Time to Digitize Business Processes, McKinsey Says: IT First
Consumers have some demanding expectations in the digital realm. Anything less than impeccable customer service isn’t acceptable, and to deliver, companies must re-engineer business processes. Oh, and in case that’s not enough for IT to do, this digitalization needs to start with IT itself, according to a pair of recent reports from McKinsey.
The reports hit our radar because we are fans of knowledge management consultant Bill Ives, a former 3 Questions subject who posted about them on his blog (now semi-retired, Ives’ posts are also juxtaposed with some absolutely scrumptious pictures of his vacation meals in Greece, as well as his own art.)
Spoiled by user experiences on Google and Amazon, people are increasingly demanding enhanced digital access to their records, as well as instantaneous access to the services they’re buying. This increases the pressure on traditional companies and leaves them vulnerable to disruption, according to the first McKinsey report, “Accelerating the digitization of business processes.”
“Customers want to log in to their online electricity account and see a real-time report of their consumption. They expect to buy a phone from their telecommunications provider and have it activated and set up immediately out of the box. They want bank loans to be preapproved or approved in minutes. They expect all service providers to have automated access to all the data they provided earlier and not to ask the same questions over and over again. They wonder why a bank needs their salary slips as proof of income when their money is being deposited directly into the bank every month by their employer,” write Shahar Markovitch and Paul Willmott. “Many traditional organizations can’t meet these expectations.”
Companies struggling to support digitization shouldn’t simply automate their existing processes, Markovitch and Willmott write. Instead, they should consider “cutting the number of steps required, reducing the number of documents, developing automated decision making, and dealing with regulatory and fraud issues.” To improve the new processes, they should also take a look at operating models, organizational structures, and data models to enable better decision making, performance tracking, and the ability to capture customer insights.
Not only does this provide a better customer experience, it can also save companies money, according to the McKinsey report. Businesses can expect to cut costs by up to 90 percent (this seems high) and improve turnaround times by several orders of magnitude, Markovitch and Willmott write. Digitizing processes and incorporating data mining also enables companies to look for problems early, such as issues in the supply chain, they add.
How to do this? Start at the end state and work back. This will make it easier to discard processes along the way. Then look at the process in terms of the end-to-end customer experience.
To do this properly, companies must re-engineer IT itself, according to another McKinsey report, “Reinventing IT to support digitization.” Try setting up a skunkworks operation to handle specific areas, such as web and customer record management, so that those processes can be fixed within 18 months, and then addressing other areas, write Henrik Andersson and Philip Tuddenham. (This process is also known as “ambidextrous organization.”) This new operation—still overseen by the same CIO—needs to have a startup mindset while at the same time having the same level of accountability as the parent IT department.
Traditional companies have a disadvantage compared with “born digital” companies such as Amazon and eBay, Andersson and Tuddenham warn. Like any other potentially disruptable company, they have the albatross of legacy operations to deal with. In addition, born-digital companies see IT as a major component of their success, they write, noting that Amazon invests five times more in IT than traditional retailers do.
The most important component for success is will you get buy-in from the CEO level on down, Andersson and Tuddenham write—and that is the $64,000 question. CIOs can help by developing a roadmap that produces results and value quickly, McKinsey concludes.
