TRANSFORMING OPERATIONS FROM COST CENTERS TO REVENUE ENGINES

Conference room where traditions meet innovations

Perception shapes reality. Historically, Operations have been seen as a necessary expense, a cost center supporting core revenue-generating activities. However, this perspective is evolving as organizations recognize the strategic values of Operations in driving efficiency, reducing risk, fostering innovation, and accelerating growth. By reframing Operations as a Revenue Engine, organizations can make more informed investment and expenditure decisions, leading to optimal performance.

So, how can this be done?

Defining the Value Proposition

Focusing on value propositions while planning or restructuring the way Operations function can enhance workforce sustainability, client experience, and business profitability. Operations play a pivotal role in ensuring that processes run efficiently and effectively, regulatory requirements are met, risk is properly managed, and customer satisfaction is maintained. Let’s delve deeper into how to implement this. Traditional Key Performance Indicators (KPIs) in Operations are measured by productivity metrics, such as outputs, throughputs, turnaround time, utilization rates etc. The danger of focusing solely on traditional KPIs is the alienating the values of Operations from the business outcomes. These KPIs can result in productivity leakage because the output may not be linked to the strategic plans of the organization.

Setting Goals and Feedback Mechanism

The key is to align operational activities with strategic business goals, ensuring that every process adds value and contributes to the vision and missions of the organizations. Another important element is having regular communication with clarity and transparency, providing feedback mechanisms to all members of the organization, and making timely adjustments.

Showing Financial Impact

When quantifying the financial impacts of any Operations process, there is a tendency to treat it as a cost-savings exercise. Without a doubt, automation and optimization can save costs and contribute to the bottom line, however, I would like to introduce other perspectives to empower Operations as a Revenue Engine. These proposed KPIs serve as guidelines rather than rules, and I encourage Operational leaders to offer their insights to expand the list and change the traditional rhetoric.

1.        Costs Not Spent (CNS): This KPI measures the potential savings or avoided costs associated with operational efficiencies that contribute to generating new revenue. It reflects the costs that could have been incurred but were avoided through better resource management, process improvements, or strategic decisions.

CNS = [Estimated Costs Without Improvements] – [Actual Costs Incurred]

2.        Revenue Retained and Organic Growth Potential (RROGP): This KPI connects Operations and Customer Service indirectly to the revenue component. By calculating the customer retention rate, customer churn rate, and upsell and cross-sell revenue, we can make a well-informed revenue projection associated with the operations revenue engine.

Emphasizing Technological Integration

Technology integration is a vital component of redefining Operations. Harnessing data to inform actionable insights is particularly essential for driving operational efficiency and innovation. Digital transformation is not just about adopting new tools but also about creating a cohesive ecosystem that enhances the decision-making process and organizational agility to respond to market changes.

1.        Data as a Strategic Asset: Data is one of the most valuable assets for organizations to drive critical insights that inform strategic decision-making. As businesses generate vast amounts of data, and data becomes more available in the public marketplace, the ability to manage and analyze this information becomes paramount. Implementing robust data governance practices helps organizations maintain data integrity, ensure compliance, and protect sensitive information. By leveraging data analytics, companies can identify trends, understand customer preferences, and pinpoint operational bottlenecks.

2.        Emphasis on Insights: Translating raw data into actionable insights is crucial for informing strategy and driving operational improvements. Moreover, insights derived from data foster a culture of continuous improvement, motivating teams to innovate processes and solutions. Frameworks such as Agile and Lean benefit from timely and accurate insights, enabling organizations to refine their operations dynamically. In the future, emerging technologies such as artificial intelligence (AI) and machine learning (ML) hold the promise of further enhancing data insights. AI & ML offers predictive capabilities that allow businesses to anticipate customers’ needs before they realize it, bring products to market faster, test and refine products in real time, and ultimately position organizations for sustained success in an ever-evolving market.

Advocating on Cultural Change

A culture that values agility, continuous improvement, and cross-functional collaboration is the foundation to transforming Operations. This involves not only embracing new technologies and processes but also requiring a paradigm shift of organizational culture where challenges are seen as opportunities for innovations.

1.        Transparency and Open Communication: Change can be uncomfortable, especially when we are uncertain of its purpose and endgame. When leaders are transparent about goals, challenges, and progress, it creates an environment where employees feel valued and informed. Open communication encourages the sharing of ideas, feedback, and concerns, which are essential for continuous improvement and innovation. This growth mindset culture fosters quick identification and resolution of issues, which promotes agility and responsiveness.

2.        Accountability and Empowerment: When individuals are held accountable for their contributions, it instills a sense of ownership and responsibility. This accountability fosters a culture of reliability and integrity, ensuring that everyone is committed to the organization's goals. Empowerment can boost morale and motivation, as individuals feel their efforts are valued and impactful. Together, accountability and empowerment create an environment where employees are driven to innovate, collaborate, and contribute to the overall success of the organization.

3.        Training and Development: Training and development initiatives should be aligned with these cultural goals, ensuring that employees are equipped with the technical skills, growth mindset, and knowledge needed to thrive in a dynamic environment.  

Highlighting Success Stories

Success stories serve as compelling evidence that strategic changes are effective, inspiring confidence among stakeholders at all levels. By integrated technologies and leveraging data driven insight, more organizations can showcase success stories throughout their transformation journey. Here are some examples:

Real-Time Feedback: AI can analyze customer feedback in real-time, enabling businesses to quickly identify and address issues as they arise, or gather customer feedback to refine the products

Sentiment Analysis: Large Language Model (LLMs) and AI can extract data from customer comments or surveys and automatically assess the tone of customer feedback.

Predictive Analytics: AI can predict future customer trends, buying behavior, and satisfaction level. The marketing team can use this data to develop targeted campaigns.

Scalability: Vertical AI with a domain focus can deliver automation and accuracy to the middle office, allowing businesses to scale up or down without compromising performance.

Call to Action

To start viewing and managing business operations as a revenue center, financial institutions can take the following actionable steps:

1. Aligning Operational Goals with the Business Strategy:

   • Ensure that operational activities are directly linked to strategic business goals, with clear metrics to measure success.

2. Investing in Technology:

   • Leverage advanced tools such as AI, advance ML, and data analytics to provide insights and enhance operational efficiency and drive innovation.

3. Promoting a Culture of Continuous Improvement:

   • Encourage employees to identify inefficiencies and propose solutions, fostering a growth mindset of continuous improvement and innovation.

4. Measuring and Communicating Impact:

   • Regularly track and communicate the financial impact of operational improvements, showcasing the value added to the organization.

5. Collaborating Across Functions:

   • Establish cross-functional teams dedicated to operational excellence, which promotes collaboration and best practices across the organization.

By embracing these steps, financial institutions can transform their operations from a cost center to a revenue engine, unlocking hidden value and driving sustainable growth. The journey requires a clear vision, strategic alignment, and a commitment to continuous improvement, but the rewards are well worth the efforts. Operations can no longer be viewed merely as a support function; they are a critical driver of innovation, efficiency, and revenue generation in today's competitive financial landscape.

Connie Leung MG Insight Principal - Business Consulting and Transformation (Collateral Management Practitioner)