Tag Archives: McKinsey

Updates from McKinsey

Taking supplier collaboration to the next level
Closer relationships between buyers and suppliers could create significant value and help supply chains become more resilient. New research sheds light on the ingredients for success.
By Agustin Gutierrez, Ashish Kothari, Carolina Mazuera, and Tobias Schoenherr – Companies with advanced procurement functions know that there are limits to the value they can generate by focusing purely on the price of the products and services they buy. These organizations understand that when buyers and suppliers are willing and able to cooperate, they can often find ways to unlock significant new sources of value that benefit them both

Buyers and suppliers can work together to develop innovative new products, for example, boosting revenues and profits for both parties. They can take an integrated approach to supply-chain optimization, redesigning their processes together to reduce waste and redundant effort, or jointly purchasing raw materials. Or they can collaborate in forecasting, planning, and capacity management—thereby improving service levels, mitigating risks, and strengthening the combined supply chain.

Earlier work has shown that supplier collaboration really does move the needle for companies that do it well. In one McKinsey survey of more than 100 large organizations in multiple sectors, companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.

Despite the value at stake, however, the benefits of supplier collaboration have proved difficult to access. While many companies can point to individual examples of successful collaborations with suppliers, executives often tell us that they have struggled to integrate the approach into their overall procurement and supply-chain strategies.

Several factors make supplier collaboration challenging. Projects may require significant time and management effort before they generate value, leading companies to prioritize simpler, faster initiatives, even if they are worth less. Collaboration requires a change in mind-sets among buyers and suppliers, who may be used to more transactional or even adversarial relationships. And most collaborative efforts need intensive, cross-functional involvement from both sides, a marked change to the normal working methods at many companies. This change from a cost-based to a value-based way of thinking requires a paradigm shift that is often difficult to come by. more>

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Updates from McKinsey

How to build a data architecture to drive innovation—today and tomorrow
Yesterday’s data architecture can’t meet today’s need for speed, flexibility, and innovation. The key to a successful upgrade—and significant potential rewards—is agility.
By Antonio Castro, Jorge Machado, Matthias Roggendorf, and Henning Soller – Over the past several years, organizations have had to move quickly to deploy new data technologies alongside legacy infrastructure to drive market-driven innovations such as personalized offers, real-time alerts, and predictive maintenance.

However, these technical additions—from data lakes to customer analytics platforms to stream processing—have increased the complexity of data architectures enormously, often significantly hampering an organization’s ongoing ability to deliver new capabilities, maintain existing infrastructures, and ensure the integrity of artificial intelligence (AI) models.

Current market dynamics don’t allow for such slowdowns. Leaders such as Amazon and Google have been making use of technological innovations in AI to upend traditional business models, requiring laggards to reimagine aspects of their own business to keep up. Cloud providers have launched cutting-edge offerings, such as serverless data platforms that can be deployed instantly, enabling adopters to enjoy a faster time to market and greater agility. Analytics users are demanding more seamless tools, such as automated model-deployment platforms, so they can more quickly make use of new models. Many organizations have adopted application programming interfaces (APIs) to expose data from disparate systems to their data lakes and rapidly integrate insights directly into front-end applications. Now, as companies navigate the unprecedented humanitarian crisis caused by the COVID-19 pandemic and prepare for the next normal, the need for flexibility and speed has only amplified.

For companies to build a competitive edge—or even to maintain parity, they will need a new approach to defining, implementing, and integrating their data stacks, leveraging both cloud (beyond infrastructure as a service) and new concepts and components. more>

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Updates from McKinsey

An operating model for the next normal: Lessons from agile organizations in the crisis
Companies with agile practices embedded in their operating models have managed the impact of the COVID-19 crisis better than their peers. Here’s what helped them cope.
By Christopher Handscomb, Deepak Mahadevan, Lars Schor, Marcus Sieberer and Suraj Srinivasan – For many companies, the first, most visible effects of the COVID-19 pandemic quickly created a challenge to their operating and business models. Everything came into question, from how and where employees worked to how they engaged with customers to which products were most competitive and which could be quickly adapted. To cope, many turned to practices commonly associated with agile teams in the hope of adapting more quickly to changing business priorities.

Agile organizations are designed to be fast, resilient, and adaptable. In theory, organizations using agile practices should be perfectly suited to respond to shocks such as the COVID-19 pandemic. Understanding the experiences of agile—or partially agile—companies during the crisis provides insights around which elements of their operating models proved most useful in practice. Through our research, one characteristic stood out for companies that outperformed their peers: companies that ranked higher on managing the impact of the COVID-19 crisis were also those with agile practices more deeply embedded in their enterprise operating models. That is, they were mature agile organizations that had implemented the most extensive changes to enterprise-wide processes before the pandemic.

That suggests implications for less agile companies as economies reopen. Should they set aside the agile practices they adopted during the pandemic and return to their traditional operating models? Or should they double down on agile practices to embrace the more fundamental team- and enterprise-level processes that helped successful agile companies navigate the downturn?

We analyzed 25 companies across seven sectors that have undergone or are currently undergoing an agile transformation. According to their self-assessments, almost all of their agile business units responded better than their nonagile units to the shocks associated with the COVID-19 pandemic by measures of customer satisfaction, employee engagement, or operational performance.

Executives emphasized that the agile teams have continued their work almost seamlessly after the shock, without substantial setbacks in productivity. In contrast, many nonagile teams struggled to transition, reprioritize their work, and be productive in the new remote setup. The alignment between agile teams’ backlogs and their business priorities allowed them to shift focus quickly. more>

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Updates from McKinsey

Ready, set, go: Reinventing the organization for speed in the post-COVID-19 era
The need for speed has never been greater. Here are nine ways companies can get faster.
By Aaron De Smet, Daniel Pacthod, Charlotte Relyea, and Bob Sternfels – hen the coronavirus pandemic erupted, companies had to change. Many business-as-usual approaches to serving customers, working with suppliers, and collaborating with colleagues—or just getting anything done—would have failed. They had to increase the speed of decision making, while improving productivity, using technology and data in new ways, and accelerating the scope and scale of innovation. And it worked. Organizations in a wide range of sectors and geographies have accomplished difficult tasks and achieved positive results in record time:

Redeploying talent. A global telco redeployed 1,000 store employees to inside sales and retrained them in three weeks.

Launching new business models. A US-based retailer launched curbside delivery in two days versus the previously-planned 18 months.

Improving productivity. An industrial factory ran at 90-percent-plus capacity with 40 percent of the workforce.

Developing new products. An engineering company designed and manufactured ventilators within a week.

Shifting operations. Coordinating with local officials, a major shipbuilder switched from three shifts to two, with thousands of employees.

At the heart of each of these examples is speed—getting things done fast, and well. Organizations have removed boundaries and have broken down silos in ways no one thought was possible. They have streamlined decisions and processes, empowered frontline leaders, and suspended slow-moving hierarchies and bureaucracies. The results, CEOs from a wide range of industries have told us, have often been stunning:

“Decision making accelerated when we cut the nonsense. We make decisions in one meeting, limit groups to no more than nine people, and have banned PowerPoint.”

“I asked on Monday, and by Friday we had a working prototype.”

“We have increased time in direct connection with teams—resetting the role and energizing our managers.”

“We adopted new technology overnight—not the usual years—as we have a higher tolerance for mistakes that don’t threaten the business.”

“We’re putting teams of our best people on the hardest problems. If they can’t solve it, no one can.”

Because of the pandemic, leadership teams have embraced technology and data, reinventing core processes and adopting new collaboration tools. Technology and people interacting in new ways is at the heart of the new operating model for business—and of creating an effective postpandemic organization. more>

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Updates from McKinsey

Return: A new muscle, not just a plan
Return is not a phase; it’s a way of operating. A nerve center can help build the capabilities that businesses need in the “next normal.”
By Mihir Mysore, Bob Sternfels, and Matt Wilson – In less than four months, COVID-19 has upended almost all expectations for 2020. Beyond the loss of life and the fear caused by the pandemic, businesses around the world have faced disruptions at a speed and scale unprecedented in the modern era.

Companies everywhere are now wrestling with the question of how to reach the next normal safely. Many talk about a return to the workplace as a plan that needs to be implemented: a series of systematic steps to reach some kind of stable operating model, in a world where vaccines are adequately available or herd immunity has been reached. In many cases, these plans suggest a return to some relatable version of the past.

Yet the intrinsic uncertainties that might scupper such plans continue to mount. Executives readily admit, for instance, that it is tough to write a deterministic return plan because of the likelihood of a resurgence, discoveries about how the virus is transmitted and whom it affects, the nature and duration of immunity, and continued changes in the quality and availability of testing and contact tracing. The best possible plan today is merely a strawman that will need near-continuous recalibration and change.

Another critical uncertainty is the future of remote work. Some feel that recent events have driven a real productivity gain they do not want to lose. However, they recognize that a wholesale shift to remote work has had many false dawns. Silicon Valley has experimented with it most extensively, but after many attempts to implement telecommuting, our research found that at 15 top firms, only 8 percent of the employees work remotely. These companies do not want to try this again only to roll it back in a few years.

Customer behavior is a third unknown. Companies see the clear shift to digital among consumers and its inevitable impact: online shopping has expanded by up to 60 percent in some categories, and up to 20 percent of online consumers in the United States have switched at least some brands recently. But it’s unclear whether once the pandemic recedes, these customers will return to their old ways or if the pandemic will create new types of consumers.

Given these and other uncertainties and the need for experimentation and fast learning to navigate through them effectively, we believe that the next step in the response of businesses cannot be thought of as a phase at all. It will be open ended rather than fixed in time. A better mental model is to think about developing a new “muscle”: an enterprise-wide ability to absorb uncertainty and incorporate lessons into the operating model quickly. The muscle has to be a “fast-twitch” one, characterized by a willingness to change plans and base decisions on hypotheses about the future—supported by continually refreshed microdata about what’s happening, for example, in each retail location. And the muscle also needs some “slow-twitch” fibers to set long-term plans and manage through structural shifts. more>

Updates from McKinsey

Will ‘ship, then fix’ become obsolete in the next normal?
COVID-19 will likely accelerate remote working and the need for companies to speed up their efforts to digitize support functions—improving efficiency and user experience without increasing cost.
By Hiren Chheda, Jonathan Silver, Samir Singh, and Amit Vashisht – Faced with ever-growing pressures to optimize costs and improve performance, most companies have taken steps to increase the efficiency of their support functions. An estimated 80 percent of Fortune 500 companies report using some form of a centralized shared-services operating model—but most companies have only scratched the surface of the potential value available. Worse, many have wasted significant time debating the right approach. Should they focus on centralizing processes and functions to increase efficiency, or automate processes through digital technology?

The COVID-19 pandemic has forced companies to act fast. It has also created a window for companies to reimagine the way support functions operate. In the next normal, we believe that the answer to long-debated question is ‘yes’ to both. Companies that centralize processes and functions first are still likely to find that they need to automate them—the “ship then fix” approach. Conversely, other companies may make faster progress by automating processes first and then centralizing them—“fix then ship.”

The right sequence depends on the organization’s starting point and its unique combination of circumstances and needs. And, regardless of the path a company chooses, there are a set of foundational measures that will lead to better results. Rather than continuing to debate, companies can take action now to capture value that otherwise may slip away.

For companies improving their support functions, ship-then-fix has been the default option for several reasons—starting with the fact that historically it offered the fastest path to value. Centralizing functions through a shared-services model typically requires far less upfront investment than trying to digitize processes first, and therefore offers a more straightforward business case. Because many organizations have used this approach to reduce costs and increase efficiencies, the approach is perceived (with some reason) as relatively low-risk: the changes are often self-funding, with the savings then available for reallocation toward digitizing select processes. more>

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Updates from McKinsey

The value of value creation
Long-term value creation can—and should—take into account the interests of all stakeholders.
By Marc Goedhart and Tim Koller – Challenges such as globalization, climate change, income inequality, and the growing power of technology titans have shaken public confidence in large corporations. In an annual Gallup poll, more than one in three of those surveyed express little or no confidence in big business—seven percentage points worse than two decades ago. 1 Politicians and commentators push for more regulation and fundamental changes in corporate governance. Some have gone so far as to argue that “capitalism is destroying the earth.”

This is hardly the first time that the system in which value creation takes place has come under fire. At the turn of the 20th century in the United States, fears about the growing power of business combinations raised questions that led to more rigorous enforcement of antitrust laws. The Great Depression of the 1930s was another such moment, when prolonged unemployment undermined confidence in the ability of the capitalist system to mobilize resources, leading to a range of new policies in democracies around the world.

Today’s critique includes a call on companies to include a broader set of stakeholders in their decision making, beyond just their shareholders. It’s a view that has long been influential in continental Europe, where it is frequently embedded in corporate-governance structures. The approach is gaining traction in the United States, as well, with the emergence of public-benefit corporations, which explicitly empower directors to take into account the interests of constituencies other than shareholders.

Particularly at this time of reflection on the virtues and vices of capitalism, we believe it’s critical that managers and board directors have a clear understanding of what value creation means. For today’s value-minded executives, creating value cannot be limited to simply maximizing today’s share price. Rather, the evidence points to a better objective: maximizing a company’s value to its shareholders, now and in the future.

Recently, the US Business Roundtable released its 2019 “Statement on the purpose of a corporation.” Dozens of business leaders (the managing director of McKinsey among them) declared “a fundamental commitment to all of our stakeholders [emphasis in the original].” Signatories affirmed that their companies have a responsibility to customers, employees, suppliers, communities (including the physical environment), and shareholders. “We commit to deliver value to all of them,” the statement concludes, “for the future success of our companies, our communities and our country.” more>

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Updates from McKinsey

The color of wealth
The wealth gap between black and white Americans is a primary force in racial inequality and social injustice. Here’s how to address it.
The economic impact of closing the racial wealth gap
By Nick Noel, Duwain Pinder, Shelley Stewart, and Jason Wright – The United States has spent the past century expanding its economic power, and it shows in American families’ wealth. Despite income stagnation outside the circle of high earners, median family wealth grew from $83,000 in 1992 to $97,000 in 2016 (in 2016 dollars).

Beyond the overall growth in top-line numbers, however, the growth in household wealth (defined as net worth—the net value of each family’s liquid and illiquid assets and debts) has not been inclusive. In wealth, black individuals, families, and communities tend to lag behind their white counterparts. Indeed, the median white family had more than ten times the wealth of the median black family in 2016. In fact, the racial wealth gap between black and white families grew from about $100,000 in 1992 to $154,000 in 2016, in part because white families gained significantly more wealth (with the median increasing by $54,000), while median wealth for black families did not grow at all in real terms over that period.

The widening racial wealth gap disadvantages black families, individuals, and communities and limits black citizens’ economic power and prospects, and the effects are cyclical. Such a gap contributes to intergenerational economic precariousness: almost 70 percent of middle-class black children are likely to fall out of the middle class as adults. Other than its obvious negative impact on human development for black individuals and communities, the racial wealth gap also constrains the US economy as a whole. It is estimated that its dampening effect on consumption and investment will cost the US economy between $1 trillion and $1.5 trillion between 2019 and 2028—4 to 6 percent of the projected GDP in 2028; see also sidebar “Quantifying the economic impact of closing the racial wealth gap”).

Estimating the economic impact of closing the racial wealth gap is a daunting task because the gap is the product of complex interactions among social, historical, political, and institutional forces. To account for a sufficiently comprehensive range of factors while offering an accessible concept, we turned to the Oxford model, an econometrics model widely used for forecasting. more>

Updates from McKinsey

The economic impact of closing the racial wealth gap
The persistent racial wealth gap in the United States is a burden on black Americans as well as the overall economy. New research quantifies the impact of closing the gap and identifies key sources of this socioeconomic inequity.
By Nick Noel, Duwain Pinder, Shelley Stewart, and Jason Wright – The United States has spent the past century expanding its economic power, and it shows in American families’ wealth. Despite income stagnation outside the circle of high earners, median family wealth grew from $83,000 in 1992 to $97,000 in 2016 (in 2016 dollars).

Beyond the overall growth in top-line numbers, however, the growth in household wealth (defined as net worth—the net value of each family’s liquid and illiquid assets and debts) has not been inclusive. In wealth, black individuals, families, and communities tend to lag behind their white counterparts. Indeed, the median white family had more than ten times the wealth of the median black family in 2016. In fact, the racial wealth gap between black and white families grew from about $100,000 in 1992 to $154,000 in 2016, in part because white families gained significantly more wealth (with the median increasing by $54,000), while median wealth for black families did not grow at all in real terms over that period.

The widening racial wealth gap disadvantages black families, individuals, and communities and limits black citizens’ economic power and prospects, and the effects are cyclical. Such a gap contributes to intergenerational economic precariousness: almost 70 percent of middle-class black children are likely to fall out of the middle class as adults. Other than its obvious negative impact on human development for black individuals and communities, the racial wealth gap also constrains the US economy as a whole. It is estimated that its dampening effect on consumption and investment will cost the US economy between $1 trillion and $1.5 trillion between 2019 and 2028—4 to 6 percent of the projected GDP in 2028. more>

Updates from McKinsey

Energizing industrial manufacturing through active performance management
A new approach can help industrials gain greater visibility into performance and capture lasting gains.
By Ryan Fletcher, Kairat Kasymaliev, Abhijit Mahindroo, and Nick Santhanam – Along with its severe human toll, the spread of the coronavirus has exacerbated long-standing challenges in businesses worldwide. For industrial companies—especially those with high-mix, low-volume manufacturing—COVID-19 has increased the already-widespread problems with shop-floor productivity. As supply-chain disruptions affect shipment of critical parts, industrials are struggling to meet their promised customer delivery dates. Within plants, physical-distancing requirements and line closures are disturbing some workflows. These delays often prevent industrials from delivering critical products, including sanitization tools and other equipment to help their customers both fight and recover from the pandemic.

For many years, industrials have deployed lean levers and performance-management initiatives to improve productivity and expand margins. They usually achieved good initial results, but their gains frequently vanished or decreased as managers became distracted and employees returned to their old ways. Some industrials have also offshored production to reduce costs but then encountered substantial challenges and high start-up costs when they tried to replicate their capabilities and skills in new locations. With recent tariffs and travel disruptions creating unprecedented uncertainty, more businesses are considering reshoring production to increase their resilience and flexibility in the “next normal.” That makes manufacturing performance even more important.

A new approach to productivity—active performance management (APM)—may be more likely to deliver lasting gains than previous methods. It focuses on three areas where most current solutions fall short: real-time performance visibility, daily performance planning, and end-to-end accountability. When high-mix, low-volume industrials incorporate APM into their standard workflows, they typically improve productivity by 30 to 50 percent within eight to 12 weeks of deployment while simultaneously increasing on-time deliveries and unlocking additional capacity.

Surprisingly, many high-mix, low-volume manufacturing operations lack real-time visibility into performance. Instead, they review key performance indicators (KPIs) weekly or even monthly. This frequency may be enough to drive performance in high-volume environments, where variability is low and processes are predictable, but it is not well suited to the complexity of a high-mix factory.

Without real-time transparency, supervisors are unlikely to discuss and address issues until their impact has snowballed. more>

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