Operational excellence in the era of digital transformation


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Operational excellence in the era of digital transformation

  1. 1. Operational Excellence in the era of Digital Transformation: “Improving how we improve” Digital transformation Digital transformation (DT) – the use of technology to radically improve performance or reach of enterprises1 – is becoming a hot topic for companies across the globe. Technological advancements have created opportunities that were not around a decade ago and the expectation is that new developments will arise faster than ever. Digital disruption is creating new business models, changing value streams, and provoking faster, more disruptive change than ever before. Why? Because it is digital. The rapid emergence of enabling technology and a higher value-add content in transactional processes will continue to radically change the face of improvement. New research from Capgemini Consulting and MIT Center for Digital Business examines how companies are benefitting from the 'Digital Advantage' and reveals significantly better performance as a result. Operational excellence typically is a discipline that also strives for continuous performance improvement. In our opinion, the future application of Operational excellence(especially in non industrial settings) should be directed towards digital operations. The next generation of improvement As we have seen the shift in improvement from the manufacturing floor to the transactional process areas (services industry), we can conclude that our ability to use our natural senses to solve problems has diminished greatly. Operational excellence practitioners can no longer rely on their ‘normal senses’ to identify issues and new opportunities for improvement as they once could on the production floor when measuring changeover times, viewing excess inventory, talking to a machine operator or listen for tool vibration. This calls for the need to blend continuous improvement methods with nowadays’ ‘digital enablers’. For the most part, traditional improvement as we know it has become a commodity, especially in its concept state and its traditional manufacturing applications. In combination with the economic turmoil we regularly see continuous improvement remaining somewhat at an impasse. A number of explanatory observations: 1. No executive in today's challenging economy wants to commit to another extensive, multimillion euro improvement program that takes several years to see results. 2. Operational excellence adepts used to preach about ‘going to the Gemba2’. Nowadays however, the Gemba is everywhere, 24/7, in our hands or certainly within reach of some mobile device. In addition, new way of working (or NWoW) concepts have replaced the traditional Gemba. One could say that the Gemba has (partly) been transferred to the customer. 3. The need and urgency for improvement is high, the improvement potential of transactional organizations is huge, and a different approach is needed to harvest these new opportunities. The modern wastes often do not have physical characteristics; we can only get at them through digital enablers and creative transaction stream analytics. 1 Source: Digital Transformation, A Road-Map for Billion-Dollar Organizations, Capgemini Consulting, 2011 Gemba: a Japanese term meaning "the real place." In Operational excellence, Gemba refers to the place where value is created; e.g. in manufacturing the Gemba is the factory floor. 2
  2. 2. As a consequence, we think lengthy transformation programmes must be replaced by a more rapid process of improvement that incorporates real (or at least near-) time, event-driven performance cockpits and business analytics. The next generation of improvement is a challenge of how to design and implement continuous and sustainable improvement successfully in the new digital economy. With the right approach, velocity, focus, simplification, and ease – while working within the dynamic operating models, realistic constraints, and absorption ability of organizations. This new generation of improvement must have its pace within Digital Transformation: the mastery of developing and implementing successful strategic and continuous business improvement initiatives, transforming culture, and enabling organizations to "improve how they improve." Do the right work, do the work right and manage the right way At Capgemini Consulting we have proclaimed for years now that there are three essential components for successful Operational excellence transformations that deliver results as a sustainable business capability: Manage the right way 1. “do the right work, 2. do the work right and 3. manage the right way”. For the latter two in particular the digital disruption will have its consequences. “Do the right work” is the challenge to only perform activities that add value to the customer (Voice of Customer, VoC), the organization itself (Voice of the Business, VoB) and other relevant stakeholders (Voice of the Stakeholder, VoS). In a ‘traditional world’, companies made their products and services available at specific shopping times, and notified customers of their products’ existence through one-way communication channels. With the rise of the internet and all subsequent developments of digital enablers, the customer has rapidly gained access into the business sphere and digital enablers have become a ‘must have’. Result areas Performance Stakeholders The Gemba Value Financials Constraints Risk & compliance Do the right work Do the work right Figure 1: three essential components for successful Operational excellence transformations “Do the work right” is all about having the right people (capabilities) and tools available for executing processes with a minimal percentage of waste. It’s pretty obvious that digital enablers will, and already do have a strong impact on the way operations are executed. Transactional processes are rapidly enhanced by new technology, towards fully digital operations and STP3-processes. The real challenge with improvement is in defining and scoping out legitimate, data-driven transactional improvement opportunities. One needs facts provided by real time event driven metrics, transaction stream mapping, digital performance dashboards, and business analytics. Unlike most Operational excellence improvement of the past, transactional 3 STP: Straight-through-processing. STP enables an entire process to be conducted electronically without any manual intervention
  3. 3. improvement is transparent and comprised of key business processes, information flows, knowledge-based employees, and complex, contradictory decisions. A major consideration of technology-enabled improvement that must not be overlooked is that the real intelligence lies in the improvement practitioner and the user community in the form of human intelligence. There is no improvement intelligence software available that instructs and/or executes improvement automatically, and we cannot replace the tough work of improvement with some new mobile application. The process of improvement still relies on human intelligence to define and segment the right root cause information, analyze data with the right methodologies and tools, draw the right, data-driven conclusions, take the right fact-based actions, and close the loop with accurate performance metrics. With respect to the “manage the right way” component, digital enablers are the new game changer, but they will not make the permanent process of enlightened leadership any easier. Digital enablers can strongly support to manage the right way: data-driven conclusions, an integrated, single version of the truth, taking the right fact-based actions, and closing the loop with the right performance metrics. However, technology-enabled process improvement cannot be discussed without mentioning the importance of a new leadership style and approach. Leadership always functions as the generator that enables continuous and sustainable improvement. At the same time it is also the reason why the word "continuous" keeps falling out of continuous improvement. It all begins with enlightened leadership that is committed to continuous improvement as first and foremost, the only acceptable cultural standard of excellence, and a critical enabler of strategy execution and business success. Our approach Until recently, Operational excellence initiatives were measured in terms of the ROI of a project. Redesigning processes, wringing out savings. In terms of For a major mobile network Operational excellence thinking, the interaction effects of digital operator in the Netherlands we enablers combined with improvement can lead to much greater kick-started and managed a benefits than treating the two as mutually exclusive. The future is company-wide, strategic program all about the correct fusion of formal structured and deliberate for differentiating customer improvement with enabling IT. experience design and So the action is to start thinking about how business could and implementation, involving all should be disrupted. There is a generic, high-level, 3 step channels and marketing approach. In essence just the ‘old’ stuff; the difference is in the departments while driving cultural digital transformation techniques used and the way of looking to change: shift from a sales and improvement opportunities. products to a customer experience led organization. 1. Start by looking at the current customer journey and touch points, from a process perspective. 2. Think, creatively, about how those can change, be enhanced, be replaced, be augmented. 3. Design the processes to support the new approach from a customer perspective. 1. Customer journeys and touch points In the current era of Digital Transformation we quite often come across the term customer journey. In essence a customer journey describes the experiences of a customer during his proverbial
  4. 4. journey. A journey undertaken in order to orientate, to buy a product or service and eventually to use them (including aftercare and service). In all contacts – the so-called ‘touch points' - and through all channels. The customer is always key and starting point in the process of mapping the customer journey. To do this, thorough market segmentation is a requirement, elaborated in a set of personas (an archetype of a user, or a characterization of a certain type of user). In our opinion customer journey mapping is a powerful addition to the traditional set of Operational excellence tools. The customer journey after all, makes it clear where in the customer contacts improvements can realize an optimal customer experience – the ‘WOW-effect’. Improvements that often have to be implemented in the underlying processes because touch points often are the trigger for a business process to start, or they ‘take away’ the result of a business process. In the figure below for example, the buying decision of a customer could trigger (‘pull’) a production process to make the requested product. And optimizing processes has been the working field of Operational excellence for decades… Customer journey maps can support identifying opportunities for improvement from the perspective of the customer (responding to his expectations, experiences and context) in an effort to positively distinguish the organization from its competitors. x x Trigger Touchpoint where the customer interacts with the organization (direct or indirect) to achieve a specific objective Wow moment where a differentiating experience is delivered compared to competitors Channel switch where the customers continues his/her journey in another channel Trigger Result Figure 2: relationship between customer journey and operational processes 2. Improvement possibilities Companies historically have used automation to make processes more efficient and scalable. ERP for example has enabled significant efficiency and quality gains in core transactional, financial, and supply chain processes. New technologies are extending this trend of gaining benefits beyond efficiency. Today, opportunities for improvement are coming at us in near real time, and it is necessary to adapt the philosophy and approaches of continuous improvement to this new norm. Additionally, the largest opportunities are the ones that we do not know about yet. Technology is the enabler of identifying and harvesting these new improvement opportunities. Once-novel technologies such as mobile e-mail, collaboration tools, and video conferencing have now become the norm in many companies. Employees routinely collaborate with people whom they have never met in person, in regions they have never visited. Mobile devices allow employees to stay connected with the office at all hours and to work from home when they are not able to be in the office.
  5. 5. But there are more digital enablers of continuous improvement that could become the norm of tomorrow: Data warehousing: A central repository of data and information which is created by integrating data from multiple disparate sources can improve data quality and integrity by offering a repository of information that represents a single version of the truth. This is a must when attempting to improve complex transactional processes. Community Insight into Action (social media & big data): Control of the conversation has shifted to the customer. Customers are defining how, when and where they interact with brands, content & services. Hidden within the social media and big data noise are opportunities and threats. The challenge for organizations is to find a way of cutting through the noise and having processes in place that are able to turn insight into action. For a major Dutch bank we Digital performance cockpits & data visualization: Well designed digital have built the capabilities of performance cockpits encourage real time engagement, empowerment, near-time, self-managed and self management. The ability to measure performance as it is performance cockpits, data occurring is a major step forwards in the professionalism of Operational visualization technology, excellence: starting with fact based insights, the organization can choose business analytics capabilities, the right interventions in order to achieve and measure the desired instantaneous access and impact. monitoring of critical root cause metrics. All to facilitate their Data visualization is about displaying data and information to convey performance dialogue: starting ideas and conclusions effectively, both in terms of aesthetic form and with insight so one can execute functionality, thereby reducing perceptions and opinions about different the right interventions to get individual's interpretations about the end result. the desired impacts… Business analytics: In the transactional space, most organizations learn about problems after the fact. Business Analytics is the ability to analyze process performance in near real time and make the right evidence-based adjustments. Each role having the right information, at the right time, in the right form, no more and no less. Business analytics enables us to execute what was once completed in a project, in real time using a critical thinking process that in some literature is referred to as a SIDAM (Sense, Interpret, Decide, Act, Monitor . . . and continue repeating the process). Process mining: The idea of process mining is to discover, monitor and improve real processes (i.e., not assumed processes) by extracting knowledge from event logs readily available in today's (information) systems. Operational excellence can help to improve these processes through incremental changes. Process mining is a relatively young research discipline that sits between computational intelligence and data mining on the one A large Insurance Company was facing big hand, and process modelling and analysis on the other challenges to create value in their mature hand. markets. They developed a vision to cut Virtualization, Mobility, Cloud Technology: In traditional sophisticated costs by merging the Operational excellence thinking, there is the saying that company’s three former individual we have to "go to the Gemba" (go out and observe the insurance labels into a new services workplace). In retrospect this is a limited idea. Technology division. The services division managed millions of pension policies from products that are not sold anymore. Process digitization was used to realize efficient common processes.
  6. 6. has now placed the Gemba within our fingertips, whereas new ways of working allow employees to work anywhere, anytime, which makes the daily physical stand-up meeting a kind of relic. Business Process Management Suites/platforms: a typical BPMS brings together a complete set of integrated composition technologies for managing the interactions among all the resources — people, software systems, information, business rules and policies — that contribute to operational process outcomes. Its model-driven approach, without hand coding, can help organizations to become more competitive and innovative, when they put change in the hands of business, providing control to those accountable for business results. 3. Process design Todays’ process design calls for more than just process or business analysts. Operational excellence is now in the business of creating new possibilities, not driving out incremental savings. People you could call on may be called Product Marketing Specialists, Product Strategists, or Product Management instead of the machine operator... They and you need to be given permission to think wild thoughts, many of which may come true and create unimaginable opportunities. The application of digital enablers as mentioned in the previous paragraph will require extensive process (re)design. And for the most part, there won’t be best practices available yet. Again, digital disruption can result in totally new combinations of people, processes and technologies compared to the current state situation. And as resistance to change still is the reaction you can expect, stakeholders will more than ever feel the need to be supported in the improvement journey. Conclusion In a ‘traditional world’, companies made their products and services available at specific shopping times, and notified customers of their products’ existence through one-way communication channels. With the rise of the internet and all subsequent developments of digital enablers, the customer has rapidly gained access into the business sphere. This provides customers with opportunities to serve themselves. Companies, on the other hand, are able to reach out to customers and engage in discussions with them. Technological advancements have created opportunities that were not around a decade ago and the expectation is that new digital enablers will arise faster than ever. From an Operational excellence point of view the digital enablers provide large opportunities for organizations on operational aspects. Internally, a company can reduce operational costs by digitizing processes and improve productivity through digital collaboration and virtual meetings around the world. The challenge is to blend continuous improvement methods with nowadays digital enablers. In the end, the process of improvement still relies on human intelligence: how to get from insight, via the right interventions, to desired impact. If one is missing this core competency of structured and disciplined improvement, then technology is reduced to providing more information quicker – more data, less information… “Successful digital transformation comes not from implementing new technologies but from transforming your organization to take advantage of the possibilities that new technologies provide”
  7. 7. Hans Toebak, principal consultant Operational Excellence at Capgemini Consulting NL hans.toebak@capgemini.com