What is operating model design?
The process for Operating Model Design relies upon an organisation understanding its business capabilities: the ability of its people, processes, information and the tools it needs, in order to deliver services to its customers and achieve its business goals.
An operating model should be designed to act as the ‘bridge' between strategy and execution, and can be described as the process for an organisation as not just understanding its capabilities, but also how best to ‘deploy and manage them’, with rules in place to manage and operate the component parts, to achieve its goals.
In designing an effective operating model, there is no definitive and common view of the component parts that an operating model should include, with differing organisations focusing on aspects relevant to their own business and individual strategic objectives.
The view from consultants as to what forms and constitutes an operating model is divergent as one might expect. Some highlight the crucial elements as being design principles; culture and values; governance; and processes, and extend the model to include information technology; service delivery; organisational design and structure; risk management; and performance management.
Other consultants are equally prescriptive, promoting strategy as being at the heart of operating model design with structure; processes; and people key to delivering business strategy, with each broken down into its various component parts. On the other hand, some consultants consider organisational design as central to delivering strategy, supported by organisational structures; skills and capabilities; and performance measures, all of which are underpinned by:
governance and reporting: to run the organisation efficiently and effectively;
technology: the technology needed to deliver goods and services to customers;
process: the business and functional processes to support business goals; and
people: skills and capabilities needed from those involved.
Academics at the School of Business and Economics at Loughborough University support the philosophy that operating model design addresses: the location of people and processes; the required skills and infrastructure; and how performance is monitored and improved by an organisation. They developed a Service Operating Model Skills (SOMS) framework, in which their philosophy is reflected through several elements: ‘the customer experience; delivery; process context; organisational structure and infrastructure; people capability; demand and capacity management; performance management and improvement; strategy; and governance and leadership.
Other academics draw a distinct reference to the fact that operating model design should centre around the core concept they call the ‘value delivery chain’ - in other words, the value proposition aimed at achieving customer beneficial outcomes. Their ‘Operating Model Canvas’ covers the key elements, colloquially known as POLISM (processes; organisation; locations; information; suppliers; and management systems), that are both important to delivering that value proposition and enable organisations to design operations with customer centricity at the forefront.
So where’s the problem?
Operating model design may be easy to describe, but difficult in practice. Success in designing and implementing an effective operating model is simplicity, driven by clarity - clarity of the purpose. In other words, identifying and understanding what ‘we are trying to do and achieve'. Clarity can be achieved through three simple questions:
‘for whom are you trying to do something (the customer (i.e. the service recipient))?’
‘what is it that you are trying to do for the customer (the product or service)?’
‘what activity do you believe you need to do particularly well in order to create value for the customer?’
Conclusion
What seems clear, is that despite differences in terminology and description, the coherent school of thought is that the core foundational components of an operating model are organisational structure; operations and processes; people, technology and governance.
The critical difference across models lie in what is placed at the centre - design, strategy or value.
It is recognised that organisations often experience a lot of complexity (issues, conflicting views, things that don’t work etc.) before simplicity itself, through the redesigning of the current operating model (or aspects thereof), is achieved.
Our next article looks at ways in which a business could look to redesign their finance operating model...
Author: Mark Trenavin-Body EMBA, CMgr FCMI, FATT
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