BUSINESS PROCESSES Soaring Out of the Process Silo By Robert Hoyle Brown The Center for the Future of Work The Work Ahead is a research series providing insight and guidance on how businesses – and jobs – will evolve in the digital economy. By digitizing the processes at the heart of their companies, business leaders can turbo-charge operational efficiency and propel massive revenue growth and cost savings. In this installment, we provide data-based insights and tactical advice on applying new digital technologies to front-, middle- and back-office work processes to realize new levels of business performance. 2 THE WORK AHEAD | BUSINESS PROCESSES THE WORK AHEAD IN DIGITIZING BUSINESS PROCESSES Digital technologies often make life more convenient. Apps help us summon a car, pay for our lattes and even order ready-to-eat meals delivered to our doorstep. Experiences like these with our smartphones or smartwatches are fun, but let’s be honest: In the grand scheme of things, many of them are somewhat trivial. Nonetheless, they are daily reminders of the apropos phrase, “Software is eating the world.” 1 What is less appreciated is the impact of “being digital” on back-office systems, applications and processes that are at the heart of most big businesses – processes that drive work that matters today and tomorrow. This includes everything from processing insurance claims, to caring for patients, to growing personal wealth. If you’re a chief operations executive, that means software is also eating your processes – with the hors-d’oeuvres soon to be served up in unseen, expensive and undifferentiated middle- and back-office functions. Because in a digital world of algorithms, automation and AI, the platform becomes the process. For many business leaders, digital platforms will increasingly serve as a potent fuel that launches processes out of their silos – and businesses into orbit – by digitizing small steps and closing gaps between customers, suppliers, partners and employees. Organizations whose processes are left lingering on the launch pad risk irrelevance. 3 Your work ahead – your ticket to the digital economy – is connecting “old” processes to new technologies. To understand what the future holds for the digitization of business processes, we surveyed 2,000 senior executives across industries and an additional 250 middle managers. Six key findings substantiate the critical lessons learned in their journeys so far: Digital is a two-stage, cost-plus-revenue rocket ride Software is eating processes. But that’s OK! In every to outsized business process success. The average functional area – such as HR and finance in the back impact of cost reduction plus revenue increase on all office, R&D in the middle office, and sales on the front core processes across the board – resulting from lines with customers – “the platform is becoming the investments in digital – was about 4.6% in the last 12 process,” and is linking customers, partners, suppliers months, according to respondents. In dollar terms, and employees for greater digital impact. that equates to $364 billion in 2015. By 2018, respondents said the potential baseline revenue impact grows to a total of $770 billion. IT is universally seen as the function pushing digitized processes forward. The information services and technology function was rated as the Digital process leaders are unlocking additional leading business area by senior executives and digital potential energy at both the top and bottom managers alike for positively affecting cost and lines. Leaders in process digitization are pushing revenue today and in the foreseeable future. the envelope way beyond the averages above, unlocking outsized gains by digitally rewiring all their core processes. Such companies say an 11% additional improvement to the top and bottom lines is possible today, and will grow another 19% by 2018. That’s a potential “Process Leader’s Bonus” of $700 million per company by 2018 across all the industries surveyed. The importance of analytics to develop insights and meaning-making is immense. Senior executives aligned with process functions foresee a 23% surge in the need for analytical skills by 2020. Managers are from Mars; senior executives are from Our Work Ahead research illuminates the fact that Venus. Senior executives are more optimistic about most businesses will invest more in all manner of process vision and execution than middle managers processes to drive savings, unlock new potential, break are. Only 22% of middle managers foresee a down hierarchical silos and – quickly – fuel the engines positive impact on revenue from digital processes of the business. By doing so, they will achieve escape by 2018, compared with 39% of senior executives. velocity from “the way we’ve always done it” and soar into the heights of the work ahead to drive meaningful and lasting change. 4 THE WORK AHEAD | BUSINESS PROCESSES THE PLATFORM BECOMES THE PROCESS The Right Stuff to Converge Middle- and Back-Office Processes Like individual missiles stuffed in underground launch silos, processes (and their data) are disjointed. The advent of ERP systems 25 years ago was all about connecting “islands of information.” By applying new digital approaches to inchoate processes, however, it appears that this time, the alignment is for real (and better late than never). In the next era, armed with new and powerful levers to drive real process change, there will be nowhere to hide in dark corners of the back office anymore. Now, operational heads, chief analytics officers, CEOs, shared-services leads and process owners must all confront the surly legacy of those rigid, “as-is” processes from yesteryear. It’s easy for CEOs and senior executives to proclaim that “legacy is poison”; the hard part is jettisoning old ways of doing business. 5 There is much low-hanging process It is simply the prologue of what’s fruit that could benefi t – in weeks to come: a true ignition sequence and months – from the application of innovation, creativity and the of new digital technologies. One upgrading of every aspect of example is robotic process process-aligned work. Middle- and automation (RPA) software, which back-offi ce functions will move to makes both people and businesses the front offi ce as all processes smarter by automating rote work. evolve into cost-reduction and Another example is standardized revenue-generation machines. process platforms, which are increasingly being sourced via To accomplish this, businesses utility-style business process as a need to take the time to really service (BPaaS) models. BPaaS is observe customers, their changing the game by delivering motivations, pain points, outcomes that are no longer tied frustrations and experiences with to the number of people “doing the their company’s products and process.” services, and what this means to customers in their lives. For digital As our research shows, this delivery processes to really change an model means reduced costs and organization – to be more than just greater revenues for the business. this year’s lipstick on last year’s pig With digital approaches, platforms – companies need to digitally become the process – and elevate connect processes across the full them into a massive cash machine, expanse of workfl ows in ways that not a cash-eating black hole. create vastly more humanized transactions and experiences, What we’ve seen of “all-things- catalyzed by new digital approaches digital” in the last few years will (see Figure 1, next page). render yesterday’s silos obsolete. 6 THE WORK AHEAD | BUSINESS PROCESSES Figure 01: New Process Operating Models for a Digital Age New Process Operating Models for a Digital Age WhetherNew Processit’s social, mobile,Operating chatbots, Models voice recognition, for a Digital or even Age good old-fashioned face-to-face conversations,Whether it's social, customer-facing mobile, chatbots, voice functions recognition, need or aeven seamless good old-fashioned combination face-to-face of all conversations, digital channels. customer-facing It’sfunctions imperative need athat seamless automated combination and of ALLstandardized digital channels. middle- It’s imperative and back-offi that automated ce processes and standardized and platforms middle and back office processes and platforms undergird and align to put the focus back on the customer — not the process. undergird and align to put the focus back on the customer — not the process. The Digital Front Office Channel-agnostic Customers Interactive, Insightful and Instant Adaptive Middle Office Platform-driven, agile, technology-based Imaginitive and Intelligent Mechanized Back Office Shared services, embedded technology, intelligent automation Industrialized automation Source: Cognizant Center for the Future of Work, 2016 Figure 1 Source: Cognizant Center for the Future of Work 7 COST REDUCTION = FUEL. DIGITAL REVENUE = THRUST. Most senior executives see the future potential of digital as a two-stage booster rocket, and many believe its ability to drive revenue is nearly twice as strong as its ability to reduce costs. This isn’t “cosmic theory” – if you’re a senior process executive and not adapting fast enough, your organization could be marginalized. Why? Because digitally-infused processes cut costs and create fuel for investment – and revenue is the mechanism that accelerates forward motion for the company. In 2015, the average baseline impact of digital investments on cost reduction plus revenue increase on all core processes across the board was $364 billion, or about 4.6% of total revenue (see Figure 2, next page). But looking ahead, the size of the opportunity really comes into view. By 2018, surveyed executives believe digital’s potential baseline impact will more than double to 11.4% of total revenue, or $770 billion per year. That’s a total economic impact over the next two years of about $2.3 trillion across all the companies studied by driving digital process change. That’s big money. But we think that may be a dramatic underestimate of the process-level impact of digital.