Operating, and other, models

We've been posed the question in our organisation: 'what are we seeing as emergent problems' that are giving rise to 'noise around the operating model'. This has led to several reviews gathering steam.

I think before we set off on different tracks we should work from a common understanding of what an 'operating model' is and even better what our current operating model is. This is important because there are several competing views around conceptualizing an 'operating model' and we don't have a single model used consistently in our organisation. So identifying 'noise' could mean we were hearing completely different things and wouldn't be able to agree which to pay attention to.

Additionally, there is further confusion around related terms and relationships. For example: is a business model the same as an operating model? Is a target operating model different from either of these? Where do business capabilities fit? How is organisation design linked to any of these?

I'm going to attempt an explanation of the different terms. I've presented them in what looks like an ordered sequence of steps to take. In reality each is inter-related with the other and if you are an established enterprise you could 'start' at any one of the steps as you already have at least an implicit business model, a strategy, an operating model, and an organisation design. Making these explicit, if they aren't, enables you to see where to do things differently in the future which case you are heading towards a 'target operating model'.

First develop your business model. There are many conceptual models to help you with this – a commonly used one is Osterwalder's Business Model Canvas but Tim Katelle's blog discusses Eight models of business models (including Osterwalder's) ending with good advice: 'So pick whichever one resonates the most with you to use'. Generally, they ask you to think through the basic building blocks of your organisation – what is your offer what customers are you targeting, what activities and channels will take your offer to your customer. At this point you may pick up on the business capabilities you need to action your business model.

Second develop your strategy. The amount written on strategy would take even IBM's Watson a good while to synthesise it and come up with the best model for developing a strategy. A simple view is that a strategy is the approach, including direction and scope, you will take in a given time period (often quoted as 3-5 years) to maximise the value of your offer.

Third design your operating model. This too is a minefield of different conceptual models. Look at many different images of them on Google Images but at bottom they are all concerned with organisational activities that will deliver the strategy. (You'll see some of them are remarkably similar to the business models). What they are getting to is what you need to actually do to deliver your business strategy. One paper describes this as the 'tactics'.

Ashridge, a management college, suggests POLISM as a mnemonic from which to develop your operating model. (Processes and activities, Organization and people , Locations, Information and other links, Sourcing and partners, Management system)

A very good demonstration of how to get from a business model to an operating model is given by Tom Graves in his blog From business model to enterprise architecture. (You'll get the idea even if it seems highly technical). Note that I have equated 'enterprise architecture with 'operating model' which may not be 'right'.

Fourth do the organisation design that delivers the operating model. Unsurprisingly there are numerous conceptual models for doing organisation design work (see my book The Economist Guide to Organisation Design 2nd edition for comparisons of these).

In my work organisation design involves the people, roles, and social organising structures to get the work specified in the operating model done. So I'm looking at what exactly is the work, how many people do you need to do it service, what skills levels and capabilities will they be, how will they be organised into work teams. See also Nicolay Worren's blog What is organisation design.

Having written all this I'm not surprised there's confusion. Put simply?

  • What are you offering to whom and how? (Business model)
  • What is your direction and scope over the coming period to activate the business model (Strategy)
  • What are the key 'tactical' components e.g. systems, process, people, technology which will deliver the strategy. (Operating model)
  • What work are people doing within and across the key components and how are these people organised to do the work efficiently, effectively, and with enjoyment. (Organisation design)

What terms and models do you use in in your organisation that are in this ballpark? Let me know.

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