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Evolving Your Operating Model: Seven Key Components

Evolving Operating Model

The way your organization functions and generates client value determines the success of every other aspect of your business. Your operating model is the backbone of this process: it’s the skeleton that keeps your organization upright and connected, and you’re looking to realign some joints.

What Drives Companies to Reassess Their Operating Model?

For all businesses, the need to reevaluate 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. Leadership has identified a strategic agenda that can significantly improve performance—making a reevaluation of their current model necessary to ensure success. The proactive approach is all about taking steps to identify and modify your 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. In both proactive and reactive scenarios, it is essential to evaluate and design around the following broad suite of operating model components.

  1. Capabilities & Accountabilities: The set of functional capabilities and accountabilities needed to deliver on the business strategy.
  2. Competency & Skills: The unique set of competencies and skills your employees need to excel at in order to deliver on client and business expectations.
  3. Organizational Design: How work and roles are grouped together to drive delivery, effectiveness, and efficiency.
  4. Processes: How information and work can most optimally flow across roles and teams.
  5. Technology: The core technology and tools required to enable business needs.
  6. Location: The best or most effective geography and location to accommodate different functions.
  7. Working Environment: The type of workspace and environment that is best suited to employee productivity and engagement.

How Does the Level of Change Affect Your Company?

Your operating model works at three levels of your organization: enterprise, functional unit, and team. Based on the type of challenge or change your company faces, your operating model might need improvement at one or more of these levels.

At an enterprise level, your organization is focused on the vision and purpose of your company. This is where your leadership team and stakeholders determine the core functions, capabilities, and accountabilities that your organization requires to fulfil its vision. At this stage, many leadership groups 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. Let’s say your company has determined it needs a business analytics function—what does that team need to be successful? Work is required to assess the specific industry-standard technology, tools, and processes that this group will require to be productive and responsive to business demands.

From there, we delve into the team level. You have formed a business analytics team, but they can only be effective if they have the requisite skills, clear expectations, and effective interactions with internal partners. Work is required to define, build, and operationalize new skills and training, align on expectations within the team and with partners, and formalize interactions.

Consciously assessing, redesigning, and evolving your organization’s operating model is essential when delivering on your business strategy and performance expectations. See how you can also optimize change implementations, as you proactively create a robust operating model.