Rethinking customer journeys with the next-generation operating model
This
operating model offers business leaders the opportunity for wins in customer
experience, cost reduction, and prospects for growth.
As digital
becomes the way of life in industry after
industry, company leaders are going to be required to reevaluate the customer
journey from end to end. With the next-generation operating model, they have a
new way of thinking through the necessary changes. In this episode of the McKinsey
Podcast, senior partner Alex Singla and partner Elixabete Larrea Tamayo
speak with McKinsey’s Barr Seitz about the next-generation operating model and
how it can help executives navigate the disruption of the digital age.
Rethinking customer journeys with the next-generation operating
model
Podcast transcript
Barr Seitz: Hello and welcome to this episode of the McKinsey
Podcast. I’m Barr Seitz, global publishing lead for McKinsey’s Marketing
& Sales and Digital Practices. I’m very pleased to be joined today by Alex
Singla, a senior partner based in McKinsey’s Chicago office, and Eli Larrea, a
partner in our Boston office. They both are deeply involved in McKinsey’s work
on digital services and are also the coauthors of “The next-generation operating model for the digital world,” by the way, among the most
popular articles we’ve published in the last couple of years.
I’ll be exploring with them what the
next-generation operating model for the digital age is, what the management
challenges are in running one well, and what it takes to make it work. So let’s
start the conversation. Eli, I’d like to start with you. What do you mean when
you talk about the next-generation operating model? Can you bring it to life
for me?
Elixabete Larrea Tamayo: Yes, of course, Barr. And hello to everyone. The
way we think about the next-generation operating model, it’s actually as a
mechanism to help us address the challenges that most of the executives are
facing in the digital age, as you were mentioning.
In almost every organization these days,
there’s some type of digital initiative that’s under way. They have probably
been experimenting with advanced analytics in
the last few years, and are most likely
figuring out what to do in terms of robotics, automation, and how to capture
the most value out of that. All of this is happening at the same time and, very
often, led by different people within the organization—quite honestly with
different agendas, aspirations, pace.
Implementing this next-generation
operating model is a way to bring some order and discipline to that process
while also making sure that it focuses on building value. When we think about
an effective, next-generation operating model we really think about two things.
One is organizing the efforts
around the end-to-end customer journeys, as well as some of the internal back-office processes. This means identifying the critical journeys
and providing the perspective on the customer journey end to end and where the
value is. The second element is moving away from individual technologies and
operations capabilities in a piecemeal and siloed way to applying them to these
journeys in combination and in the right sequence. So that’s moving away from
the silo thinking that we have had for years in the organization.
For example, in insurance, the first
notice-of-loss process, which is right at the beginning of the claims
end-to-end journey. This would mean, for example, combining advanced analytics,
like adding some type of predictive modeling to flag claims and to rehash them
to the right person with automation.
Barr Seitz: Great. I want to dig into this a little bit more,
but, Alex, as we were preparing for this conversation, I remember I was really
struck by the sense of urgency. You were mentioning why businesses need to
really address dealing with the operating model. It’s not an insignificant
effort. But what about the urgency? Can you talk to why it’s so imperative now
to focus on such a large endeavor, like developing the next-generation
operating model?
Alex Singla: I’ll give you four specific examples or four
specific reasons I think now is the right time. One, customer and agent
behavior and expectations are fundamentally changing. They continue to go
through the roof with regards to what your customers’ expectations are on a
day-to-day basis in terms of their ability to do self-service, speed of
execution, responsiveness, and so forth. And interestingly, same with your
agents. Depending on your distribution channel, your distribution partners are
also looking for that level of service and experience so they can best sell and
grow.
“The next-generation operating model combines a bunch of
technologies and operational levers in a tailored sequence and integrated way
to get stacked wins for companies.”
Two is, even though interest rates have
somewhat increased over time or more recently, they’re still expected to stay
low. For any business or company in which float matters and they’re making
investments for the long term, with interest rates staying low, it means they
have to recoup and make money in other ways.
Three, many technology
start-ups—insuretechs, fintechs—are posing real serious threats to the current
incumbents, and therefore, if companies don’t quickly transform, there’s a real
risk that others will come in and, quite frankly, leapfrog them and take all
the economic rents and share in the market in a pretty fast way. These
customers will very quickly move to the next world. So the old adage around
Blockbuster and Netflix, and how quickly Blockbuster went out of business given
Netflix was truly transformative and a disruptor in the industry.
The fourth reason I think now is the time
is because in industries like banking, regulatory and compliance costs are
mounting while price transparency continues to increase. And even in insurance,
the same price transparency is happening, which puts a tremendous level of
extra pressure on cost and reducing cost.
Barr Seitz: These reasons are certainly compelling. Is it fair
to say that most executives are already aware of them? And if that’s the case,
then what is keeping them from making this commitment to upgrading the
operating model? Talk a little bit about why that is the decision they need to
take now.
Alex Singla: As Eli had mentioned, there is a lot of activity
going on in organizations across different initiatives. We go to any given
company and people say they’re doing advanced analytics, they’re doing digital,
they’re doing elements of automation, robotics, they’re pulling their
procurement lever. But the reality is that there is to some degree very little
impact that it has achieved. In fact, many companies are destroying value
because they have a level of uncoordinated efforts.
The reason this is occurring is twofold.
One is the activities they’re doing are in small pockets. They’re siloed,
they’re pilots, and their inability to scale them across the institution really
holds them back from having dramatic impact. The second thing we find is those
four or five levers I just articulated around digital, analytics, automation,
procurement, and so forth are all independently driven events within an
institution.
So different governing bodies, different
executives who own those, and therefore they typically end up attacking the
exact same value streams, the exact same customer or agent journeys and
therefore are very, very hard to get prioritization and impact in that regard.
The other reason we think they’re not getting the impact is, quite frankly, the
companies are just moving too slow. In an increasingly challenging environment
where most companies are facing tremendous cost pressure, speed matters.
The next-generation operating model
combines a bunch of technologies and operational levers in a tailored sequence
and integrated way to get stacked wins for companies in terms of customer
experience, significant reduction in cost, and better positioning for growth.
Barr Seitz: This point about integration
and how you need to have multiple elements working in conjunction to really drive this next-generation operating model, and
make it successful, and have the impact that companies really aren’t seeing yet
with their digital initiatives—that sounds like a spin of a transformation
program, a classical transformation program.
But it’s about much more than implementing
technology. It’s a more fundamental change. Eli, can you talk a little bit
about what needs to happen so these various parts of the organization can
actually work together effectively to power this next-generation operating
model?
Elixabete Larrea Tamayo: I’ll mention a couple of things. The first one
might seem a bit obvious, but it’s really critical. This has to come from the
top because it touches so many parts of the organization. Building a
next-generation operating model isn’t about working on some pilot to the side.
This is core to the business, and it will touch IT, it will touch operations,
marketing, supply chain, everything. For that
reason, this needs to have active leadership from the CEO and the CxO level in the organization. Point number two: we need to really
understand what are the most important customer journeys and what are the most
significant pain points that will add value and that we will need to prioritize
against those.
Alex Singla: Eli, just building off that, one of the analogies
I think about is a contractor remodeling a house, the contractor needs to know
the electrician needs to come in, lay the electrical, put it behind the walls,
do all the wiring before they bring in the drywaller to drywall the wall. And
how you coordinate those things in a seamless way matters. If you think of that
same analogy for some person in operations, the CEO, or the CEO who’s driving a
digital-services type of transformation, obviously, it’s very hard politically
to say all these leaders—who might own digital, analytics, robotics,
automation, procurements—now will report to them.
What they need to be able to do is figure
out how do you seamlessly work across those people as a contractor does,
pulling in the right skills and capabilities at the right time and in the right
order.
“One of the challenges that companies are going through
in trying to implement these is it’s a very good concept, but when it comes to
execution, it becomes complicated.”
Barr Seitz: Let me push you two a little bit on this model.
Alex, what are some of the processes and enablers a company would need to put
in place to really make sure that this vision of an integrated, working team
happens on the ground?
Alex Singla: A couple of things I would say. First and
foremost, having a very clear view and common vocabulary around what are the
customer journeys or agency journeys when you look at a company. So how does a
company look at you from end to end? Usually, that’s going to cut across
different silos within the institution. But get a common vocabulary and clarity
around what are the customer journeys.
The second is either at the enterprise or
a major business-unit level: what is the prioritization of customer journeys
you’re going to tackle? If you think of waves of tackling customer journeys
over time, what’s in the first wave, second wave, third wave? That’s hugely
important because different waves and different end-to-end value streams or
customer journeys will dictate what assets, digital, analytics, or other
capabilities are going to be required and when.
The third thing I would say is you need
agree upon KPIs and metrics for accountability. So having metrics that look at
end-to-end value versus siloed impact is hugely important. Because it gets
everyone thinking in that end-to-end journey about what happens before them and
after them, that they recognize they’re just part of the process from a
customer perspective. The next thing is role modeling from the top.
Eli referred to it. These programs are
often CEO or very senior C-suite-level driven. I couldn’t agree more. But that
role modeling not just at the top of the house but at all layers then cascades
into the organization. If you’re doing this type of transformation within a
specific business unit, that business-unit leader and the managers or direct
reports of that business unit better walk the walk every single day on this
concept of integration.
It also requires
a new culture. It’s a new way of
working. This is much more agile way for the organization to adapt rapidly
and be flexible to the market. It requires some elements of test and learn—and
comfortability with being able to fail and fail and fix quickly. In other
words, you need processes and reinforcement mechanics, incentives, KPIs,
methodology, but also an ability to move people fluidly into various roles
given what they’re going to have to go do might change day to day as you go
through some of this type of transformation.
Elixabete Larrea Tamayo: One of the typical challenges that companies are
going through right now in trying to implement these is it’s a very good
concept, but when it comes to execution, it becomes pretty complicated. When
you’re thinking about engaging into or starting your transformation and that
end-to-end journey, I think also the pace at which this will happen will be
completely different from the one that we are used to. We are no longer talking
about months of development to get a new solution out there and testing in the
market. We are talking about weeks.
Barr Seitz: As you talk about putting this model into place,
the behaviors, the KPIs, I’d imagine there’s this first phase where the company
and people are trying it. But there needs to be an adjustment period where
learnings are actually incorporated and built on—where adjustments are made to
really get the most out of this next-generation operating model. Could you talk
a little bit in very practical detail, what does that intervention look like?
What do executives need to do to really make sure that this machine is
functioning the way it should be?
Elixabete Larrea Tamayo: They will need to be much more present probably
than they used to be. And let’s make it very practical, Barr. And Alex, feel
free to build on this.
If you envision a place like a lot of
environments where you have different resources from the organization working
together toward, in a few weeks, getting out there with something new that will
dramatically change some of the needs that our customers have—we really need
those at the top and the leaders of those different teams to be there, present,
where the change is happening.
This shouldn’t be a surprise after a few
weeks when everything is down, when we are going to pilot. It should be
something that they are saying almost every week. And we should create that
culture where it’s totally fine that top-level executives in the organization
will walk by, try to understand what the progress is, try to get a conversation
going about what are some of the challenges that are happening in terms of the
development or whatever solution we are working on.
“The only way these types of transformations are
successful and sustainable in the long term is with frontline adoption and
ownership.”
Alex Singla: Eli mentioned one thing that I want to build off
of, which is the only way these types of transformations are successful and
sustainable in the long term is with frontline adoption and ownership. Because
there’s a lot of things we can do with digital, analytics, automation,
procurement, and some other levers that really can transform the business.
But at the end, there are still people who
are going to have to work day in and day out running the business at the front
line, interacting with your customers every single day. And those people need
to go through their own little cultural transformation, so they know how to
work in the new world. In addition to metrics that guide them to the right
areas and role modeling from their managers or their bosses, there is also an
element of: are we training those people the right way? Are we upskilling them
to work in a new way? Are we teaching them new processes that they’re going to
work in? And then, how are we capturing the hearts and minds of those people so
they feel ownership of that new end-to-end process and are willing to work in
that new way, recognizing oftentimes, it does incorporate some element of new
skills, new capabilities, with new technologies that they’re going to have to
learn to work with?
Barr Seitz: I want to shift the conversation a little bit now
to this point around the multiplier effect of these capabilities. We’ve talked
about analytics and robotics and AI (artificial intelligence). These are all
tools that can really enable the next-generation operating model. This idea of
the multiplier effect is that digitizing processes creates more data, which is
crunched by advanced analytics to create better and faster insights.
Clearly, it’s cyclical. There’s a journey.
But could you talk a little bit about some of the design guidelines, Eli, that
companies need to get in place so that these capabilities can really come
together and work in this multiplier effect, rather than just doing individual
tasks?
Elixabete Larrea Tamayo: It comes down to three things, Barr. The first one
is getting the most out of each of these capabilities. If you think about
advanced analytics, robotics, and digital, pushing the boundaries to get to the
highest level of sophistication. We said earlier that almost every organization is testing or experimenting with these capabilities, but very few times we actually
find organizations and companies that are pushing them to the
highest level of sophistication that you can get out of those.
The second one would be getting the
sequencing right. This is not about just having a bunch of different
initiatives and throwing in there into a customer journey with the hope that
everything will work together and will get this multiplier effect. It does
really matter, and a lot, the sequence at which we actually choose to implement
them.
In some cases, the right formula or the
right recipe should be, we will start with automating some of the more manual
tasks. And once that is done, we will just bring some digital capabilities on
top of that and think about, for example, adding some advanced analytics,
predictive modeling. Some other times, depending on the customer journey, it
will be a different sequence.
The third thing that I’d mention is you
also need to step up from a journey-to-journey perspective or view to a
company-wide view. We talked about a concept that we call “the heat map,” but
it’s a visual articulation of all your customer journeys.
You want to see also how they are scoring
or how mature they are across these capabilities that we have been
mentioning—digital, robotics, et cetera.
Barr Seitz: I’m surprised that you mentioned this point about
needing to get a greater degree of sophistication from existing capabilities. I
would’ve thought that companies would be doing that anyway. Why is that not
happening?
Alex Singla: If I look across kind of the companies I interact
with, there isn’t a company that I spend time with that isn’t saying they’re
doing some elements of analytics, they’re not doing some elements of
automation, they’re not doing some elements of digitization, and so forth, and
procurement. Of course they all are. You know, if you’re working in 2017, most
companies are doing something along the dimensions.
What I would say is, if you look at the
variability between those companies that are really attacking those
opportunities holistically, the level of investment they’re making in terms of
dollar outlay, people, capabilities, and expertise is vastly different. For
example, I’ll see one company that will say, “We’re going to attack the digital
problem.”
They’ll put $10 million and a bunch of
C-players against it. And I’m making up the numbers just to make the point.
Then you see other institutions at which the CEO comes and says, “We’re going
to be a digital-first company,” and they put half a billion dollars, their top
A-players against it: they tell their shareholders and Wall Street, “This is
what we’re going to go do,” and they’re all in.
And while everyone will say on the surface
they’re doing digital, or operations, or analytics, or bringing the whole thing
together, as we talk about in next-generation operating model, the degree at
which they’re doing it is completely different. When we talk to our clients, we
really try to get them focused on the latter not the former, making big
investments, thinking about long-term, big impact, and not incremental impact.
Barr Seitz: What does that mean in terms of that multiplier
effect that Eli was just talking about in terms of these capabilities working
together? Are there some examples you could highlight about how that would work
in practice?
Elixabete Larrea Tamayo: I’ve been able to work with some organizations on
thinking about what would be the art of the possible for some of their key
customer journeys. And quite honestly, I don’t think that urgency or that
thinking was there one year or two years ago. I think there is a recognition
now that we need to start to think and exercise the muscle to think about how
to combine these levers together.
That capability doesn’t exist in
organizations nowadays. One thing that I have been involved with in the last
few months is walking some of our executive teams through an exercise of
pushing them to think about the art of the possible in the organization and
thinking about it from a completely different set of solutions, or out of the
box, from the way they were used to problem solving.
For example, one of the challenges I will
throw there is imagine that you are working in an insurance company or a bank.
You take one of the more traditional end-to-end customer journeys. And I tell
them, “Look, you now have the license for the next couple of hours to forget
that you are one executive in your bank or in your insurance company,” whatever
that is.
Imagine that you are for a few minutes one
of the executives at Amazon or at Google. Or imagine—just to go even
crazier—that you are Elon Musk and you are trying to solve the problem that you
have at hand with a completely different way of thinking. Almost like expanding the solution set to
a place that normally those organizations wouldn’t be feeling comfortable to
actually go. And that has been very eye-opening for me, at least personally.
Organizations and those leadership teams
have come to the realization that by releasing some of the barriers that come
from thinking in a certain traditional way, you can come up to a better
solution set that will help you combine some of these technologies or
capabilities in a way that you were not thinking to combine before.
Alex Singla: When it comes to the next-generation operating
model, conceptually people find it easy to digest, to at least understand. Why
it’s really hard is because you have all these different levers in which you’re
trying to bring them together. And people’s careers are based on the fact that
there’s someone who leads analytics in the institution. There’s someone who
leads digital. There’s someone who leads automation. Getting those folks to
interact and coordinate is just not easy. They all have their own road maps,
pipelines, prioritization schedules, and how you get those things to coordinate
does require senior leadership to help coordinate.
When you see the top team doing that
across what are such critical capabilities for companies these days, at least
in my observation, you start to see the front line understand that if those
functions can start to work together, we as different frontline operators
across different parts of a silo need to start to work together.
It’s another way for
companies to leverage role-modeling behavior and
communicate that down in terms of how they’re going to start operating for the
front line. Usually the front line is thrilled because historically they’ve
been bombarded by analytic initiatives, digital initiatives, automation
initiatives, something to do with procurement or outsourcing or offshoring. Now
they understand that this is coming together in a holistic way, which makes it
much, much more tangible for them and enjoyable to work in.
Elixabete Larrea Tamayo: The one other thing I’d add to what Alex said is,
many times we find that one of the common things we hear when we challenge that
status quo or institutional way of thinking is that would be great to do, but
we don’t have the systems. We don’t have the IT architecture. When you go into
the root cause on why we believe some of those things that we are reimagining
are not possible, it starts with the IT answer or regulation or compliance, but
it often ends up being a mind-set shift.
Barr Seitz: That was a great set of answers. I’m afraid we’re
out of time now. Thank you, Alex and Eli, for joining me for this conversation.
Elixabete Larrea Tamayo: It was a pleasure, Barr.
Alex Singla: Thank you, Barr, for the time.
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/rethinking-customer-journeys-with-the-next-generation-operating-model?cid=podcast-eml-alt-mip-mck-oth-1801&hlkid=bacb8307b6d54c738fb93092fc73e1bf&hctky=1627601&hdpid=dbaf4fbd-c278-4763-8757-d8b869045a66
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