Today’s predominant trend among many major companies is a major pivot towards AI technologies or skills. Thomson Reuters recently announced it would pay $650 million for legal AI assistant Casetext. PwC US recently announced its intent to invest $1 billion over three years in AI projects and training for employees. IBM has paused hiring for back-office types of roles, such as human resources, and increased spending in AI technologies.
Evolving your company’s products or business operation to an AI powered strategy is common today, even if these changes are drastic and somewhat painful. These types of adjustments can be massive jolts and need to be undertaken episodically to maintain competitive advantage.
The question to ask is whether there’s an operating model by which companies can pursue a smoother path to competitive advantage. The answer: there is — especially as it applies to transforming business processes, which is an area that tends to be much more within the company’s control. We call it Dynamic Process Transformation.
Why undertake Dynamic Process Transformation?
In the digital world of today, sustained competitive advantage comes from having both superior products and superior business operations. Amazon.com would be less enviable if it had only its great online marketplace alone, without its superb supply chain operations. And yet, competitive business process operations tend to be the ugly stepchild to the more sexy product-focused work of companies.
The upshot is that business operations grow complex, rigid, and siloed with time. That’s the unfortunate reality for most organizations today. Business processes of every company — in product development, production, manufacturing, sales, finance, information technology, human resources, and so on — quickly become obsolete due to ongoing changes in the marketplace, technology, or capabilities. That sets up a dangerous sequence of events, as follows:
– One-off transformation programs are kick-started to reengineer, standardize, or automate processes. However, these rely on having the right prime mover to sense and sponsor this change.
– Business transformation programs, even if initiated, fail to deliver 70 percent of the time.
– If an economic crisis, industry disruption, or global crisis occurs (such as the COVID pandemic), the company is caught flat-footed amidst competitors who’ve already evolved their operations.
Sound familiar? It should, because this occurs in all types of organizations — big multinationals, small- and medium-sized enterprises, government agencies, and nonprofits. It reflects the long-established business rule that “organizations are organisms,” to which Darwin’s Origin of Species theory applies. Darwin theorized: “It is not the most intellectual of the species that survives, but the one that is able best to adapt and adjust to the changing environment in which it finds itself.”
Our task, therefore, as leaders is to prepare for “survival of the fittest,” not just by being episodically fit via periodic transformation programs, but by being continuously fit via Dynamic Process Transformation.
How should we approach Dynamic Process Transformation?
To foster lasting evolution in internal operations, we need a mechanism to prevent business processes from becoming obsolete in the first place. We need a dynamic, living model for constant process evolution and optimization. We must get to the root causes of the recurring obsolescence of business processes. There are three sources of obsolescence, and thus three drivers of dynamic process transformation.
First, functional operations in most organizations are designed to operate as a monopoly. Even the best business process design can become stale if it doesn’t constantly compare itself with the most disruptive new ideas across companies — and more importantly, across industries.
Second, functional business processes evolve historically to be run and optimized within their silos. While that is completely natural, it leads to suboptimization at the holistic end-to-end level.
And finally, until recently, the methodology for constant reoptimization of business operations across back-office functions — such as finance, human resources and supply chain — had not existed. Again, this is an evolutionary stage, i.e., you can’t optimize across business processes and functions if the underlying siloes themselves aren’t organized sufficiently. This has led to episodic business transformation.
These three root causes of obsolescence are important to note, because these are also the three drivers of Dynamic Process Transformation.
Drivers of Dynamic Process Transformation
Adaptable companies have specific qualities that result in dynamic business processes. Based on research into root causes of process obsolescence, a study of the differences between market leaders and laggards during economic crises and our collective seven decades of experience in running Fortune 20 operations, we’ve crystallized them into three distinctive drivers of dynamic business processes. These are: Open Market Rules, Unified Accountability, and Dynamic Operating Engine.
1. Open Market Rules: Leaders of dynamic process operations use well-established and accepted Open Market Rules of operations in contrast to traditional functional mindsets. Deliver functional operations to employees as if you had to compete for their business. For instance, a consumer-centric company like Apple builds trust with its customers by being in touch with their needs, by constantly evolving product offerings, by being transparent about its products, and by effectively pulling the customers into their offerings. Similarly, dynamic process leaders will be mindful to blend the minimally mandated “push” of legal, ethical, and corporate standards with the open market forces arising from employees, competitors, technology capabilities, and external benchmarks.
2. Unified Accountability: The historically siloed functional evolution of business operations also leads to unclear accountability of end-to-end process outcomes. To be clear, functional organizations within the company play vital performance, efficiency, and compliance roles. You do want finance to strictly manage capital investments and supply chain to ensure high delivery service levels. The challenge is to assign single accountability for outcomes that must cross functional silos. That’s where the principle of Unified Accountability comes in. You might design an end-to-end process to streamline the process of sales orders all the way to collecting cash for them. However, if there isn’t one single accountable person who can speak for the constituent functions of sales and finance in this example, you have a problem.
3. Dynamic Operating Engine: The two drivers above must be complemented with a methodology that systemically implements these behaviors in the organization. We need a methodology that converts the constantly changing business process goals into consistent and repeatable day-to-day employee actions. This is what we refer to as the Dynamic Operating Engine.
What you can do to establish Dynamic Process Transformation
Here are four tips that you could use immediately to get moving towards Dynamic Process Transformation.
1 – Set the vision of business operations becoming a competitive advantage. Get away from the mindset that business operations are the cost of running a business. It needs to be seen as an equal opportunity to deliver competitive advantage.
2 – Set measurable maturity improvement goals. You need to numerically measure your current state of business process maturity and set the goal of getting to a higher stage within the next few years.
3 – Create strategies to make progress on the three drivers of dynamic business transformation.
4 – Translate your strategies into initiatives that change either organization structures, processes, rewards, or information systems.
Avoiding the Darwinian rules of the marketplace may not be a choice for companies. But creating strategies to adapt and adjust to the changing environment is a very doable option.