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It’s Time for a New Model for Operations Management

Covid-19 was the death knell for traditional hierarchical command-and-control operations management. In its place a new model has emerged that’s far better equipped to deal with today’s disruptive, volatile, and unpredictable environment. In this model, decision-making responsibility is broadly dispersed to where it makes the most sense, resulting in faster, more accurate decisions in response to changing conditions. This model is built on four pillars — trust, talent, transparency, and technology. Swiss multinational food and drink processing conglomerate Nestlé is an example of a company that has embraced this concept in its factories and, as a result, has built a resilient operational model that has helped the company effectively respond to adverse events and challenges.

Is the traditional command-and-control operations management model — which reigned supreme for decades in an era of relative stability and predictability — finally dead? All the signs we see say it is. In a post-pandemic world characterized by unpredictable supply and demand, companies can no longer consolidate decision-making at the top. Doing so is counter to the kind of agility, flexibility, and speed they need in a world of rapid and chronic disruption and volatility.

While it’s been slowly eroding for years, we saw the command-and-control model’s final unravelling during Covid. Amidst the chaos and volatility of the pandemic disruptions, companies were forced to loosen the decision-making reins. They had to, if they wanted to survive. When basic goods were suddenly flying off the shelves without warning, and supplies of critical raw materials and components were quickly drying up, there simply was no time for operations managers to gather data, analyze it, and then tell the operations teams how to respond. Companies just had to act, with the best information they had, and the right people to make those decisions were those closest to the action.

These shifts presaged the emergence of a new operations management model, in which the goal is to optimize how accurately and quickly operations responds to threats and opportunities by dispersing decision-making to the points in the organization where it makes the most sense for them to be made.

For example, strategic decisions with cross-functional or cross-enterprise implications and long-term impacts — such as allocating capital, relocating a factory, redesigning a product, or entering a new market — are best made by those who can focus on the big picture and broader horizon. Responsibility for more tactical decisions — in sourcing, logistics, manufacturing, and distribution — is driven elsewhere into the organization to the most logical point — i.e., “where the rubber meets the road.”

Social and government organizations call this subsidiarity, which is the principle that social and political issues should be dealt with at the most immediate or local level that is consistent with their resolution. In operations, this means, for example, closest to where raw materials are allocated as inputs, where products are made, and where finished goods are shipped from the factory to the distribution center — points where the most accurate and relevant information needed to make the best decisions resides. Dispersing operations decision-making in this way is key to a company’s ability to respond rapidly and appropriately to disruptions and changes in the business environment.

This is a profound shift for most companies, large or small. Operations leaders who are used to having control must stop trying to micromanage and firefight. They need to loosen the reins and empower others to deviate from the existing plan or targets if conditions have changed. Operators who used to look to their bosses for instructions and direction must get comfortable assuming much greater responsibility and accountability for what happens in the company. With disruptions coming so fast, there’s no time to escalate issues to get guidance on how to react to them. At the same time, operators need to be clear on what decisions they can make for themselves and when and where they should seek support.

Key Enablers to Fuel the Shift

Making this model work requires four vital enablers. Each of these must be in place for leaders and operators to both embrace their new roles and execute at the highest level. The absence of any one of them will make a successful transition impossible.

1. Trust

Trust is the bedrock of this model. Leaders must trust that the people to whom they’re delegating decision-making are capable of making, and will make, the best decisions for the company. At the same time, operators must understand which issues to escalate and how. They must also trust that when they run into trouble, they won’t be on the chopping block for making a bold decision to change plans when the signals told them that it was the right thing to do.

2. Talent

Giving people the freedom to make decisions and act isn’t enough. For people to feel comfortable taking on decision-making, they need skills and capabilities they may not have needed (or had) before. These include analytical thinking, contemporary market intelligence, digital and data expertise, logic and reasoning, and soft skills such as interpersonal communications, and the ability to convincingly defend one’s decisions. Therefore, a robust education and learning effort must accompany decision-making empowerment.

3. Transparency

Leaders need access to information to understand what’s happening in their organization and with their people, while operators need all the relevant data to understand the impact of their decisions and actions. In both cases, clarity on the right metrics, linked to specific outcomes the company desires, is critical.

4. Technology

Technology provides transparency — it enables a company to gather and disseminate the information leaders and operators need to do their jobs well. Additionally, powerful AI tools can provide insights to decision-makers at all levels, acting as a coach or co-pilot and, in some cases, making certain decisions on their own with oversight from humans. And, in a learning setting, technology is critical to helping people build the new skills and capabilities they need to be successful with their new responsibilities.

Nestlé’s Experience with Its Operator-Centric Organization

Trust, talent, transparency, and technology are at the heart of what Nestlé calls the “operator-centric organization,” which focuses on three things: empowerment (giving people the freedom to make decisions and act); engagement (providing the tools, data, and information needed to make good decisions and see the results); and enablement (providing skill- and capability-building so people can appropriately use the information they get to make the right decisions).

In 60 Nestlé factories, operators have iPads through which they can scan a code on a piece of equipment and see all data relating to it, including safety features and performance. They can also control some elements of the equipment from the iPad. This gives operators a true sense of ownership of their equipment, just as a dashboard on a car gives drivers a feeling of being in control of the vehicle. Nestlé also uses the same device to provide skill building, giving operators access to the training and information they need to continually enhance their capabilities. Nestlé plans to deploy this approach throughout its 350 factories globally.

With the operator-centric organization model, Nestlé has effectively created “mission-directed work teams,” a concept introduced by Competitive Dynamics International. These are not truly independent teams, but rather teams that understand the boundaries in which they can make decisions. Operators, for example, are aware of the limits to what they can decide on their own and when they need to refer something to the line manager or team leader. Factory managers know when and where they need to contact the technical manager who is head of all the factories in a specific geography.

For the operator-centric model at Nestlé to work, everyone also must embrace the same culture and values within the factory. Of course, the social and emotional culture of each factory’s country or region may differ because Nestlé has factories around the world. But it’s important for the company’s people to understand that when they enter the factory, the same business culture and values are present in every facility — whether it’s in South Africa, Malaysia, or Switzerland. In this way, that factory still benefits from Nestlé’s values of transparency and honesty without forcing employees to do things that are inconsistent with how they behave normally in their day-to-day lives.

Building Next-Generation Operations Management for a New World

The environment in which companies operate has clearly changed — and that has put the final nail in the coffin of command-and-control operations management. With companies needing to be quicker not only to react, but to anticipate, it’s time for a new operational model—built on trust, talent, transparency, and technology — that can enable them to accelerate decision-making, respond more effectively to disruptions and unforeseen events, and continue to be regenerative by organically adjusting and reinventing themselves as the world around them evolves.

The authors would like to thank Markus Vejvar for his valuable contributions to this article.

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