Like individual missiles stuffed in underground launch silos, processes (and their data) are disjointed. But our new research from the Cognizant Center for the Future of Work reveals that 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.
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.
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. By relentlessly driving digital change across all processes, leaders can unlock nearly an additional 19% increase in combined cost and revenue gains. Now take your protein pills and put your helmet on.
3... 2... 1... Liftoff! Simultaneous Step-Changes Could Fuel Additional Top- and Bottom-Line Gains
In our study, we classified digital “leaders” as companies that are using digital technologies in ways that have significant impact on their businesses, both on increasing revenues and reducing costs. They are also ahead of their competitors and peers in applying digital to transform their businesses. Executives at such companies – specifically those whose organizations have seen large or very large digital impact – are already unlocking much more value from their efforts. They’re doing this by transforming all of their core processes digitally, gaining a potential Process Leader’s Bonus of an 11% additional improvement in their top and bottom lines today.
Unconvinced? Think these are small percentages that won’t affect you? Think again. As General Electric CEO Jeff Immelt observed recently, “Small changes go a long way.” In other words, organizations must start small but then scale big to drive meaningful, simultaneous process change.
As our data shows, small steps can add up to a large impact – but at first blush, the numbers appear muted. As Figure 3 reveals, the digitization of purchase and procurement processes yielded, on average, a paltry extra 2.0% of revenue in 2015.
When cost reduction is coupled with additive, top-line revenue gains, however, the Process Leader’s Bonus takes off. From a cost savings perspective, over the next few years, leaders believe that if they digitally changed all their processes, they could reap significant new operational savings – up to 9.5%, collectively. From a revenue perspective, by 2018, they also believe they could add 9.1% to the top line. Overall, leaders stand to potentially accrue 18.6% extra top- and bottom-line gains by 2018, by digitizing their processes. That is a huge amount of money; a potential Process Leader’s Bonus will average $700 million per company by 2018 across all industries surveyed.
Said differently, like liquid oxygen mixing with kerosene to launch a Saturn V launch vehicle, the Process Leader’s Bonus of cost savings ignites business process outperformance with revenue growth.
It should be noted, however, that the revenue boost for most organizations will be much lower than the 9.3 percentage points shown in Figure 3; many companies today are only dabbling in digital, using an incremental, siloed mindset. Even most of the leaders are currently focused on just a couple of different process areas. That’s why the Process Leader’s Bonus is so tantalizing – like a space shuttle throttling up, advantages start to accrue when companies do just a bit more.
Moreover, we think these estimates are conservative – according to McKinsey, as many as 45% of the activities that individuals are paid to perform can already be automated. Leading industry analysts such as Forrester Research predict that by 2020, 64% of job tasks for management, business and financial roles will be cannibalized by automation (read: the middle and back offices), and the impact at the front office on sales and related tasks will be 52%. In our own research, we see the same trend with respect to anticipated staff reductions of greater than 25% in every front-, middle- and back-office process in every vertical industry.
Lets’ just say the truth is somewhere in the middle. But it’s important to understand this: Leaders really can make an impact, now. And the main lesson is simple: If you are driving change – simultaneously – these small numbers will start to add up, quickly. In an age of BPaaS, automation and AI, even if you aren’t at the bleeding edge of “digital leadership,” it is highly likely that your organization could garner a 20% (or more) outcome in terms of efficiency or revenue improvements.
Our Work Ahead research illuminates the fact that most businesses will invest more in all manner of processes to drive savings, unlock new potential, break down hierarchical silos and – quickly – fuel the engines of the business. By doing so, they will achieve escape velocity from “the way we’ve always done it” and soar into the heights of the work ahead to drive meaningful and lasting change.
The new whitepaper from the Center for the Future of Work is entitled: “The Work Ahead: Soaring Out of the Process Silo”. It can be downloaded at: https://www.cognizant.com/FoW/the-work-ahead-soaring-out-of-the-process-silo-codex2436.pdf