An operating model can be thought of as a way to visualise that crucial step in between your business strategy and your business operations.
Your strategy sets out your overarching purpose – or your ‘why?’ – and your operations explain the ‘how?’ in the form of procedures, process maps, and guidelines. However, there can often be a disconnect between your strategic intent and your day-to-day operational capabilities. This is the gap an operating model seeks to fill.
Therefore, your operating model becomes your ‘what?’, with the objective of documenting your operating model being to communicate how the business works, or will work, both operationally and technically, to everyone in it.
Without it, the ambiguity causes people to create their own process or way of dealing with something. By contrast, companies with a solid and well-defined operating model have greater effectiveness and efficiencies alongside superior customer relationships and leadership teams. They can also usually be more flexible during times of change.
What should my operating model contain?
This diagram shows the link between strategy and execution, and acts as a dynamic blueprint for the business and takes shape through choice in 5 key areas:
- The structure involves drawing appropriate boundaries for lines of business and defining shared services, centres of expertise and excellence, including coordinating mechanisms that allow a company to leverage scale and expertise. It should also specify the size and shape of the organisation with indicative resource levels and locations.
- Accountabilities describe the roles and responsibilities of the main organisational entities, including ownership of P&Ls and a clear, value-adding role for the operation. Clear guidelines for the roles each organisational unit will play in critical decisions.
- Governance refers to executive forums and management processes that provide decisions on strategic priorities, resource allocation and business performance management. A management dashboard with the key metrics keeps the focus on the company’s top priorities.
- Ways of working describe the expected cultural norms for collaborating, especially across the boundaries between functions or teams. This dimension goes beyond communicating values such as trust and respect to being explicit about which behaviours make effective decisions and execution.
- Capabilities refer to how the company combines people, processes and technology in a repeatable way to deliver desired outcomes. Where capabilities lead the design, all other aspects of the operating model must support them.
In our next article, we will discuss how you can begin to piece together your company’s operations and start to document your current and optimal (or target) operating model.
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