for stakeholders.
- Process Efficiency measures the inputs and resources consumed by the process versus established industry standards.
- Resource Productivity measures the ratio of outputs produced by the process versus resources consumed by the process, including facility, equipment, people, and information technology.
- Supplier Effectiveness measures supplier performance to specified process requirements.
- Process Compliance measures the extent to which a process adheres to characteristics such as compliance to regulatory, safety and environmental requirements, mitigation of corporate risk, and active management of the business process maturity and improvement.
When you consider this shift to measuring your business performance through collective processes of the organisation to deliver strategic intent, you will be able to easily identify bottlenecks, inefficiencies, and failure, with the ability to rapidly respond by solving the right problem.
This fundamental change to the operations will allow for any stalled projects to be restarted (many organisations have that big project that is struggling to meet is goals due to this reason) and other foundational initiatives like a data strategy or an ERP implementation to be more easily executed.
In summary, leveraging these new measurements, and applying them to individual and business performance will result in these benefits:
- Culture uplift through collective alignment of everyone across the business
- Financial stabilisation through deeply understanding the levers effecting the financials
- Employee engagement increases and everyone can find themselves in the business purpose
- Customer engagement increases as the operations will be optimised
The shift in processes must be accompanied by the right structure
When the operational process design and business performance is aligned to the strategic intent of the organisation, so too should the organisational design. I specifically use the word design here, as it’s a combination of a structure, leadership, ways of working and culture.
Shifting the organisation to a model that is aligned to customer delivery and new business models is essential for your future-fit organisation. Moving your operational structure from being broken down into the siloed execution departments, to cross functional teams aligned to a customer delivery proposition will make significant impact, across all areas of the business.
You should also consider moving to a flatter structure, by decreasing the layers and increasing leaders’ direct reports. The assumption here is that whilst in traditional organisations a manager’s job is to command and control the team, modern organisations are more dynamic, agile and customer centric and therefore the managers role has changed. They now focus on building teams, empowering decision making and communication, and with less energy spent on trying to exert personal control over the team, the team size can be increased. The greatest benefit of flatter structures is it becomes simpler for ideas, decisions, and crucial information to flow across the organisation.
Yes, operational transformation is hard, especially in big complex environments. Success starts with your leadership team, board and wider leaders of the business being fully aligned, as without authentic and capable leadership at the helm, such a business shift may seem chaotic. Yet, when done well, it will be a business shift that will be considered visionary in the future.
The content in this series is my perspective, open to discussion and healthy challenge, and welcomes ideas and collaboration should you wish to get involved.
It is my objective to represent diverse thinking and inspirational leadership towards a fundamental shift in the way technology and innovation can grow profitable NZ organisations, whilst making positive impacts on society.
What may feel dramatic now, will be considered visionary in the future!
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