The Need For A New Operating Model

With December in the rearview and 2017 already in full swing, it’s a good time for mature businesses to evaluate past successes, current challenges and set forward-looking goals and objectives. Doing so provides an opportunity to truly improve your business. The one question that leaders should consider: Is our operating model still fit for purpose?

Take a look at ON THE MARK’s expert overview on why, when and how to modernize your business’s operating model this year — as well as how to gauge if your business is “fit for purpose.”

The Need For A New Operating Model This Year

What is an Operating Model?

A business model is not the same as an operating model. A business model determines what a business will do to deliver real value to its customers or consumers and how it will generate revenue. Strategy (not the same as a business model) is an extension of it – establishing what a business will do, for whom and its competitive difference.

Alternatively, an operating model focuses entirely on how a business will execute its business model and operationalize its strategy. Or, more simply, how a business will leverage its know-how and resources to then achieve its strategy. 

For those of us doing work in this space, a well-known and documented solution referred to as “organization design” refers to the solution used to institute a new operating model. The late Jay Galbraith, a guru in the organization design space, would say that the a business’s competitive advantage is built into its organization design — which makes it very difficult to copy or imitate.

An operating model is made up of:

• Value creation processes – All the work needed to create real value for the customer.
• Organizing work and people around that work; commonly considered structure.
• Everything having to do with managing the business – roles, jobs, information flow, metrics, technology, regulation, risk/compliance.
• Common HR processes involving the end-2-end employee lifecycle.
• Ways of working and culture.

Why Businesses Fail to Modernize: The 3 Primary Excuses

I recently received a call from a high-tech company out of California. They shared with me that they hadn’t updated to a new operating model in more than 10 years. “In over 10 years!” I exclaimed. “That’s three lifetimes in your industry.” Unfortunately, their disclosure is not uncommon across most industries. 

The three main reasons why companies avoid operating model modernization:

Many reasons exist as to why companies choose not to modernize. But here are my top three reasons that I observe most often from business leaders:

1. First, leaders try to “activity” the business into the future…

Many leaders think they can enlist Six Sigma, insert new technology, de-level, re-structure and then implement new programs as a way to modernize an operating model. However, it can’t be done. Most often, only greater fragmentation of an existing operating model occurs as a result of all the different and disjointed improvement activities.

Here’s a funny story to illustrate:

One of Europe’s largest mobile phone carriers had implemented a faux organization design effort focused on taking out layers and inserting common spans of control across the business resulting in most functions becoming more efficient. This is a common solution peddled by large consulting houses. The same group recently reached out to us at ON THE MARK to discuss why they were having problems with their core end-2-end processes, from new product development to roll-out. They were unable to see the unintended (but very real) consequence of how making each function more efficient ended up complicating the real value-creating processes that happen to be cross-functional.

2. The second issue is leaders protecting their self-interests.

Leaders are people, too — and we often see power and control issues at play. The mindset is: Stay out of my part of the business, and I’ll stay out of yours. These are major defense mechanisms against making any real, fundamental change. It’s not uncommon for leaders to play around with organization charts, masquerading as creating a new operating model. However, it’s in fact akin to moving chairs around a kitchen table. Same tables, same chairs, same room. 

Case in point: We recently were engaged by a global auto parts business to inquire about an updating their operating model after acquiring a number of similar businesses. The strategy? Fully integrate each business, eliminate duplication, clear up roles and responsibilities and increase the speed for decision making. The leadership team ultimately decided it was unwilling to invest the time and effort to complete the modernization project. Instead, they decided to make some improvements themselves. My bet is, this won’t be the last we hear from them. 

3. Thirdly, leaders don’t know what they don’t know.

Modernizing an operating model takes a significant amount of time, effort and resources to make the necessary decisions and complete the required work to shift from one model to another. It’s simply not enough to receive a slick set of PowerPoint slides telling a company what it needs to do. Leaders need information as well as education to understand how modernizing an operating model can drastically improve the entire business. 

Prior to implementing a new operating model, leaders must step back and look at the whole picture, asking honestly: “Are we still fit for purpose?”

• Are we still creating value for our customers? 
• Is our competitive difference still differentiating and relevant? 
• Are we making the most of our know-how, IP and resources to compete?
• If we had a clean slate today, would we operationalize the same way tomorrow?

Did you answer “no” to any of the above questions? If so, now may be the right time to consider modernizing to a new operating model.

When a business modernizes, a leadership team may also find difficulty in allotting time to make necessary decisions and work. Carrying out a new operating model requires a significant investment of time. That’s why we at ON THE MARK create the space and time to guide a business through all of those decisions, one at a time, working together. Modernizing an operating model must never happen without a diverse set of key stakeholders doing this critically important work together. After all, it’s about the future of a business. Anything else is like trying to fit a round peg in a square hole.

ON THE MARK is a leading global boutique consultancy with offices in the USA and UK. Owner of the industry’s most integrated, comprehensive and holistic solution, the team at ON THE MARK enables clients to realize their future ambitions.

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