ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Operations was rarely a high-profile organizational function until the COVID-19 pandemic thrust it—and the role of chief operating officers—into the limelight. In a business environment that demands agility and resilience, how a company executes its strategies is critical to its success. This week, we explore the state of operations today and how logistics and supply chain executives can prepare for the tough challenges ahead by better prioritizing operations efforts and investments.

AN IDEA

Patience pays off

The business environment may have been far different in 2001 when author Jim Collins published his management bestseller Good to Great: Why Some Companies Make the Leap ... and Others Don’t. Yet a basic principle set forth in the book endures more than two decades later: performance improvement depends not on quick fixes but on consistent and committed strategies for growth. Our latest research on operational excellence shows that even in today’s uncertain business conditions, organizations go from good to great by sticking to fundamental principles, such as defining a purpose, establishing behaviors to achieve their strategic vision, and using technology to augment human capabilities. But the process takes time. “Operational excellence is not something that leaders can whip up in time for the next quarterly report,” note McKinsey senior partner Richard Sellschop and colleagues. “If leaders take shortcuts and decide that ‘the tools alone will get us where we need to go,’ the impact will likely evaporate in months.”

A BIG NUMBER

25

That’s the average percentage of industrial companies’ capital spending that will go toward automated systems over the next five years, according to the results of the 2022 McKinsey Global Industrial Robotics Survey. The logistics and fulfillment sector may allocate 30 percent or more of its capital expenditures to automation, the highest share of all the industrial segments surveyed. Yet “many companies are struggling to translate their intentions for robotics and automation into actions, with challenges related to knowledge and return on investment being particularly difficult hurdles,” observe McKinsey partner Emily Shao and coauthors. “Vendors should be able to offer solutions that are cost-efficient, rapidly deployed, reliable, safe, and scalable.”

A QUOTE

“Optimizing indirect operations offers a level of resilience that could make a big difference to a company’s success.”

That’s McKinsey senior partner Nicolai Müller and colleagues on how an often-overlooked part of operations could, if transformed, help develop an organization’s competitive edge. Indirect operations such as engineering, maintenance, and quality management can be difficult to measure in a standardized way, but our research into more than 1,000 plants over the past five years has identified certain benchmarking practices that may help quantify indirect operations’ potential for improved performance. For example, decreasing the number of work packages, reports, and meetings can improve efficiency by 5 to 15 percent. Using such strategies, “it is not uncommon to identify and unlock a 15 to 25 percent optimization potential in indirect functions, which can translate to a sizeable impact on the bottom line,” suggest the McKinsey experts.

A SPOTLIGHT INTERVIEW

“This has been a unique time where operations and supply chains have moved into the boardroom, and I think that’s a really good thing,” says McKinsey senior partner Daniel Swan in a podcast on the operations landscape in 2024. “It’s especially good for companies to have more boards and CEOs thinking about supply chains and operations every day.” Meeting sustainability demands, strengthening supply chain resilience, and delivering on large capital projects may be among the urgent pressures that operations leaders will face, notes Swan. McKinsey senior partner Axel Karlsson adds that generative AI may be a game changer for operations: “We are expecting a new S-curve driven by generative AI. I think the shift will be almost as big as when the computer hit the desk in the office. It will be a big new revolution.”

— Edited by Rama Ramaswami, senior editor, New York

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