Introduction
At the heart of any evolving business is an Operating model. It’s a blueprint that defines how an organisation delivers value to its customers, executes its strategy, and manages its resources.
It serves as the backbone of an organisation, outlining the structure, processes, systems, and capabilities needed to execute its strategy and deliver value to stakeholders effectively.
Essentially, it provides a framework that aligns the organisation’s resources, activities, and processes with its strategic objectives, guiding day-to-day operations and decision-making.
The Importance of Understanding and Designing an Effective Operating Model
Understanding and designing an effective operating model is crucial for several reasons.
Firstly, it ensures alignment between an organisation’s strategy and its execution capabilities, enabling it to translate strategic intent into tangible results.
Secondly, it promotes efficiency and effectiveness by optimising processes, reducing redundancies, and maximising resource utilisation.
Thirdly, it fosters agility and adaptability, allowing organisations to respond swiftly to changes in the market landscape or internal dynamics.
Overall, a well-defined operating model forms the foundation for organisational success, driving performance, innovation, and resilience.
Overview of What the Blog Will Cover
In this blog, we will delve deeper into the concept of operating models, exploring the various types, components, and the process of creating one.
Specifically, we will discuss:
Different types of operating models that are prevalent in today’s business environment, such as
- Centralised
- Decentralised
- Hybrid and
- Platform-based models.
Key components of an operating model, including
- Organisational structure
- Processes
- Capabilities
- Technology infrastructure and
- Governance mechanisms.
A step-by-step guide on how to develop an operating model tailored to the unique needs and objectives of your organisation, encompassing
- Assessment
- Design
- Implementation and
- Continuous improvement.
By the end of this blog, you will gain a comprehensive understanding of operating models and be equipped with practical insights to create or refine one for your organisation, setting the stage for sustainable growth and success in a rapidly changing world.
Understanding Operating Models
Operating models serve as the foundation upon which organisations structure their operations, processes, and resources to achieve their strategic objectives.
Let’s take a closer look at what operating models entail:
The primary purpose of an operating model is to ensure alignment between strategic objectives and operational capabilities, enabling organisations to achieve their goals efficiently and effectively.
Types of Operating Models
Operating models vary widely depending on organisational objectives, industry dynamics, and strategic priorities.
Here are some common types of operating models:
Centralised Operating Model
In a centralised operating model, decision-making authority and control are concentrated at the top levels of the organisation.
This model is commonly seen in traditional, bureaucratic organisations.
It often features a hierarchical structure with clear lines of authority and communication channels.
Decentralised Operating Model
In contrast to centralised models, a decentralised operating model delegates decision-making authority to lower levels of the organisation.
This promotes autonomy and empowerment among teams or business units, enabling faster decision-making and responsiveness.
Hybrid Operating Model
A hybrid operating model combines elements of both centralised and decentralised structures.
It allows for flexibility and customisation based on specific business needs and contexts, leveraging the advantages of both approaches.
Lean Operating Model
A lean operating model focuses on eliminating waste, streamlining processes, and maximising efficiency.
It emphasises continuous improvement and customer value creation, often drawing inspiration from Lean Six Sigma principles.
Hub-and-Spoke Operating Model
In a hub-and-spoke operating model, a central hub coordinates activities and resources across multiple spokes or satellite units.
This model is commonly used in decentralised organisations with a central headquarters and regional or branch offices.
Asset-Light Operating Model
An asset-light operating model minimises investment in physical assets and infrastructure.
Instead, it leverages external partnerships, outsourcing, and shared resources to deliver products or services, reducing capital expenditure and risk.
Platform Operating Model
A platform operating model focuses on creating a digital ecosystem or marketplace where multiple stakeholders interact and exchange value.
Examples include online marketplaces like Amazon and digital platforms such as Uber and Airbnb.
Agile Operating Model
An agile operating model emphasises adaptability, collaboration, and iterative development.
It enables organisations to respond quickly to changing market conditions and customer feedback, often used in software development and project management contexts.
Understanding the different types of operating models allows you to choose the most suitable approach based on your strategic objectives, market dynamics, and organisational capabilities.
Each model offers unique advantages and challenges, requiring careful consideration and customisation to align with specific business needs.
Components of an Operating Model
An effective operating model encompasses various components that collectively define how an organisation operates and delivers value.
Here are key components to consider
Organisational Structure
The organisational structure outlines the hierarchy, reporting relationships, and roles within the organisation.
It defines how authority and responsibility are distributed and how communication flows across different levels and functions.
Business Processes and Workflows
Business processes and workflows represent the sequence of activities and tasks involved in delivering products or services.
They describe how work is performed, including inputs, outputs, dependencies, and decision points.
Systems and Technology Infrastructure
Systems and technology infrastructure encompass the tools, software, and technology platforms used to support operations.
This includes enterprise resource planning (ERP) systems, customer relationship management (CRM) software, collaboration tools, and data analytics platforms.
Policies and Procedures
Policies and procedures define the rules, guidelines, and standards that govern organisational behaviour and decision-making.
They provide clarity on expectations, compliance requirements, and acceptable practices across the organisation.
Governance and Decision-Making Framework
Governance structures and decision-making frameworks establish mechanisms for oversight, accountability, and control.
They outline how decisions are made, escalated, and implemented, ensuring alignment with strategic objectives and regulatory requirements.
People and Skills
People and skills refer to the workforce’s competencies, capabilities, and expertise required to perform various roles and responsibilities.
This includes recruiting, training, and developing talent to ensure alignment with organisational goals and objectives.
Performance Measurement and Metrics
Performance measurement and metrics define how performance is assessed, monitored, and evaluated.
They encompass key performance indicators (KPIs), targets, benchmarks, and dashboards used to track progress, identify trends, and drive continuous improvement.
Each component plays a critical role in shaping the organisation’s operating model and determining its ability to execute strategy, deliver value, and achieve desired outcomes.
By addressing these components comprehensively, your organisation can optimise your operations, enhance efficiency, and adapt to evolving market dynamics effectively.
Guide on How to Develop an Operating Model
Developing an effective operating model requires careful planning, analysis, and alignment with strategic objectives.
Here’s a step-by-step guide to help you create a robust operating model tailored to your organisation’s needs
Define Your Strategic Objectives and Business Goals
Clearly articulate your organisation’s strategic objectives and business goals.
Identify key priorities, growth targets, and areas for improvement that the operating model should support.
Analyse Your Current Operating Environment and Capabilities
Conduct a comprehensive assessment of your current operating environment, including organisational structure, processes, systems, and resources.
Identify strengths, weaknesses, opportunities, and threats (SWOT analysis) to understand your organisation’s internal and external dynamics.
Related Reading: SWOT analysis. The First Exciting Step in Business Strategy
Determine Your Desired Future State and Vision
Define your desired future state and vision for the organisation.
Consider emerging trends, industry best practices, and market opportunities to inform your vision and direction.
Design Your Operating Model Components
Based on your strategic objectives and future state vision, design the components of your operating model, including
- Organisational structure
- Business processes
- Technology infrastructure
- Governance mechanisms and
- Performance metrics.
Ensure alignment between operating model components and strategic goals, prioritising flexibility, efficiency, and scalability.
Align Your Operating Model with Your Business Strategy
Ensure that your operating model aligns with your overall business strategy and supports the achievement of strategic objectives.
Identify synergies and dependencies between strategy and operations to maximise coherence and effectiveness.
Implement and Test Your Operating Model
Implement in phases, starting with pilot projects or small-scale initiatives to test feasibility and effectiveness.
Monitor progress, gather feedback, and make adjustments as needed to optimise performance and address any issues or challenges.
Implementing an operating model requires careful planning, effective communication, and support for organisational change.
Here are key steps to ensure successful implementation:
Developing an Implementation Plan with Clear Timelines and Milestones
Create a detailed implementation plan that outlines specific tasks, responsibilities, timelines, and milestones.
Break down the implementation process into manageable phases and set realistic deadlines for each stage.
Assign accountability to individuals or teams responsible for executing different aspects of the plan, ensuring clear expectations and alignment with organisational goals.
Communicating Changes Effectively to Stakeholders and Gaining Buy-In
Communicate the rationale behind the operating model changes, highlighting the benefits and alignment with strategic objectives.
Engage with key stakeholders, including employees, managers, customers, and external partners, to solicit feedback, address concerns, and build support for the changes.
Use multiple communication channels, such as town hall meetings, email updates, intranet portals, and one-on-one discussions, to ensure that information reaches all stakeholders effectively.
Providing Training and Support to Employees to Facilitate Transition
Offer comprehensive training programs to equip employees with the knowledge, skills, and tools needed to adapt to the new operating model.
Provide ongoing support and resources, such as training materials, job aids, and access to subject matter experts, to address questions and challenges during the transition period.
Foster a culture of learning and continuous improvement, encouraging employees to embrace change, experiment with new approaches, and contribute to the success of the implementation.
By following these steps, you can minimise resistance to change, mitigate risks, and ensure a smooth transition to the new operating model.
Effective implementation is essential for realising the intended benefits, driving organisational performance, and achieving long-term success.
Monitor and Evaluate Performance
Establish performance measurement and monitoring mechanisms to track key performance indicators (KPIs) and assess the impact of the operating model.
Regularly review performance metrics, identify trends, and evaluate the effectiveness of the operating model in achieving desired outcomes.
Iterate and Adapt Your Operating Model as Needed
Continuously iterate and adapt your operating model in response to changing market conditions, organisational needs, and stakeholder feedback.
Foster a culture of continuous improvement and innovation, encouraging experimentation and learning from both successes and failures.
By following this guide, organisations can develop a robust operating model that aligns with their strategic objectives, enhances operational efficiency, and drives sustainable growth and success.
Case Studies or Examples
Real-World Examples of Companies and Their Operating Models
Amazon:
Amazon operates on a platform-based operating model, providing an online marketplace for a wide range of products and services.
Its operating model revolves around customer-centricity, leveraging technology, data analytics, and logistics infrastructure to deliver a seamless shopping experience.
Amazon’s platform-based operating model enables it to scale rapidly, diversify its product offerings, and capture a significant share of the e-commerce market.
By investing heavily in technology infrastructure and innovation, Amazon has optimised its operating model for efficiency, speed, and customer convenience.
McDonald’s:
McDonald’s follows a standardised operating model known as the hub-and-spoke model.
The central hub (headquarters) sets standardised processes, menus, and branding guidelines, while individual franchisees (spokes) operate independently but adhere to the established standards.
McDonald’s hub-and-spoke operating model allows it to maintain consistency and quality across its global network of franchisees while also providing flexibility for local adaptation.
Through rigorous training, operational guidelines, and supply chain management, McDonald’s ensures uniformity in customer experience while catering to regional preferences.
Netflix:
Netflix operates on a subscription-based platform model, offering on-demand streaming services for movies and TV shows.
Its operating model relies on data-driven content recommendation algorithms, original content production, and global expansion to attract and retain subscribers.
Netflix’s subscription-based platform model leverages data analytics to personalise content recommendations, enhance user engagement, and reduce customer churn.
By investing in original content creation and global expansion, Netflix has successfully differentiated itself from competitors and established a dominant position in the streaming market.
These examples illustrate how companies design and implement operating models aligned with their strategic objectives, market dynamics, and organisational capabilities.
By understanding and leveraging their operating models effectively, these companies have achieved sustainable growth, competitive advantage, and customer satisfaction in their respective industries.
Conclusion
In conclusion, developing a well-designed operating model is paramount for organisations seeking to enhance their effectiveness and efficiency in achieving strategic objectives.
Throughout this blog, we have explored the essential components, key considerations, and steps involved in creating an operating model tailored to organisational needs.
It is Time to Assess and Develop Your Operating Model
As you continue to navigate complex business environments and pursue growth opportunities, it is essential that you assess your existing operating models and identify areas for improvement.
By leveraging the insights and strategies discussed in this blog, you should undertake a comprehensive evaluation of your operating model and embark on the journey of development and optimisation.
A well-designed operating model serves as the backbone of organisational effectiveness, enabling alignment between strategy and execution, optimising resource utilisation, and fostering agility and innovation.
Any organisation that invests in developing and refining their operating models stands to gain a competitive edge, adapt to changing market dynamics, and drive sustainable growth and success in the long term.
In conclusion, the significance of a well-designed operating model cannot be overstated.
It is a fundamental driver of organisational effectiveness and efficiency, enabling your business to thrive in an increasingly competitive landscape.
As organisations strive for continuous improvement and adaptation, the development and optimisation of operating models will remain a cornerstone of success.
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