Evolving Your Operating Model: Seven Key Components

Written By :
Eugene Choi
Evolving Your Operating Model: Seven Key Components

The way an organization functions to generate value impacts the success of every other aspect of your business. The Operating Model is the backbone of this process: it’s the skeleton that keeps the organization upright, alive and connected.

What Drives Companies to Reassess Their Operating Model?

For all businesses, the need to re-evaluate an operating model is either proactive or reactive.In a proactive approach, a company opportunistically reassesses their operating model as part of a greater change. When leadership identifies a strategic agenda that alters the direction of an organization, a re-evaluation of the current Operating Model is necessary to ensure success. The proactive approach is all about taking steps to identify and modify the operating model so there are no unplanned gaps.Common changes include:

  • Outsourcing commodity functions
  • Expanding to new geographies or markets
  • Introducing enhanced technology, such as cloud or automation
  • Implementing agile methodology

Conversely, the reactive approach is exactly as it sounds: reactive. It occurs when a company discovers a systemic performance issue and—potentially without understanding the cause of the issue—recognizes they need to take countermeasures against it. These issues can be found at any level of your organization: from wide-scale enterprise problems to functional gaps and inter-team issues.Common performance issues include:

  • Poor communication and collaboration between teams
  • Consistent lack of output and responsiveness from a core function
  • Delivery of low-quality products
  • Expenses outpacing revenue growth

The 7 Components of Your Operating Model

All business operating models contain the same seven components. It is the combination and make-up of these components within an organization that together, allow the organization to deliver on its business strategy and value proposition.  In both proactive and reactive scenarios, it is essential to evaluate and design of the operating model components.

  1. Business Capabilities: The set of functional capabilities and accountabilities needed to deliver on the business strategy.
  2. Process: The core processes that facilitate and govern the flow of information, work and resources across the organization, teams, and roles.
  3. Technology: The core technologies and tools required to enable the Operating Model.
  4. Geographical Presence: The geographic operational and market presence required considering the business capabilities and value-proposition.
  5. Organizational Structure: The grouping of business capabilities and key roles that delivers the value-proposition.
  6. People: The set of competencies, knowledge, skills, and attributes your people need to excel at to deliver on the work, business capabilities and the strategy.
  7. Work Environment: The social features and physical conditions of the workplace that are best suited for employee productivity, motivation, and engagement.

How is the Operating Model assessed at different levels in the Company?

Operating models work at three levels of the organization: enterprise, functional unit, and team. Not only does the operating model need to be cohesive across the seven components, but also vertically across organizational levels, and horizontally across business unit and departmental lines.  Based on the type of challenge or change or challenge a company faces, the operating model might need improvement at one or more of these levels.

At an enterprise level, the organization is focused on the vision and purpose of the company. This is where the leadership team and stakeholders determine the core functions, capabilities, and accountabilities that the organization requires to fulfil its vision. At this stage, many leadership teams will identify the need for a new capability, or pinpoint gaps in a core capability that are holding back results. From there, they initiate a change to build a new function or address the gap.

The functional level is often impacted directly by enterprise-level decisions. For example, if a company has determined it needs a business analytics function, an Operating Model assessment is required to assess the specific  technology, tools, people and processes that this function will require to be productive and responsive to business demands.

At the team level, Teams can only be effective if they have the requisite tools, processes, skills,  and effective interactions with internal partners. Work may be required to define, build, and operationalize new skills and training, align on expectations within the team and with partners, and formalize interactions.

Consciously and proactively assessing, redesigning, and evolving your organization’s operating model is essential to deliver on your business strategy and performance expectations. And remember, that evolving your operating model is introducing change to the organization. See how you can also optimize change implementations, as you proactively create a robust operating model.

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Eugene Choi
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