An operating model is like a master plan that helps a business use its resources to reach its goals. It combines solid operating rules and structures. This way, companies can focus better, innovate, and grow. About 80% of leaders worry about keeping up due to new digital tech1. Also, 92% are changing their structures to compete in a fast-changing market1.
Having a strong operating model makes your business more efficient and ready for competition. By adapting to new tech and ways of doing things, businesses can see big improvements. For example, during the COVID-19 pandemic, companies with flexible operating models were 3.2 times more likely to grow their market share than those that were less flexible1. Such models are key for making sure everyday tasks help achieve big goals, leading to ongoing innovation and growth.
Key Takeaways
- An efficient operating model enhances your strategic focus.
- Adapting to new technologies and processes is crucial for staying competitive.
- Companies with agile operating models were 3.2 times more likely to gain market share during crises1.
- Ninety-two percent of firms are redesigning their structures to adapt to evolving markets1.
- Effective operating models serve as the blueprint for long-term growth and innovation.
Introduction to Operating Models
Operating models are key to how businesses line up their resources with their big aims. They help companies work smoother and stay ahead. These models make a company’s big vision turn into real steps for success.
Michael Porter showed us the “value delivery chain.” This idea helps firms understand how to give great value to their customers2. Thanks to this, we’ve seen new ways to build good operating models. For example, the Operating Model Canvas by Andrew Campbell looks at six important parts: processes, organization, places, info, suppliers, and how things are run3.
Big companies often need many operating models to show how each part meets needs3. Making an operating model can take days or even months. It depends on how complex it is and the details needed3.
An in-depth operating model talks about the company’s structure, how it’s run, who makes decisions, and how teams work together2. It also includes partners and where work is done. All this helps companies work better together and win in tough markets.
“Operating models are value delivery chains representing the steps necessary to complete an organization’s work and deliver desired outcomes”3.
Operating models also include business skills models, how mature these skills are, management setup, resources, suppliers, team models, IT needs, where things are done, and how decisions are made3. Adding these parts lets businesses change quickly and keep their lead.
Understanding operating principles is vital for any company that wants to work efficiently and succeed. By learning and applying complete operating models, companies can reach their main goals. They can also offer great value to their customers and partners.
What Is an Operating Model?
An operating model is how a company uses resources to reach its goals. It includes how a company is organized and managed. Understanding an operating model is key to a business’s success.
Definition of an Operating Model
An operating model is about setting up teams, their roles, tasks, and the tools they use to achieve business aims. It’s like the company’s playbook. It shows how to make decisions, build culture, and create value. It helps the whole company work together towards the same goals. A good operating model improves skills, ensures strong management, and lets the business adjust to changes4.
The Importance of an Effective Operating Model
Having the right operating model is crucial for aligning company goals with how things are done. It makes a company run better, keeping customers happy and staying ahead in the market5. Some models focus on specializing in job roles, while others on product quality and knowledge4. In services, models aim to improve customer experiences and involvement5.
Studies by the MIT Center for Information Systems Research show companies with solid operating models do way better. They work more efficiently, please their customers, and bring new products faster5. This clearly shows that a well-thought-out operating model is vital for long-term market success.
Key Components of an Operating Model
Understanding an operating model’s key parts is essential for any organization that wants to work better. Each part, such as the organizational structure and company infrastructure, is crucial to the model’s success.
Organizational Structure
The organizational structure sets the company’s hierarchy and who reports to whom. It’s key for making good decisions and handing out tasks. To match the changing model and governance rules, updates are often needed6.
Such reviews make sure roles and duties are clear. This helps everyone work more efficiently.
Processes
Operating processes are the steps that add value to the company. These steps need to be clear and efficient to boost how well the company works. By using blueprints, companies can ensure their processes are consistent6.
Adding agile methods and new tech like cloud computing can make a big difference7.
Governance
Strong governance keeps things orderly and consistent. It’s about setting rules for decision-making and management. Many firms mix these principles with their models to make decisions simpler and follow rules6.
Using decision grids can also help by making choices more structured6.
Culture
Business culture is the mix of values, beliefs, and actions within a company. When it matches the company’s mission, it can really engage workers, especially younger ones8. Indeed, focusing on culture is key for a happy and driven team6.
Capabilities
Capabilities are the skills and knowledge needed to carry out strategies well. Firms need to keep growing these skills at all levels to reach their goals7. Using goals and OKRs helps focus, teamwork, and work better8.
Infrastructure
Infrastructure is the physical and digital stuff that helps a company run. Using new software tools can improve how the company sees and uses data, making planning better8. Updating this infrastructure is key for staying competitive and reaching goals6.
Aligning an Operating Model with Organizational Vision and Strategy
To align your operating model with your vision and strategy, you need a careful design process. First, you must clearly define your vision and strategic goals. Knowing your core abilities, improving processes, and organizing your business are key. The Operating Model Canvas is helpful here with its six elements—value proposition, processes, organization, information, location, and suppliers9. Similarly, the Business Model Canvas’s nine sections aid in aligning your business fully9.
For successful alignment, it’s critical to use resources well, make operations efficient, and use technology smartly. This fosters a culture focused on data to achieve your strategic goals. When aligned, an operating model guides decisions during big changes. This ensures you’re working towards your vision10. Traditional ways of aligning, such as often repeating strategy or setting up dedicated offices, might not be enough for a changing business10. A well-thought-out operating model, starting from leadership, offers direction and alignment during changes10.
Linking your vision and strategy with your operating model is key to long-term success and staying competitive. The experience of Ashridge Executive Education and Siemens Gamesa Renewable Energy shows us this. They used an Operating Model Canvas during their merger, highlighting the value of structured planning10. Aligning vision and strategy enables your business to adapt and prosper through changes.
Operating Model Frameworks
Operating model frameworks are crucial for designing and adjusting business models to meet strategic goals. The Operating Model Canvas and Business Model Canvas are key tools in this process. Let’s explore them both.
The Operating Model Canvas
The Operating Model Canvas helps focus on important parts like processes, organization structure, and suppliers. It aligns these with strategic goals for better efficiency. It’s great for clarity and alignment among leaders11. Organizations aiming for growth find it very useful. It adapts well to changes in the market11.
Design principles in this framework vary but highlight crucial aspects. These include decision areas and capabilities11. These principles help in making clear and objective decisions11.
The Business Model Canvas
The Business Model Canvas outlines a business’s core elements. These include partnerships, activities, and what customers value. It shows how a business delivers value and aligns strategies. It’s a comprehensive view for planning and adaptation12.
Many CEOs think their business models might not last a decade, underlining the need for constant change12. Adopting these frameworks can boost financial performance by up to 20%12.
Using these frameworks encourages structured results and confidence in transformation results. Regular updates to your framework, using either the Operating Model or Business Model Canvas, make your organization more agile and responsive. This is key in today’s fast-paced business environment6.
Target Operating Models in the Modern Business Landscape
A Target Operating Model (TOM) is a vital strategy for making an organization’s vision and mission a reality. It combines processes, technology, governance, and people to create value. An unclear TOM is why 70% of digital transformations don’t succeed. This highlights the importance of a well-defined TOM13.
To design an effective TOM13, it’s important to know the current business capabilities and processes. Surveys help gather essential information from different workers. They identify problems and areas that need change13. Also, getting input from all stakeholders validates findings and helps address concerns13. This ensures the organization can implement changes smoothly.
“Collaboration and stakeholder involvement are vital to validate conclusions and overcome objections to changes in an operating model13.”
In big companies, creating a TOM strategy involves a careful review of how effective the current model is. This usually means planning 3-5 years ahead for major changes14. Sometimes, they make quicker adjustments in 1-2 years to reduce costs14. Properly putting a TOM into action can lead to big shifts in management and organizational changes14. This helps steer the business towards better and more customer-focused goals.
Even small steps towards a TOM can improve productivity and the experiences of employees or customers13. Amazon is a great example. It focuses on customer needs in its AWS and Alexa services, strengthening its strategy14. This shows Amazon values its customers and works towards long-term goals.
Benefits of an Effective Operating Model
An effective operating model brings many benefits to a company. It helps align everything a company does with its main goals. This makes sure all employees work together towards a common purpose.
Fostering Purpose
Having a clear purpose is key in any organization. When employees understand their roles, they see how their work helps achieve bigger goals. This builds trust in leadership and keeps employees motivated.
Such a connection between daily tasks and the company’s mission boosts employee happiness and loyalty15.
Strategic Alignment
Good operating models also ensure everything the company does supports its main priorities. It helps use resources wisely and focus on important growth areas. This leads to better financial results16.
This kind of alignment also makes the company run smoother by reducing wasted effort. It streamlines making decisions and improves efficiency15.
Operational Efficiency
For a company to succeed in the long run, it must work efficiently. A well-planned operating model cuts down wasting resources and keeps the organization running smoothly. This makes customers happy and loyal because they get great service16.
The company also saves money right away and performs better over time. It stays flexible and adjusts quickly to new situations15.
Agility and Responsiveness
Strong operating models make companies more agile and quick to respond. They launch new products faster and adjust quickly to meet demand16. Keeping costs low while growing fast helps them make the most of new opportunities16.
Clear communication of these models builds trust. Employees feel more involved and ready to face new challenges15.
Implementing a smart operating model is crucial. It drives growth and ensures a company excels even in a changing business world.
Challenges in Implementing an Operating Model
Putting operating models into action faces many challenges. One big hurdle is people’s resistance to change. This issue is especially big in public sectors where rules and strict order slow down new changes17. To tackle these obstacles, it’s vital to work closely with everyone involved, like employees, unions, and outsiders like citizens and private groups17.
Aligning new models with old ways is another tough challenge. Money issues are a big problem, mainly in the public sector where there’s not much budget for new tech or changes17. It gets trickier with mergers, where you have to blend different operating models to get the expected benefits18. Lots of planning and always communicating are key for a smooth change and proper alignment.
Also, blending technology with the need to be flexible is hard. Companies must be solid yet adaptable to unexpected situations, known as the “Flexibility Paradox”18. This challenge highlights the importance of keeping core elements like Mission & Purpose, Culture, and Mechanics steady, while allowing for growth and change elsewhere18. Starter projects and ongoing training are crucial for tackling these issues and deploying an operating model successfully.
Source Links
- The Ultimate Guide to Enterprise Target Operating Model – https://www.capstera.com/target-operating-model/
- What is an operating model? – Operational Excellence Society – https://opexsociety.org/body-of-knowledge/operating-model/
- What is an operating model? – Definition from TechTarget – https://www.techtarget.com/whatis/definition/operating-model
- Operating Model Design for Nonprofits – Spark Strategy – https://sparkstrategy.com.au/operating-models/
- Operating model – https://en.wikipedia.org/wiki/Operating_model
- What are Business Operating Models? | Quantive – https://quantive.com/resources/articles/operating-model
- Blue-Mark Management Consultants – https://www.blue-mark.ca/resource/evolving-your-operating-model-seven-key-components
- What is the Modern Operating Model? | Quantive – https://quantive.com/resources/articles/what-is-the-modern-operating-model
- Understanding Operating Models: Aligning Vision, Strategy, and Execution – https://gary-seymour.medium.com/understanding-operating-models-aligning-vision-strategy-and-execution-e6b3970b5ee9
- Why You Need an Operating Model: To Align Your People and Deliver You Strategy – MBR Journal – https://mbrjournal.com/2021/11/01/why-you-need-an-operating-model-to-align-your-people-and-deliver-you-strategy/
- Design Principles for a Robust Operating Model – https://www.bain.com/insights/design-principles-for-a-robust-operating-model/
- The strategic operating model: transforming into the right organisation to execute your strategy – https://www.strategyand.pwc.com/uk/en/insights/strategic-operating-model.html
- How Do You Create A Target Operating Model? – https://www.leanix.net/en/blog/target-operating-model
- How To Design A Target Operating Model (TOM) That Delivers | THE STRATEGY JOURNEY – https://strategyjourney.com/target-operating-model-that-delivers/
- 5 Benefits of an architected Target Operating Model – https://www.linkedin.com/pulse/5-benefits-architected-target-operating-model-kirill-derevenski
- Advantages of using Target Operating Models to drive transformation – https://www.businessoptix.com/blog/advantages-of-using-target-operating-models-to-drive-transformation
- Operating Model Redesign & Implementation in the Public Sector • Four Principles – https://www.fourprinciples.com/expert-opinion/operating-model-redesign-implementation-in-the-public-sector/
- The Art of Operating Model Design: Creating a Future-Proof Operating Model – https://www.linkedin.com/pulse/art-operating-model-design-creating-future-proof-adu-o-b-