With inflation showing staying power, how can your firm best harness risk, economic disruption and prepare for a potential downturn? Today, we remain in a period of tremendous uncertainty and CEOs are being faced with difficult decisions. Rates are rising and the race to conserve cash has begun. Many organizations are initiating top-down cost programs as a response. Traditional programs, however, such as cutting resourcing dedicated to future capabilities are jeopardizing future growth prospects and competitive positioning.
Today, headlines plagued by recession scares and layoff frenzies, executives are at risk of rash decision making. However, we believe that with strategic repositioning, this challenging economic environment offers firms the opportunity to Reset4Value — to drive smart cost decisions today and fund their organization for a better tomorrow.
This paper is part of our Reset4Value series, our approach to help leaders find sustainable ways to transform cost and ignite growth. Our previous insights focused on what customers value most and optimizing the right capabilities. What follows is the key ingredient to bring your performance-focused transformation all together — “Change how the work gets done.” Here, we anchor on business culture and share how to drive behavioral change through re-envisioning your operating model. We share key Reset4Value actions to help your business drive smart cost decisions when facing today’s uncertainty.
Make the right cost decisions
Prepare for unexpected market forces. At Oliver Wyman, we have been helping leaders to manage through uncertainty, withstand shocks, and build solid macro-resilience programs. CEOs are proactively focusing on cost and capacity allocation decisions — where to double-down, where to exit or pause, and how much to then re-allocate to future looking differentiating capabilities. CEOs that build macro resilience will ensure that their organizations have the strategic headroom to weather whatever 2023 brings, while preserving important long-term investments.
Performing the “Four Acts of Unconventional Leadership” in a cohesive, self-reinforcing whole drives the organization to Reset4Value. This is key to fusing your cost transformation efforts together. Many times, leaders may re-envision customer value and segment their costs, but do not take further steps to link their cost, growth and investment agendas or ultimately change the organization’s behaviors.
Companies should focus on right-sizing their operating model today in order to fund a better tomorrow
Rethink culture and organizational behaviors
Every company has its own, unique DNA. To reset your operating model and create long-lasting growth, you must understand the core culture and organizational behavior of your firm — from the CEO to frontline employee. This is more than standing up new teams, defining goals and creating new initiatives — it’s about:
- Adopting and embracing new behaviors within every facet of your organization
- Measuring success
- Identifying reinforcement mechanisms to make transformation sustainable
Your optimal operating model centers around six critical actions, which foster tradeoffs that accelerate growth and position the business for short-and longer-term success.
Core action 1: Lead through culture. Success is powered by the entire organization and through the empowerment of employees in their everyday jobs. A firm’s business culture is defined by natural traits or DNA, that is unique to their organization. It’s this distinctive blueprint that helps differentiate your organization from competitors. For example: What drives and motivates your firm’s talent? What are long-standing attitudes and beliefs? What are your firm’s lived values and cultural traits? Leading through culture is the foundation of sustainable transformation and ensures that resources flow into the “good” costs, growth and investment agendas we identify in our Power up your capabilities and culture paper. Once culture is defined, employees should be incentivized to live into the desired behaviors.
Core action 2: Strengthen organization and talent. To change behaviors and the way the entire organization works, it’s important for leaders to assess the firm’s holistic organizational design. This spans control, talent development practices, organizational design and succession planning.
For example, during our discussions with Finance teams, we found that COVID-19 has reinforced the broader, strategic advisor role that Chief Financial Officers (CFOs) and their teams are taking on within the business. Additionally, increased use of enabling technologies and advanced analytics has led to technical knowledge being more essential in Finance and in other areas. However, 43% of the CFOs we spoke to said their workforce is not well positioned to support this shift. This is due to compounding factors, such as difficulty in attracting the necessary talent; changing career attitudes of younger, talented employees that move onto other roles; and issues with training more tenured employees.
Core action 3: Implement governance and accountability. Accountability enables employees to engage in productive, unfiltered conflict around substantive business issues and prioritize collective needs. Decision-making frameworks support organization governance and accountability and can provide clarity around partnership across a matrixed organization to drive meaningful change.
Core action 4: Manage sourcing and location. Sourcing and location can influence your geographic footprint, talent markets, real estate investments, process efficiencies and a variety of other benefits. Over time, leaders may identify activities that require new partnerships (for example, fintech and insurtech enhancements) or adjustments needed to support the strategy, which creates opportunity for fortified operations, fresh perspectives and a diversified portfolio.
Core action 5: Modernize processes and controls. Winners will be the “digital adopters,” who are able to rapidly evolve their servicing models for new products and demands. End-to-end digitization and associated revenue growth require various capabilities, including interdisciplinary teaming across business and technology and culture conditions for continuous improvement.
Core action 6: Leverage technology and data. Technology and data power much of the organization and often provide key insights for future growth. Firms need to think in terms of capabilities and connect them to value to drive growth.
Measure for success
Reset4Value is not a one-time program. Establishing a metrics methodology to measure impact is essential to breakdown silos and ensure a sustainable future. Even though performance metrics are conceptually simple, many times organizations have difficulty in instituting effective programs. Often there is no clear linkage between operational performance measures and transformation objectives — measurement is very low level or tactical.
Successful cost transformation metrics commonly exhibit several key characteristics. The metrics need to:
- Measure overall performance on what customers value most and the organization’s differentiated capabilities
- Align the effectiveness of the transformation, with day-to-day operational performance
- Identify the underlying factors that affect changes in operating model performance
- Make reporting easy and focus on “productivity measures” that relate to individual areas
Together, these metrics can be used holistically to measure long-term value creation and ensure continuous improvement.
Reset4Value generates results fast, while simultaneously designing the path to long-term value creation. At Oliver Wyman, we have worked with multiple CEOs and their leadership teams to make the right types of decisions and position their business for accelerated growth. Our Reset4Value playbook offers a fast, structured approach to bring large opportunities into plain sight and allow a true view of your firm’s differentiation. The time to get started is today.