What is an operating model? The concept seems simple enough and it is certainly easy to define at the 30,000 ft level—it’s how your company does the work it needs to be. But once you start digging a little deeper it becomes clear that this vague definition is not useful in ensuring alignment, identifying areas for improvement or even replicating and scaling effective practices across an organization. In our experience, most firms think about their operating models in this high-level way that works conceptually. However, given the dispersed ownership/management of operating model elements, that leads most to overlook operating model design and alignment across the organization in the quest for improved performance.
Defining operating models as the coordinated collection of assets & capabilities, governance, vendors & partners, organization structures, processes and technology enablers a company uses to deliver its strategy serves two purposes: 1) establishing the purpose of an operating model—to deliver a strategy in a coordinated way and 2) explicitly identifying the 6 Operating Model Design Elements that must be considered to ensure a successful & sustainable operating model. Too often thoughts on operating models focus on the objective without providing the details and direction to deliver that objective. Each of our 6 Operating Model Design Elements cover unique areas of a company’s operations, but must be considered together when designing an operating mode.
Assets & Capabilities
Company facilities (offices, factories/plants, warehouses, research labs, distribution centers, etc) that are owned/leased; patents and intellectual property used to generate revenue or manage operations; core, end-to-end capabilities required to succeed
Where & how operating decisions are made and who has the authority to make them; central v. local ownership; corporate policies establishing expectations for conduct and behaviors; audit & assessment functions ensuring compliance; performance reporting
Vendors & Partners
Skills, abilities and capabilities the company relies on outsiders to provide; insourcing v. outsourcing; supply chain partners used to provide raw materials and distribute finished goods
Operating & reporting structures needed to deliver the strategy; assignments of roles, responsibilities and expectations to each employee; skills & abilities for employees required for each role; relationships between departments/functions/subsidiaries
Business and production processes used to manage the company and generate revenue; process design principles; metrics to monitor and ensure process control & performance
Internal technology capabilities needed to manage the business or generate revenue
Taken as a group, the 6 Operating Model Design Elements cover all aspects of a firm’s internal strategy and providing a robust means of linking its market strategy and its ability to execute. We have found that our clearer operating model definition not only helps companies design better operating models, but working through the 6 Operating Model Design Elements is also a useful tool in diagnosing operating model misalignment contributing to poor performance.