Article

KICKING THE CAN AND OPERATING MODEL COMPLEXITY

By Steve Discher
Executive Vice President

Most of us saw it coming: massive restructuring as the U.S. Postal Service recently announced that it will close one in ten of its 32,000 offices. Efforts are under way to evaluate selling major operating locations across the United States, a move expected to save over $3 billion annually. Route limitations, no more Saturday delivery, massive layoffs … the list goes on. Electronic mail, the internet, competition, and rising costs are all pointing one of our country’s oldest and largest institutions in one direction—reinvent your operating model and dramatically reduce costs, or risk extinction. You eventually reach a point in your business where leaders can no longer kick the proverbial can down the road for the next guy to deal with your operating model complexity.

While not as dire as the U.S. Postal Service’s situation, many in the financial services industry are likewise facing increased complexity in the business and operating model. Some have acquired businesses, most have added new products or channels, and all are dealing with higher expectations from customers for better service and accessibility. These all add complexity to the operation and present opportunities to balance the cost versus the value of complexity.

Why is complexity in the operating model bad? Those who can’t grow the top or bottom line show the most acute symptoms, such as:

The solutions are never simple. Complexity didn’t just sneak up on your business overnight. It’s been years of doing the right things but often with inadequate focus on combating complexity while you grow.

So what are we all doing about it? Do we understand the value of customization compared to the cost of complexity? Every product and service we add to our business has some mix of value and cost. Reviewing the portfolio in aggregate and at the specific product/service/ segment levels can help determine where we are creating value and where we are wasting time, effort, and money.

The companies getting their arms around the issue have enterprise-wide plans to address these profit generators versus detractors. Examples include a clear understanding of the future operating model, enterprise-wide product development cycles, clear accountability for product/channel/segment development and profitability, process and segment control, and alignment of measure, culture, and behaviors.

So where does your business fall in the mix? Our experience suggests that companies generally fit into one of three categories:

1. First, companies that don’t see it as a problem. They continue to concentrate on top-line growth and defer action, leaving it to the next generation of leaders to address long-term complexity and cost issues.
2. Second, companies which have grown and are now trying to drive out complexity while growing the top line. The vast majority of companies fall into this category; they layer businesses and services into their operating model but only occasionally step back and review the overall operating model.
3. Companies that would be considered best practice. They think through the issues of complexity before adding to their operating model. Their specific processes, programs, and behaviors put a strong filter on complexity.

The trend of increased complexity will continue, with new brands, changing customer segments, more demand for personalized customer service, and, of course, new products. Regardless of how you cut it, dealing with complexity is an endless duty.