Cinderella to Spotlight: The Critical Role of Operations
What it is, what it does and why it's more than just a cost centre
Introduction
Once upon a time, a girl named Cinderella lived with her stepmother and two stepsisters. Poor Cinderella had to work hard all day long so the others could rest. It was she who had to wake up each morning when it was still dark and cold to start the fire. It was she who cooked the meals. It was she who kept the fire going. The poor girl could not stay clean, from all the ashes and cinders by the fire…’
Welcome to Operations, the Cinderella of the organisationl.
Operations are often taken for granted but they are the lifeblood of a company. Doing them well e.g. Amazon can create a huge competitive advantage. Do them badly and watch your company’s profits decline. Mess it up completely and watch your company go out of business.
What Is Operations
We can define Operations as the activities and processes that are essential to meet customer demands and internal processes effectively. These vary according to the type of business but typically include
Production process or product sourcing
Customer sales through the different sales channels e.g. online, retail, distributors
Marketing operations e.g. CRM, data analytics
Order fulfilment and logistics i.e. receiving orders and sending them out to customers on time
Billing
Back Office and Servicing Functions for dealing with customers e.g. technical service, customer service
Complaint handling
Debt collection
HR and Finance
IT support
What Does Good Look Like?
A high-performing operations function has common key features namely
Strategic Alignment with the overall business strategy. It supports and enables the achievement of the organisation's goals and objectives
Clear goals and key performance indicators (KPIs) to track performance and progress e.g. on-time delivery, and customer satisfaction
Efficient processes e.g. includes streamlined workflows, standardised procedures
A commitment to quality control and continuous improvement
Technology Integration and automation where possible
Skilled Workforce with customer focus and effective communication
Effective Supply Chain Management i.e. managing suppliers, inventory, logistics, and distribution to minimise costs and optimise efficiency
Identifying and mitigating risks that could impact operations e.g. supply chain disruptions
Scalability i.e. capable of scaling up or down to meet changing business needs. This is especially important in industries with seasonality or rapid growth
Sustainability i.e. considering the environmental and social impacts of their operations
Where Does It All Go Wrong?
Clearly, if we take the reverse of the above, we’ll get most of our answers. However, there are a few situations I see that can create major problems, and this is where we can link it to the SOCCER framework.
The first is the lack of a Target Operating Model (TOM) that fits the strategy. As a business grows and takes on more customers and channels to market, the operations need to scale and adapt to that challenge. A TOM sets out the roadmap of the operations needed at a particular level of business and how the operations function will get there.
In one of the businesses I worked in, this involved deciding where particular tasks would be carried out, how to move work around the organisation, the size and structure of teams and a modular approach to adding on new capacity as volumes grew. This then set the direction for the Ops team over the next year to deliver it.
Another problem is that, as the volume of customers grows, the profile of customers changes. Early adopters tend to be ‘good’ customers because they understand and love the product. They pay on time etc. As volumes grow, that profile changes. Late adopters may not understand the product fully, need more technical support and maybe don’t pay on time.
A large media company I worked on had an aggressive growth strategy. They would sell to anyone, leading to a small % but large number of customers that had used the service for a year but hadn’t paid a penny. When they were finally ‘thrown out’, a ‘Win back’ team would ring them up to try to get them to come back!
However, if you looked at the billing engine, some of the letters were so opaque that they didn’t spell out that the customers owed the company money! Needless to say that this needed fixing. The lesson is that scaling up is not just adding more capacity but adapting to changing customer needs and behaviours.
Multichannel sales and customer service functions cause similar problems. Unless the channels are integrated, customers experience huge frustration when things don’t work and then switch channels in order to get their problem resolved. Call centre volumes increase and complaints take much longer to resolve. Complaints are bad in themselves but poor complaint handling and other exception processes e.g. bereavement can create huge negative publicity for organisations.
Lack of change capability is a huge problem for existing businesses. Symptoms of this are known problems with documented workarounds, overly complex systems stacks and point solutions. At one relatively small organisation I worked with, there were 13 different systems for document storage (not including people's personal hard drives)!
A lack of change capability also makes the organisation less resilient.The firms that benefited hugely during COVID were those with the change capability to satisfy the step change in demand for online activity e.g. Amazon and Zoom.
Cinderella Reimagined
Like Cinderella, Operations does the heavy lifting but never goes to the ball and there’s rarely a fairy godmother. It tends to attract attention within the organisation only when things go wrong. It is often viewed as a cost centre in the context of ‘cost of sales’ in the accounts.
There’s no doubt cost is important and usually operations are the biggest cost in the business. The problem with this approach is that this often puts it at odds with the organisational strategy. It’s better to view it as the enabler for revenue generation and organisational success. In some industries, it can also become a differentiating reason to buy.
Building and running a successful operations function takes significant effort and change capability. Next time we’ll look at how change capability affects the organisation.