We have seen a shift toward a more comprehensive, holistic approach to designing operating models that drive and enable sustained advantage.
In past explorations of this topic, we have questioned why business leaders are so obsessed with re-drawing boxes and lines as the primary means to change their operating models and improve company performance. It was our hope that this innate bias – to focus solely on structure – would evolve to include a fundamental principle put forth by the architect, Louis Sullivan, the father of the modern skyscraper:
The promising news is that we have seen a shift away from solely focusing on organization structure as the primary means to improve performance, toward a more comprehensive and holistic approach to designing resilient operating models that drive and enable sustained advantage. But just what is driving this shift? Simply put, the speed and velocity of change in business is driving leaders to fundamentally question where they play and what it takes to win.
Technology advancements, competitive disruptions and socio-political forces are constantly testing the resilience of an organization’s operating model and driving the need to holistically understand and evolve it. Changing boxes and lines and spans and layers is insufficient to ensure an organization’s ability to compete and win in the marketplace as it fails to address what matters most to sustaining competitive advantage—designing your operating model to build, leverage and constantly improve differential organization capabilities that delight the customer and beat the competition.
Below we share five keys to designing a resilient operating model for your company that, with periodic review and evolution, can drive effective strategy execution and sustained competitive advantage.
1. Anchor the design of your operating model on organizational Capabilities that truly differentiate superior performance in the eyes of your customers.
Organizational capabilities are the combination of people, processes and technologies that, together, provide your company with competitive differentiation. Organizational capabilities should form the cornerstone of your operating model design.
In our experience, companies have limited understanding around what capabilities provide competitive advantage, and often short shrift the process of defining them. If unsure, it is essential that leaders take the time to discover and define these capabilities through a market and organization analysis that answers these key questions:
What are you great at (in the eyes of your customer, not your own) vs. your competitors?
What are your customers willing to pay a premium for in terms of products, services, and experience?
Why do your customers choose you and stay with you vs. going to your competitor?
Where are we currently winning or losing to competitors (and why)?
How can we disrupt our marketplace and competitors?
2. Understand and embed Working Norms that drive the collaboration and engagement required to serve your customers better than your competitors and attract and retain the workforce needed to maintain competitive advantage.
Working Norms define how people work together and collaborate within and across organizational boundaries. They encompass formal and informal norms of behavior, what is truly valued and what leadership expects and will accept with respect to how the organization is led and managed. These norms describe “how work really gets done around here” and “what it really is like to work here”. Sound a bit like a definition of culture? It should, as working norms are a proxy for it.
One way to think about this operating model element is to envision who (which roles and groups) across your organization’s value chain needs to collaborate most closely to create differentiating value for customers. For example, in medical device companies it is critical that Sales, R&D and Engineering closely collaborate to understand and bring together the voice of the market and the science and engineering of device design to bring forth products that are differentiated from their competitors in the eyes of the regulator, the health care provider, the patient and the healthcare payer.
3. Design Accountabilities, Decision Rights and Governance to enable and embed working norms and critical capabilities; that drive the speed, quality, innovation and productivity needed to beat the competition.
Resilient operating models clarify who has accountability for the work that needs to be done across the key functions within the organization. They also very clearly define the accountabilities of the corporate center and of the business unit or division. Points of potential friction or drag, normally at organizational boundaries or in areas of key decision making, are anticipated and alleviated through clearly defined work scopes, handoffs, interdependencies, and decision rights. Simply put, everyone on the team knows their position, who takes the lead on which plays and how to play together to score and win.
4. Intentionally design and embed Networks and Information Flows.
Data, information and knowledge (tacit and explicit) is the lifeblood for making informed decisions in service of your customers. Resilient operating models define what is needed, when its needed, who needs and who needs to provide it. Further, they ensure the optimal flow of this data, information and knowledge through the intentional design and reinforcement of formal and informal networks that connect the right people and enable the level of collaboration and discourse needed to make timely and informed decisions.
Information technology has become a core means to enable this flow and to connect people. That said, resilient operating models do not rely on technology alone. They also utilize other means to ensure efficient and effective information flow and interaction. These include formal and ad-hoc forums (think hackathons, affinity groups and communities of practice), physical space, and communal benefits such on campus dining.
5. Design Structures to leverage capabilities, reinforce working norms, and drive cost efficiency.
When designing an operating model, one of the final leadership decisions is the formal structure that will be deployed to support strategy execution. While benchmarks on spans, layers and reporting are useful references, decisions regarding structure should be based on what will:
Build, evolve and enable differentially competitive Capabilities
Accelerate and reinforce desired Working Norms
Reinforce defined Accountabilities, Decision Rights and Governance to remove organizational barriers and complexities that create unnecessary execution drag
Reinforce formal and informal Networks and Information Flow
Fully engage and develop the Workforce you need to maintain competitive advantage
Enable cost effective delivery of services and achievement of desired levels of profitability
Resilient operating models require intentional design choices shared in this article that go well beyond organization structure. While changes in structure may sometimes be needed to improve the efficacy of your operating model, they are insufficient as sole drivers of lasting competitive advantage and effective strategy execution.
Why? Because form ever follows function.
Our series on designing resilient operating models continues with an article from Aaron Sorensen titled Why Structural Changes Don't Improve Execution, exploring five misconceptions that companies should avoid when realigning their operating model for the uncertain times that lie ahead.
And explore additional operating model insights from Garrett Sheridan in the related article Right Strategy, Wrong Operating Model = Poor Results.