What is an operating model?
Effective operating models put customer value at the heart of their business purpose to solve inherent problems, encourage engagement and customer intimacy. Effective operating models deploy lean end-to end customer journeys, personalized and customized to provide real-time interactions. Effective operating models make data the intelligent nerve that radically reshapes customer loyalty. Effective operating models continuously innovate, experimenting to address challenges and seek out new opportunities.
At Decision by Design, we help uncompromising dreamers, idealists, founders, leaders, executives build operating models that enable decision-making, support bold thinking, create space for inventiveness and culture change. As thought leaders in this field, we are sharing our perspective and frameworks with the intention of educating others and encouraging contribution to the growing body of work in this discipline.
When an organization decides to change how its people work and engage culturally, we call it change management.
When that change is applied to its internal structures and systems, we call it business process improvement.
When that change is applied fundamentally across its systems, structures, people, processes and enabling technologies, we call it business transformation.
How that transformation (or series of change and/ or improvements) is perceived in its ability to create, capture and deliver value to its customers, is called its operating model.
Operating models functioning in a new world of “everything-as-a-service” platforms, cross-industry ecosystems, and ever-changing customer needs are the next leap in business transformation. According to Gartner Research, 66% of CEOs expected a change in their operating models well into 2021. The pace has been accelerated with 50% shifting into gear as a result of the COVID-19 pandemic. Business leaders view establishing operating models as their top challenge in achieving their transformation imperative. However, similar to the current rate of technology change coupled with a digital native customer base, most leaders are still grappling with the challenges of their present realities.
In today’s disruptive economies, organizations are changing so quickly that the old-fashioned way of building operating models, formalizing structures and tacking on roles to a journey map simply cannot keep up. Business leaders need to be in lock step with their customers, to shift-left and be more responsive.
To do this, leaders must learn how. Operating model design and innovation offers a composite set of capabilities and tools to support leaders in making meaningful strategic change. The following can be described as an introduction to this remarkable discipline.
An operating model is a customer-centered view that describes how an organization or its subset works to create and deliver value.
Operating models derive mainly from the strategic management framework toolset: strategic planning, business architecture, and systems thinking. At Decision, we couple these strategic toolsets with design thinking to iteratively contextualize the customer experience in defining potentially new ways of value creation.
Because we are non-traditional as a practice, every customer outcome is different and the results, always the same: deepened customer intimacy and higher integrated teams. Our engagements are designed to yield:
Facilitation: Structured, engaged discussions essential to stakeholder partnership, trust building, co-creation; challenging the status quo.
Planning: Translating and establishing decisions and requirements that are sustainable and pragmatic for your organization to execute.
Identification: Discover high friction and inflection points embedded in research-based understanding of your target customer, system experiences, and organizational culture.
Analysis: Assessing and analyzing data to determine the value shifts in your teams, leadership dynamics, external environment and customer motivations.
Learning: Engineering to innovate, creating new opportunities to learn and experiment.
At Decision, we go deeper in these operating model activities engaging diverse teams to generate stronger points of differentiation thereby enriching our viewpoints, frameworks and tools.
Prior to the development of an operating model, leaders must decide on the type of organization, unit or function they are electing to build and lead: exploitative vs. explorative, customer-centric vs. product-led or service-led. Describing the business in this way supports the definition of design principles integrated as key capabilities aligned to the organization’s strategic intent. Principles that communicate the strategy as rules and outline how the business leverages its capabilities in operating as a system.
Decision by Design has produced a set of general principles to codify our learnings over the last several years, sharing the credit of our experiences in what we do everyday– after all, what you do is who you are!
Place value: Embrace intimacy with your constituents in honoring their role and contribution. The true purpose of every business is to create value for its customers, employees, communities, suppliers and shareholders.
Decision importance: Communicate simply, create systems and structures for small executions to expand, learn and create momentum. Define what is important, especially the small stuff.
What matters most: Strategic priorities should address and support explicit competencies and culture traits in service (and similarly those identified as counter-culture) to its client. An organization’s strategy should be as robust as its operating environment.
Advocate for the essentials: Explain which capabilities and competencies are essential for the delivery of strategic goals, such as “freedom to fail” and “ability to make bold decisions”. For example, capabilities explicit to an “Innovation & Growth” mindset or priority.
Share, align, contextualize: Persist in calibrating the organization in both an adaptive and explorative state, internally and externally, within the context of its definition of success.
Part 4. Operating model requirements
As a hybrid management consulting and design firm, we are non-traditional. It used to be that an organization seeking to develop a strategy or plan would gather its leaders in a room led by a consultant, then facilitate several sessions to gather and map its priorities. Decision’s process is fluid and starts from a myriad of activity points, combining the fields of strategy, design thinking, and agile in a single process. For many of our clients, this process can be completed in 3-5 dedicated days.
The process borrows from our 4A’s transformation framework and consists of:
1. Assessment: Defining the operating model vision, strategy, and key objectives;
2. Analysis: Reviewing the current state, identifying and categorizing core business operations and future state direction;
3. Agreement: Validating future state gap analysis and defining a Minimum Variable Operating Model (MVOM);
4. Action: Gaining agreement on future state and opportunities.
How do we build Minimum Variable Operating Models (MVOTs) essential to the future of business? We work with clients to deliver strategy-to-sustainment solutions introducing tools and concepts that are only right for our client’s unique culture and situation. Why? We believe our clients are different, their employees are different, and their circumstance is different. We have worked to:
We believe that transformative change is employee behavioral change within a larger context. To move employees through the degrees of change acceptance and adoption, we focus on the organization as a system of networked structures with several nodes and unique cultural identities. These structures operate in a system to amplify individual employee “nodal” exchange and collaboration based on cultural adaptability.
Through iterative design cycles, our change practitioners work with clients to identify opportunities for improvement and test the fit of potential new ways of working, a new operating model. We support leaders and decision-makers to:
As markets strain and fragment, as a new era of customer intimacy is ushered in, organizations are redefining how they operate. The “age of the generals” (General Mills, General Electric, General Motors), mass-production and industrialization has given way to “un”scaling. New operating requirements and motivations include concepts and terms like:
the “shorings” i.e., on/ off/ near
remote working arrangements
boundaryless org structures
KYC mantras in customer segmentation
frictionless service delivery
purposeful brands and/ companies
sustainable sourcing and a focus on core capabilities
applications of internal engagement practices on performance
We are persistent at Decision in what we believe organizations should focus on at different stages of their transformation on their way to building an efficient operating model.
How a business is organized as an ecosystem for sustained value is imperative to its survival. Operating models enable an organization to execute, implement and deliver value. It is strategy in action and an explicit requirement of every business. Relevance today demands both operational agility and customer intimacy, it is not a linear exercise. There is no set panacea against the environments of change – only guardrails and reference points for leaders to follow.
Operating models help decision makers align business strategy to business purpose, unambiguously. It makes the abstraction of strategy tangible and institutes it within the value paradigm. It helps in answering the identity question, differentiating core from the non-core capabilities, allowing organizations to play to their strengths. It provides the basis for work definition and smart investments in aid of those objectives.
We are currently in the midst of several accelerants, the pandemic’s shadow looming largest over business. There has been no greater opportunity like the present in a generation for organization’s to truly ask foundational questions:
More than a cue for leaders, the change in operating model begins with a willingness for internal introspection. Followed by attentiveness to the signals of change. Then intentionality for that change and the journey ahead.
This watershed moment, like all, will come to pass. Competitive advantages are fleeting – be they mechanization, scaling or digital – all become mainstays with time. If the true purpose of business is to create value irrespective of the times, is there no greater requirement than an operating model that is adaptative, innovative, experiential, integrated, culturally collaborative with shared ambition?