Updates from McKinsey

Unlocking enterprise efficiencies through zero-based design
Zero-based design allows even mature companies in asset-heavy industries to cut costs and complexity without compromising safety, quality, or customer trust.
By Charles-Henri Marque, Rohit Panikkar, and Sai Tunuguntla – Across virtually every industry, startups are gaining ground, if not disrupting the status quo, with new operating models that allow them to design, test, and scale better products and services, faster than ever. This ability has raised customer expectations, putting added pressure on incumbent businesses.

Of course, startups have an innate advantage: a clean slate from which to design operations and processes. Incumbents, on the other hand, contend with rigid and ingrained processes and systems, and a well-worn, usually siloed, organizational structure that slows decision making. Other constraints, such as a legacy infrastructure or the lack of the right talent, skills, and capabilities, make change slow and difficult at a time when rapid response is needed more than ever. And in this environment, operational-excellence efforts tend to emphasize the continuous improvement of current-state work, rather than the kind of radical, step-change reimagination that has become a business imperative in the digital era.

Yet it is indeed possible for mature companies—even those in asset-heavy industries—to cut waste and complexity and accelerate processes dramatically without compromising safety, quality, or customer trust. While they can’t exactly work from a clean slate, mature companies can sweep away many of the self-imposed barriers to achieve results that more closely align with their priorities. This approach is called zero-based design.

Some organizations know their internal processes need radical change—fast. They use zero-based design to deliver substantial results despite legacy business’ usual constraints of protracted product-development cycles and complex processes. Indeed, zero-based design isn’t new: it has already proven its worth in product design and more recently, in redesigning customer-facing processes. Its usefulness doesn’t stop there: zero-based design holds promise in delivering quantum-leap performance improvement in the internal operations of many types of enterprises, regardless of industry.

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Many companies, especially those dealing with rapidly changing requirements and large asset bases, face three major challenges.

Demand is escalating, but cycle times remain long. Telcos are a prime example: while demand for mobile services has exploded, it can still take up to 12 months in some markets to deploy services in new areas. Contrast that with product launches enabled by agile methodologies, where new releases take weeks, rather than months—or even years.

Core enterprise operations such as research, design, development, and implementation still take considerable resources and time. Telco network operations, for instance, account for between 20 and 40 percent of total telco operational expenditure and 20 to 30 percent of the total workforce.

When companies attempt to shoehorn new technologies into old approaches and processes, they often find they cannot realize the full value they hoped to achieve. Digital tools and technologies have so radically changed products and services, and how they are conceived and delivered, that organizations instead face a fundamental rethinking of how processes are designed.

Decision makers may not see the potential impact of a change program, or know where to start, or how to prioritize implementation. The fragmented ownership of processes or activities compounds the inertia. For some companies, the problem isn’t getting started, but rather sustaining the improvement: they may claim success prematurely, leaving them in pilot purgatory. For others, attempting to resolve these complexities from their current base hampers their thinking and creativity. more>

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