by Brad Householder, principal at PwC and Rodger Howell, principal at PwC’s Strategy&
Today’s leading companies are reimagining their operations to create customer experiences that competitors can’t copy. These companies tightly align operations to business strategy while continuing to drive profitability and growth.
PwC’s 2015 Global Operations survey reveals that companies that align operations with business strategy are more confident on every scorecard measure: achieving revenue and cost targets; adapting to change; driving strategy; and providing a distinctive customer experience. But many companies are in fact not well aligned: 62% of respondents say they do not fund operations projects based on the strategic goals of the business.
In a digital economy, where customers expect a seamless, connected experience, the functional silos of the past are no longer effective. For companies that wish to outpace their competitors, strong cross-functional support of strategic objectives is essential.
A few guiding principles can help businesses create and maintain this alignment:
Know what your customers value. Keeping pace with customers is difficult. The survey indicates that 65% of operations leaders say that understanding what customers value is already a challenge. Functions are often disconnected in terms of where they think the business should should focus. This leads to a fragmented approach as the business tries to do too much, only to excel at nothing.
Executives need to identify—and agree on—what customers value in context of what the business does well. When senior management agrees on focus, they can build differentiated capabilities to position the business for sustainable competitive advantage.
For example, a large building materials business lost nearly 50% of business demand in the housing recession. Even after the rebound, the market was estimated to remain 20% below peak. Executives worked together to understand what their customers valued, identifying strong interest in a more customer-friendly experience—an area they could deliver on in ways competitors could not. The team redefined the company’s capabilities to align to customer needs, and cost-effectively offered more shipment options with shorter lead times and flawless reliability. As a result, the business was able to create a distinctive market niche, drive market share, and forestall price erosion.
Collaborate, collaborate, collaborate: Nearly three out of five survey respondents say that collaborating more across functions, paired with faster decision making, has the greatest potential to help businesses achieve their strategic goals. Yet 55% still work in silos, with each function making its own decisions about which capabilities matter most. While collaboration in and of itself is not new, it is no longer a “nice thing to do”– rather it’s an operational imperative.
By aligning around processes, policies, tools, metrics, and ways of working, it becomes possible to blueprint and build needed capabilities across the enterprise. Savvy organizations are taking notice. Noted Chief Operating Officer of Jabil Circuit, one of the world’s largest manufacturing solutions providers, “More and more we are thinking about our organization not as discrete independent functional silos, but as a very, very connected ecosystem.”
Measure and reward: Future cross-functional collaboration will entail more than functions simply communicating and “playing nice” together. Effective collaboration will require more fundamental alignment around the definition of winning performance and how it will be achieved and rewarded. Metrics that reflect the objectives of the business strategy require the highest priority. For example, the building materials business established a broader definition of “perfect order fulfillment” based on customer-segment specific business rules and service expectations.
In today’s digital economy, aligning operations to strategy starts with a better understanding of changing customer needs and ends with exceptional execution of the capabilities most critical to delivering on those needs. Achieving such alignment is not easy, but the payoff can be substantial.