Tried-and-true business models are facing obsolescence, and organizations are being pressured to make often significant changes to stay competitive and profitable. Why? In a word, disruption.
Disruptors of all types — technologic, demographic, operational, and others — are radically transforming customer expectations and how organizations operate. Those ahead of the curve can attain remarkable success, breathing new life into a declining institution or sending a startup soaring to dizzying heights. Organizations that ignore the resulting changes, however, risk their very survival.
Disruptors of all types — technologic, demographic, operational, and others — are radically transforming customer expectations and how organizations operate.
Consider a company that designs and manufactures institutional shelving, whose largest customer segment is library systems. As libraries digitize their holdings, the demand for shelving is giving way to new types of (virtual) storage.
Or, consider the business that sells aftermarket parts for the installation of GPS systems in trucks. As more and more manufacturers include GPS systems as original equipment, the company's aftermarket sales are dropping precipitously.
Or, take banking. How often do you visit a branch these days? Banks are losing the direct, interpersonal relationships they've had with customers. And, without those deeper connections, customers are just as likely to entrust their money to competitors.
What's the make-it-or-break-it key to turning disruption into opportunity? Flexible operations.
Enabling innovation and responsiveness
A flexible operating model drives innovation and responsiveness to market changes. It nearly always reflects a fundamental shift in long-standing beliefs about how organizations make money, and it requires a shift to a highly adaptable configuration of capabilities — capabilities that must align with strategy. And, to achieve sustained success, the transition to a flexible operating model must occur throughout all levels of an organization.
A flexible operating model drives innovation and responsiveness to market changes. It nearly always reflects a fundamental shift in long-standing beliefs.
The shelving business? It modified its go-to-market strategy from relying on a distribution network (which had shrunk dramatically due to similar market pressures) to direct sales. It also entered a new market, making shelving for e-tailer fulfillment centers. The aftermarket parts supplier is taking a good hard look at its capabilities to see what other markets it might pursue and what new competencies it might need to acquire to stay in business. And, banks have broken down branch walls to offer mobile banking, enhanced ATM services, and user-friendly websites to retain and capture new customers.
All organizations are vulnerable to disruption, but your organization may especially be at risk if it:
- Functions in siloes.
- Has high fixed assets, or makes large volumes of one item.
- Is slow to make decisions.
- Isn't clear about its core competencies, value proposition, and role in the supply chain.
- Doesn't take a disciplined approach to strategic planning.
A structured approach
Transitioning to a flexible operations model takes a deliberate, structured approach. Otherwise, it's all too easy to react when pressures mount without asking key questions: What are your competencies? What's the market like? Where is it going? Who are my potential customers and competitors? It's difficult to choose a viable path without answers to those, and many other, questions.
A systematic review of your organization's capabilities and core competencies should be part of your annual strategic review and planning process. This is the time to take a step back and assess whether changes you're seeing in the marketplace and among your customers still align with your capabilities and plans and where you might need to make changes.
Organizations often overestimate the degree of intimacy they have with customers when orders continue to come in. But, orders aren't intimacy. Instead, we recommend organizations conduct at least annual voice-of-the-customer (VOC) reviews. Focus less on customers' current needs and more on the likely changes in their business that are going to cause their needs to shift so you can be a partner in their evolution. After all, your customers face disruption, too.
It's not easy, we know. You're busy putting out fires to get orders out the door. But, you also need to be thinking ahead strategically in parallel to your daily business. Where does the organization need to be in two or three years, and what resources will you need to get there? We often hear an organization's leaders ask how to improve the efficiency of a machine or a process when the question we encourage them to be asking instead is, "Going forward, will you really need this machine or process at all?"
The question we encourage organizations to ask is, "Going forward, will you really need this machine or process at all?"
In addition to taking a structured approach, these six drivers will help you create a more flexible operations model:
1. Scale processes and operations
Right-size your equipment, processes, and capabilities. You want the right equipment to meet order demand (large machinery for high-volume runs, smaller machinery for small runs); the right association staffing to meet membership demand; the right healthcare capabilities to meet patient demand. Align operations with current, and anticipated, customer needs.
2. Forge strategic alliances
What if you find your equipment or competencies diverging from changing customer needs? Form alliances with organizations that can fill the gap. Take a company that built a successful business making a narrow range of light fixtures for fluorescent bulbs. The rise of LED technology, however, has created almost countless possibilities for fixture shape and size, forcing the company to quickly pivot to supply the products customers want at competitive pricing. Forming an alliance with another supplier makes that possible.
3. Engage your workforce in new ways
Many organizations face challenges attracting and retaining skilled people. Advanced technologies are changing traditional manufacturing jobs, requiring experienced employees to learn new skills on a very different shop floor. By contrast, younger workers raised on screens may find long stints of demanding physical labor undesirable.
Consider a plastic injection molding business that schedules its line workers in 12-hour shifts. Facing a talent shortage, managers are looking at different ways to change the work. Perhaps employees can rotate through multiple operations during a shift, offering more variety and less sustained physical effort.
Or, for service organizations, take a common back office task: compiling data for management reports. Today, this requires a few clicks, not dedicated staff and, now, employees need the skills to analyze that data and assume new decision-making responsibilities, a very different role. Maybe the staff in these and other roles don't even need to work in your office — they might reside in another city, state, or country and work remotely, providing further flexibility and improved access to necessary capabilities.
4. Leverage IT and data analytics
Technology is both a major disruptor and a key enabler of flexible operations. Take a company that provides fleet management services. The process from customer order to delivery traditionally has been cumbersome, involving multiple handoffs among siloes — customer service, supply chain, purchasing, accounting — and afforded customers little visibility into their order status along the way. But, customers want visibility. They're used to real-time updates, whether ordering a pizza online or a box of, well just about anything, from Amazon.
Customers are used to real-time updates, whether ordering a pizza online or a box of, well, just about anything, from Amazon.
Now, the fleet management business is streamlining the order and fulfillment processes using its technology and data to improve flexibility, thereby reducing handoffs and misinformation between siloes, so customers can gain similar to-the-minute insights.
Organizations of all types are using data analytics in myriad other ways, whether to optimize staffing, identify products or services individual customers are likely to purchase, or to predict the need for and schedule maintenance to minimize lost production time.
5. Speed decision-making
As the pace of change accelerates, organizations must also accelerate decision-making, often with less information at hand than leaders might like. Make pilot programs and beta-test your friends. Planning an organization-wide change? Pilot it in one functional area first. Rolling out a new technology? Try it in one division before bringing others on board. Launching a new product? Start with a soft launch with one target customer segment.
6. Watch the regulatory landscape
Join industry and trade groups. Stay abreast of trends and proposed legislation. Consider how they’ll impact not only your organization but also — this is key — your customers, so you can anticipate where and how to add value. Perhaps your organization not only can respond to change faster but also do some disrupting of its own.
Your customers' needs are changing. The marketplace is changing. Technology and other disruptors are challenging old business models and operations, placing enormous pressure on organizations to pivot — sometimes rapidly. Flexible operations help leaders relieve that pressure. They enable your organization to minimize risk and pursue new opportunities. And, they guide you with agile, focused action toward improved competitiveness, profitability, and growth.