Time For Growth: Get Your 21st Century Operating Model Moving

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1 WIPRO CONSULTING SERVICES Time For Growth: Get Your 21st Century Operating Model Moving

2 As covered by Time For Growth: Get Your 21st Century Operating Model Moving By Chris Rooney No company shrinks to greatness, but thanks to the worst recession since the Great Depression, contraction as a means of survival has been the strategy of many companies.yes, there has been growth in profits, but it's been growth without revenues and there's some $1.7 trillion in cash sitting on the sidelines of U.S. corporations. No wonder global economic growth is still anemic. According to the Wall Street Journal, second quarter profits from S&P 500 companies were 10 percent higher than the same period last year, but revenues were six percent lower. So profits are coming from cost optimization and limitation in capacity.those are prudent moves during a downturn but they don't leave much room for actually growing a company. But we've found that for many companies internal limitations supersede external opportunities. There's just no capacity or focus available to react to the market and there's no agility. That isn't a growth strategy.that's the last vestige of a company in cost optimization mode. Transitioning to a revenue growth agenda means being proactive in addressing your value streams. Well, the Great Recession officially ended in June 2009 and it's past time for companies to re-evaluate their strategies and become a true 21st Century Virtual Organization.The business dynamics in this new century and new decade have changed. Organizations can't simply expect that growth is their due for hard work and cutbacks. Growth has to be strategically cultivated and captured. CEOs know this. Even though they're expressing caution, 93 percent of them want to make changes to their business and almost half, according to a KPMG International study, expect that these changes will have to be major. In other words, they are looking to create a growth agenda. Designing by Purpose Many companies have an operating model that has been designed by circumstances, such as mergers or tactical business unit decisions, rather than by purpose. Basically, a decision or set of decisions was made at some point to address an issue, which led to another series of decisions and before you know it, you have your current, probably flawed, operating model. Companies in this mode are destined to make repeated fixes to the same business issues. Instead, businesses need to target issues within their value stream and design a model that facilitates growth and "fix-it-once" problem solving. But many 1

3 companies have significant barriers to making this kind of change. For a deeper look, we partnered with The Economist Intelligence Unit to conduct a survey of senior executives across Asia, Europe, and the U.S. Among the key findings were: 1. Unrealized value exits for many companies. Only 30 percent said they are focused on the core processes of their operating model, and there is uncertainty about how to address key productivity levers. 2. Legacy assets are a barrier to change, speed, and flexibility. Half of the firms in our survey said they have critical dependencies on physical assets and existing technology that greatly limit their flexibility to respond to changing customer needs. 3. Customer insight and the ability to "sense" unmet needs are sorely lacking. Over 40 percent of companies in our survey said they do not have critical customer insight mechanisms in place, and another 23 percent have only just begun to review their capabilities. ratio growth than their segment. We know from our survey that value exists from productivity, but productivity alone isn't enough. Companies need to ask if their productivity strategies are "designed by purpose" rather than by circumstance. For example, a $100 million investment in new technology may have a near-term potential to increase production, but will it pay for itself and is the decision aligned with an overall operating model? Without clear answers to these and similar questions, today's productivity improvement may well become tomorrow's new problem. The Four Progressive Stages of Executing a 21st Century Operating Model A company can be segmented into hundreds of value streams that define its operating model, such as sales, marketing, product development, technology delivery, and finance. As new business challenges arise, such as the need to reduce costs or launch a new product, these value streams and support processes need adjusting. Note that cash is not an issue here. With corporate cash balances at record highs worldwide, the issue for many companies is uncertainty about how to move forward an uncertainty that is complicated by being locked into an operating model designed by circumstances rooted in the 20th century. Of course, not every company is stuck in uncertainty. Our survey with The Economist Intelligence Unit found that top performing companies are not facing the challenges described above and have what we call a "design by purpose" approach to their operating model. These companies have value streams that are outpacing their peer group with a better sequential performance in free cash flow production, a better return on equity ratio, and better revenue-to-earnings In our work with clients, we have identified the four progressive steps of assessing value streams to create a "designed by purpose" operating model for the 21st Century Virtual Corporation, as illustrated below: "Design by Purpose" - Defining the 21st Century Operating Model Process Design Technology Innovation 1 Asset Evaluation 2 4th Generation Partnering 3 4 2

4 1. Process Design Leveraging Lean Tenets. The first stage consists of using Lean tenets to transform processes, eliminate waste and establish decision controls in all business processes. For example, a leading multi-national bank in the Middle East underwent a two-year process design that included Lean tenets, resulting in a 30 percent reduction in annual operational costs, increased customer business capacity, 65 percent faster customer transaction execution, and improved customer satisfaction - almost all based on process changes rather than capital intensive technology. 2. Technology Innovation. As the search for Lean process efficiencies ends, technology innovation can extend productivity gains. In stage two, we look for opportunities for technology-driven innovation, including Cloud processing, mobility and Web 2.0 tactics such as social networking. A popular U.S. high tech manufacturer shows the advantages of this strategy.they no longer wait for sales results and customer surveys. Instead they perform ondemand analytic reviews through keyword searches to trend customer behavior, insights, and perceptions. 4. Next-Generation Partnering. Next Generation Partnering has replaced traditional outsourcing as a means of helping organizations attain flexibility and maximize innovation. These "win-win" partnerships are based on establishing mutual business outcome-based benefits in which both partners share in success. A concrete example of this approach can be found in the experience of a 75- year-old manufacturing company leveraging an existing process as a new revenue stream. The internal financing organization had developed over the years to drive sales performance. As the economic downturn hit its top-line revenue production, the manufacturer needed a cost evaluation. It recognized that there was a similar manufacturer with similar issues, creating a commercial opportunity for the overall financing process. Following market research, an economically aligned partnership is being defined that solves the original business issue as well as introduces a clear change to the existing operating model. In short, the needed cost reductions caused by revenue compression have created a new potential revenue stream. 3. Asset Evaluation. "Designed by purpose" companies are not held hostage to assets that don't serve a growth agenda. In addition to assessing legacy technology, a complete asset evaluation includes human capital asset optimization as well as physical asset evaluation. A global telecom manufacturer took this approach. Following years of acquisitions focused on new product capabilities and adopting globally integrated product processes, they defined a new strategy for these company assets. With product engineering performed in multiple countries they targeted key capabilities and transitioned their people assets to a partner. The partner leveraged the people assets back to them and also leveraged them in the broader commercial market.the results were an integrated product engineering process and over 20 percent savings in cost of delivery. How does this work in practice? The first step is to define the problem. Why is the company losing top-line revenue? Should process changes be made? Does technology need to be addressed? Are there assets that are no longer required? Can the business achieve its full productivity value alone or will bringing in a partner be more effective? Most importantly, processes need to be examined at the value stream level for example, product development or sales not at the organization level. Fix It and Move On The beauty of this approach is that each stage involves a purpose-driven evaluation, and at each stage value is created and accumulated. Of course, making substantive changes to an 3

5 operating model is complex and can be stressful, so you need the collective will of the organization to succeed. But the benefits are clear. Designing by strategy rather than by circumstance helps companies assess their options strategically and achieve a true 21st Century operating model. While the economic downturn forced many companies to opt for an internal focus on productivity and cost reduction, that's a capacity game, not a growth agenda. Companies simply can't cut their way to profits indefinitely, and certainly not when their competition is making operational adjustments to a growth model. By focusing on value streams through the four progressive stages of execution, companies can fix critical problems once rather than fix them repeatedly and support change with measurable results. Most importantly, the transformation will set the stage for the growth of the company, not just the growth of profits. As the results from our survey with The Economist Intelligence Unit showed, companies that design for growth will find that performance improves substantially and growth is sustainable over time, enabled by a business model that can flex and adapt to changing market demands. Chris Rooney is Managing Partner & Regional Head, North America, at Wipro Consulting Services. He is based in Boston and can be contacted at chris.rooney@wipro.com. 4

6 About Wipro Consulting Services Wipro Consulting Services helps companies solve today's business issues while thinking ahead to future challenges and opportunities. As a business unit of Wipro, one of the world's leading providers of integrated consulting, technology and outsourcing solutions, we bring value to our clients through end-to-end business transformation think, build and operate. Our model for the includes implementing lean process transformation, exploiting new technology, optimizing human capital and physical assets and structuring next generation partnering agreements that create value and win/win business outcomes for our clients. For information visit or wcs.info@wipro.com. About Wipro Technologies Wipro Technologies, the global IT business of Wipro Limited (NYSE:WIT) is a leading Information Technology, Consulting and Outsourcing company, that delivers solutions to enable its clients to do business better. Wipro Technologies delivers winning business outcomes through its deep industry experience and a 360 view of "Business through Technology" helping clients create successful and adaptive businesses. A company recognized globally for its comprehensive portfolio of services, a practitioner's approach to delivering innovation and an organization wide commitment to sustainability. Wipro Technologies has 120,000 employees and clients across 54 countries. For information visit or info@wipro.com. 5

7 DO BUSINESS BETTER NYSE:WIT OVER 120,000 EMPLOYEES 54 COUNTRIES CONSULTING SYSTEM INTEGRATION OUTSOURCING WIPRO TECHNOLOGIES, DODDAKANNELLI, SARJAPUR ROAD, BANGALORE , INDIA TEL: +91 (80) , FAX: +91 (80) info@wipro.com North America South America Canada United Kingdom Germany France Switzerland Poland Austria Sweden Finland Benelux Portugal Romania Japan Philippines Singapore Malaysia Australia Copyright Wipro Consulting Services.