Our approach to performance transformation goes beyond cost-cutting and is focused on four steps that make the transformation sustainable – while still delivering near-term impact
- About This Video
When we speak with executives, we discuss building future resilience amidst today's headwinds. From supply chain disruptions to labor shortages to macroeconomic volatility, companies face many challenges that pressure their bottom lines. This video interview delves into how our Performance Transformation team helps companies navigate these challenges and emerge stronger and more competitive in the years ahead.
Aaron Fine, a partner, and head of Capabilities in the Americas, focuses on helping our clients build the capabilities they need to drive sustainable growth and transformation. Aaron is joined by Partners who lead our Performance Transformation platform, Hector Nelson and Vivian Merker.
In summary, senior executives should focus on building resilience and agility in the face of ongoing uncertainty. After COVID-19, many companies have become more flexible and able to adapt to uncertainty, which will remain important. We’re seeing increasingly bold visions for the future workforce, but there is a lot of variation in the bets companies make. Knowing what you want your workforce to be is crucial. And aligning your leadership and rallying the whole organization is truly necessary for transformation — managers need to understand where the company is going and have the tools to deliver.
Executives also need to be focused on driving sustainable cost takeout and identifying areas for investment in innovation and growth. Given our macroeconomic environment, the natural reaction might be to focus on cost-cutting, but companies also need to focus on the longer term. Otherwise, they risk stagnation. This journey requires clear messaging to investors so they can appreciate the transformation as it unfolds.
Hi, and welcome to our panel discussion on performance transformation. My name is Aaron Fine, and I lead capabilities for Oliver Wyman in the Americas. I'm joined today by Vivian Merker and Hector Nelson, who lead our Performance Transformation platform. They're going to spend some time talking to us about how to navigate the increasing headwinds in today's market environment.
Hector, particularly in times of uncertainty, people start talking about cost cutting. You've always talked about performance transformation. What's the difference between the two?
Well, thank you, Aaron. Performance Transformation for us is striking a balance between right sizing today's cost and investing in growth for the future. If clients and CFOs get to laser-focused on taking out costs, they end up eroding, potentially eroding future benefits. Right?
Because you take out cost based on the biggest cost buckets and not really understanding are they in differentiated areas or non-differentiated areas. So you end up taking out cost and potentially even harming the company. We think that if you are really for performance transformation, if you focus on what drives differentiation, what drives the performance of that company, and protecting those costs, then you can actually drive and fund the future by driving sustainable change.
Yeah, performance transformation is really end-to-end. It's looking comprehensively at your company, not just near-term cost opportunities.
That's very interesting. But for companies that think they've already done performance transformation in the past, what's different about today's environment, or might be something different that they should be thinking about and doing as we go forward?
We are in a different world today. Geopolitically, macroeconomically. And the pandemic taught us a lot about working in new ways, being more agile, and being more flexible. So even companies who've recently undergone successful performance transformation are undoubtedly facing new opportunities today that they should go after once again.
But how do companies best respond to today's specific needs for transformation?
Recently, Oliver Wyman conducted a survey of over 200 executives. And what we found was that over 88% of them actually ended up undertaking some sort of cost transformation. And even more interestingly than that, half of them were not linking that cost transformation to any sort of performance improvement.
We're linking their transformation into their cultural aspects and the talent aspects. And we think that in order to really drive sustainable transformation, you really need to look at the culture of the firm. Look at the behaviors of the people, retooling your talent to drive sustainable transformation. And that's how we help our clients through some of these transformations.
What portion of those clients undertaking transformation do you think will be successful?
To be honest with you, I’d say, based on what they said, they're focusing on probably less than 10%. And so, by then, you've got to define what is successful. Right. So what typically happens is when folks undertake transformation, they focus on huge FTE numbers coming out, and that is very easy to achieve. So if that’s success, then yes, they will be successful in taking those numbers out. But in a couple of years, we'll be having the same conversation again because they actually have not changed anything about how the work is done. They haven't really transformed the organization.
They've been successful in identifying costs and taking them out. And the other thing that we find in doing that is that whilst you have taken cost out, you actually potentially erode in some future benefits because you're not really thinking about where that cost is coming from. You're thinking about the biggest pockets of cost and understanding whether it's in a differentiating or a growth area. You would take cost out and actually end up damaging areas that were going to fund the growth that were going to drive the growth. So, yes, they'll be successful in identifying the numbers, and no, they'll be unsuccessful in transforming the organization.
So a lot of people ask me at Oliver Wyman how we approach performance transformation and what's our methodology.
Right? So, you know, we have a methodology that I affectionately call the four acts of unconventional wisdom, because they're not the way people actually think about a transformation, right? So we actually think that it is really important when you're going to transform your organization to make be very clear-eyed on how you drive a client value, what your clients value within your organization, and why they come to your organization. Because these are key capabilities that are going to drive the future, and then make some really tough decisions around the operating model, around things that are non-value added, things that are necessary but not value added that you need to actually stop doing within the organization and then start applying key levers.
And you know, at Oliver Wyman, we have a database that, you know, Vivian actually helped develop and build that's over 400 transformational cost levers that we can pull on. Vivian, if you want to say something about those levers.
Yeah, we've built those out of our experience in the field. We've supported them with benchmarks for the impact we've seen them drive for our clients, and resources like that, help us identify the particular actions that a company might want to take on their transformation journey. But it doesn't stop there.
But the key thing is core focusing on client value, making hard decisions, pulling these levers that are not necessarily, you know, 100% unique in the industry. Everybody has levers they can pull. Everybody knows they have to make tough, tough choices. All of that doesn't actually, in our opinion, drive sustainable transformation. Right? It starts you on the journey. But to drive sustainable transformation, you have to change how the work gets done, right? Fundamentally change how the work is done, retool your talent base, identify the talent of the future that's going to drive this change, change the culture of behaviors, and the organization is going to change. When you put in all the best tools or the best digitalization, but you're using the same people in the same processes and the same mindset, nothing changes. The key thing is actually helping organizations drive the transformation through that cultural piece.
So, in addition to our methodology, Oliver Wyman brings a lot of expertise to our partners and principals that help us navigate transformation. Think about it this way If you're a bank trying to take cost out of your risk management function and change how they work, and you can't articulate that plan clearly and precisely to your regulators, so they understand you still have a good handle on risk management. You're not going to be allowed to transform. And so, part of our differentiation is the ability to couple deep industry expertise with a holistic understanding of transformation. That, plus our tools, help us drive impact faster for our clients and get there with less risk.
Vivian, that's really interesting. What should executives really be focusing on as they push forward with transformation in this environment?
So the pandemic taught us a lot about working more flexibly, more agilely. But a lot of executives don't really know what they want their workforce to be in the future. There are questions of insourcing versus outsourcing, offshoring, onshoring, humans versus AI. So setting that clear vision for what you want your workforce to be and then enrolling your organization in the transformation is really important. All of your managers need to understand where you're going and have the ability to help lead the organization there.
And, you know, to be honest, right, many folks are thinking about cost, cost, cost, right? First, cost is not the most energizing topic for any organization. So, you know, focusing solely on cost is not really going to drive your team to really think and do all the things that Vivian said. But you can't take your eye off the cost.
The key message that Oliver Wyman has been pushing to our clients and pushing in the industry is that even in these times, think about growth, right? Think about areas that you want to invest. So whilst taking out costs, we are repurposing those funds, into the growth areas to quote-unquote “fund the future.” It's really important, even in these periods of times of uncertainty or concern, not to take your eye off the future. Right. So whilst we're going to take out cost, we only take our cost with the purpose to invest in growth. And so, how do we do that? Like I said earlier on, if we’ve identified the growth areas and we’ve identified any other activity that we’re doing that is not driving support in those growth areas, that’s where we’re going to take the cost out to invest in those growth areas. So it's really important not to take your eye off the investments.
But how do we identify those growth areas specifically? How do we separate them from the areas that are less important for the future?
So that is an interesting question, and it's one that clients always struggle with because, you know, when we talk about capabilities and growth areas, folks tend to just go into what am I? What are my most successful products, or what do I do? But, you know, really, that's not what we're talking about. We're talking about a handful of things and a handful of things that truly differentiate you from your competitors. Going back to my earlier statement around client values, things that people come to you for, things that folks who are willing to pay above market value for because you provide those things that nobody else can do like you, even if they try to copy you. We spend a lot of time with clients to identify these differentiating capabilities. And once we've understood these differentiating capabilities, we then work through a different capability system, things that support these differentiating capabilities, and then it becomes very clear anything else that is you do right, but it's not really driving that capability it might be necessary for you to do, but it's still not driving that capability. Those are the areas we’re going to go out of.
Hector, Vivian, thank you so much for being here. Really appreciate the time.
This transcript has been edited for clarity.