Digital, lean and flexible – a blueprint for support functions enabling competitiveness and profitability
The economic repercussions of the Corona crisis are not only putting pressure on companies to move to more flexible processes and cost structures. In addition to reduced economic activity and higher uncertainty in the global supply chain, the foundations of corporate work are also fundamentally changing in fast motion: remote work, agile teams, digital self-services, process automation are just a few exemplary signs of a sea change. To adjust to this new normal and protect their profit and health, companies need to re-invent their business support functions, making them more digital, lean, and flexible.
How the Corona crisis fundamentally changes corporate work
The COVID-19 pandemic and subsequent lockdowns and containment measures are bringing along an economic crisis of so far unprecedented proportions. According to the European Commission, the European GDP is projected to contract in 2020 by -8.7%, which is a more severe impact than the 2009 financial crisis. Significant economic consequences have emerged and are deteriorating the business outlook, and still more ripple effects are expected this year as companies aim to transition back towards pre-crisis levels.
But what we experience today might be much more than a dent in the economic growth trajectory. There are signs that we see a fundamental change in corporate work, culture, and processes which massively accelerates several transformational trends.
- Digital: as remote work becomes standard and strategic, employees are building every day new capabilities in digital collaboration. Strong ability and fluency in tools like Zoom, Microsoft Teams, Slack, Miro or many others is becoming a standard requirement for employees across industries. For many, this comes very natural given their broad experience with digital technologies as private consumers.
- Lean: through technologies like artificial intelligence (AI), robotic process automation (RPA), and process mining, the change of key support function processes towards automation and self-service is picking up speed. Overheads not directly linked with business transactions and value are increasingly challenged.
- Flexible: enabled by virtual collaboration spaces overcoming previous barriers and silos, collaboration in flexible, agile teams across department boundaries becomes more and more natural and easy. Having started in areas like software development, agile working is changing culture and processes in more and more corporate functions.
Why business support functions are over proportionally impacted
Many companies have responded fast in the crisis by cutting discretionary spend like travel, training, marketing & events, and quickly adjusting direct cost (e.g. direct materials, production labor) to the new level of activity. As the full extent and impact of the crisis becomes more visible, now is also the time to review and re-design business support functions and processes along the value chain (like procurement, production support, and customer service) as well as in the general & administrative (G&A) category (like finance, strategy, HR and IT), as shown on Exhibit 1.
Support functions are not only over proportionally impacted by the current crisis and structural changes, such as the shift to remote work and digitization. While core operational functions have been optimized over decades by approaches like lean and six sigma, business support functions have been somewhat neglected, and seen less focus on systematic performance measurement, benchmarking, and productivity. The bottom-line impact of business support functions is highly significant though. Depending on the industry, they account for 10-15 % of the total company cost, or 50-100% of EBT, thus being a key lever to support company cost competitiveness and profitability. Beyond cost, state-of-the-art business support functions are also critical to achieve better qualitative business outcomes such as higher customer and employee satisfaction, better organizational skills and flexibility.
A comprehensive approach to re-design of business support functions
How can companies unleash the full potential of business support functions for cost competitiveness as well as for business strategy and growth? Based on our project experience and the latest trends in organizational design as well as digital technology, companies need to take a holistic approach along four dimensions to re-invent support functions for the new normal:
- adaptive organizational design
- efficient and flexible process management
- digitization and data-driven optimization
- performance management and benchmarking
Adaptive organizational design. A more volatile and disruptive external environment requires also a change in organizational design, moving from deterministic planning and hierarchy to agile and adaptive organizations. Take for instance the focus on agile, self-governing teams which not only empower front-line staff, but also help to reduce control processes and organizational layers. This also impacts business support functions: while in functions like IT and engineering agile methodologies are since long widespread, more and more elements of agile work are also included in more traditional G&A areas like HR and Finance. From our experience, this translates into support functions with a built-in awareness and flexibility to deal with uncertainty, and a shift away from administrative work to identifying and pursuing new drivers for business value. In addition, leading companies move away from functional silos and build their organization on teams aligned with end-to-end processes and accountability. An example here is the trend to overcome silos in supply chain planning and move to an integrated supply chain planning function spanning across procurement and production to the markets.
Efficient and flexible process management. A new approach to process management is at the core of re-inventing business support functions for the new normal. As a start, companies need to bring an “industrial” mindset to support processes and focus on standardization and modularization of services as opposed to working on an individual case basis. This should be underpinned by a clear segmentation of different service and interaction models, e.g. by differentiating HR service transactions between employee self-service (100% digital) for standard and repeatable transactions, front-office support for simple requests, and subject matter expert support for complex, individual requests. By using such an approach with discipline, companies can already make significant improvements in service quality and productivity of support functions. In addition, a process-by-process redesign can bring additional improvements in productivity and speed, for example by minimizing redundancies and multiple touchpoints. Also, a strength-based task-allocation to responsibles can yield major benefits, e.g. through making effective use of experts and shared service resources alike.
Digitization and data-driven optimization. Digitization and analytics have just started to transform business support functions, and the portfolio of technological instruments has evolved far ahead of actual adoption in companies’ business processes. Companies need to holistically approach digitization of support functions along a full continuum of measures: Firstly, existing robotics process automation (RPA) technology should be fully leveraged to bridge the remaining system break-points in end-to-end processes. While RPA is already broadly used in areas of repeatable standard tasks such as invoice & claims processing, we see it also more and more expanding to other areas such as report generation and customer service support. Secondly, companies should make use of virtual agents to make the insights of big data and analytics real-time available to users as they run the process. Examples are chatbots to support users in the process of manual enrichment of forecasts or in the maintenance of new records for master data. Thirdly, the combination of automation and AI (RPA 2.0) opens up new applications of automation in less standardized tasks such as decisions, reviews and approvals. Examples are AI-based enrichment and cleaning of master data based on rule-mining, automating queries in planning processes based on natural language processing (NLP), or seamless integration of data-driven optimization results in legacy transaction systems. Last but not least, process mining technology allows for a continuous monitoring of the efficiency and effectiveness of support processes, enabling companies to move to a continuous process optimization.
Performance management and benchmarking. Support functions have long been treated as “overhead” and fixed cost not directly linked with business output and outcomes. Key pillar of adapting to the new normal is establishing a strong performance culture in support functions, which challenges any cost or activity based on its value for the business. No support activity should be seen as a given, but earn its license to operate based on clearly measurable business benefits. This of course needs more of an “industrial” mindset and a different level of performance transparency in support functions: not only for cost and productivity metrics (like e.g., cost per recruited employee in HR, or cost per order/ invoice in Purchase-to-Pay), but also for business enablement (like for example impacts on customer and employee satisfaction metrics). To truly optimize value for money in business support functions, cost transparency needs to be much more granular, and move from cost center/ cost category level to a deep understanding of effort-drivers and transaction volumes for key activities or transactions. Based on such a granular approach, companies should leverage internal and external benchmarking on an ongoing basis to set realistic aspirations for improvement.
Prerequisites for change
Transforming business support functions is like a surgery on the heart of the company, with significant repercussions for company culture, governance, and processes. Therefore, it needs to be approached like a change journey which combines broad engagement of employees with strong management ownership. Based on our experience, we highlight five key prerequisites for success:
- From administration to value creation: build the transformation journey on a clear change story and vision towards improved support functions, with a clearer and more recognized value for the business.
- Establish a strong performance culture: promote a more performance-driven culture in the respective departments, by continuous measurement and performance dialogue, benchmarking and target-setting, and celebrating achievements.
- Overcome inward-orientation: avoid getting trapped in the as-is and use inspiration from other companies, outsourcing providers, and technology providers to envision the support functions of the future.
- Take a zero-based approach: do not anchor on past budgets and structures and take a zero-based approach. Design the modular services and cost structures strictly starting from customer and business needs, challenging any processes and services which can be omitted or simplified.
- Lead by example: start with the C-Level and functional leadership in the respective support functions. Strong management team alignment, role modeling and leadership in the engagement of the entire team is essential for success.
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