Imre Hegedus | May 11, 2020
Every enterprise has an operating model – whether it is documented or not; your enterprise has a way of working and managing elements including your people, processes and technologies that dictate the efficiency and effectiveness of your enterprise.
Operating Models are excellent (though largely under-utilised) planning and management tools. They are often only considered as part of transformation programs to define some preferred future state of operational performance (a Target Operating Model or TOM).
Your enterprise operating model supports your business model – both of which are informed by the external environment. The degree to which your enterprise has the ability to respond to external environmental impacts reflects the relevance and resilience of your current state operating model.
In these times of significant external environmental impacts, it is recommended that you review your operating model and continue to use it as a management tool to ensure your enterprise has a robust foundation from which to transition to a stronger, viable system of enterprise operations.
An operating model describes the inter-related elements of an enterprise that must be managed to deliver value to customers. The elements have three properties:
Typical elements include: Strategy, Governance, Methods, People, Services, Processes and Technology.
An enterprise Operating Model is a subset of the enterprise Business Model.
A business model describes the way in which an enterprise engages with the external Environment to create and deliver value and sustain itself as a viable entity.
The environment within which an enterprise exists. The environment includes market, social, natural, economic, cultural, political, legal, technological, and demographic factors. Environmental factors are in constant flux and may constrain or facilitate an enterprise.
Operating Models provide a foundational understanding of your enterprise – describing the key elements and their relationships of what makes your enterprise work. They are a constant frame from which current performance may be measured and future performance may be planned.
With the right design and amount of detail, an operating model may be used as part of the business planning process to review current operational performance and determine what changes need to be made to progress toward a target operating model performance.
Exhibit-1. Example high-level Operating Model
Target Operating Models (TOMs) are now common parlance for enterprises who have sought transformational change. TOMs represent a desired future-state of operating capability for an enterprise though it is important to start from understanding your current state so your enterprise may navigate toward this target state from wherever it is today.
A first step toward understanding the robustness of a business or operating model is undertaking an Environment Scan – these highlight and prioritise the various external impacts that your enterprise needs to respond to. There are usually many external impacts and each operating model element should be assessed against each external impact to determine what needs to change and to what degree.
The current global pandemic, and more specifically the associated economic lockdowns are an unavoidable external environment transformation driver. Enterprise transformation efforts are said to fail 70% of the time. Commonly cited reasons for failure include lack of a coalition of the willing (not enough people on board with the need to change), and lack of a sense of urgency (programs taking too long to develop and maintain momentum). These transformation constraints do not exist in the current environment – there is no question of the urgency and the need to change.
The impact on enterprises will vary significantly and so should their responses. Your enterprise response to the environmental impacts should be systematically considered and will determine how you survive (or thrive) in the short-term and ideally thrive in the long-term.
We suggest a three-step ‘outside-in’ approach:
1.Undertake an Environment Scan
2. Review your Business Model in light of the Environment Scan impacts
3. Review your Operating Model in light of your Business Model and Environment Scan impacts
Exhibit-2. Operating Model context
In a macro sense there are two main response options to external environmental changes– (i) revise your business model and/or (ii) revise your operating model. Undertaking regular and structured “Environment Scans” as part of the enterprise planning process will provide the context within which to effectively respond with Business Model and/or Operating Model changes.
In this article we focus on Operating Model review and ongoing management.
Our approach to enterprise review and planning takes both outside-in and inside-out perspectives. We recommend reviewing the current and potential environmental factors that impact your enterprise business and operating models. We recommend this as part of an annual strategy and planning process – given the current situation, we recommend doing it now.
Table-1. Enterprise Review and Transformation Perspectives
Importantly, we see your operating model as a key management tool to be used throughout the year as a means for reviewing priorities, aligning projects and optimising cross-functional performance.
Now is an opportune time to review your current operating model.
Now, more than ever, we recommend reviewing it, indeed living it, in light of the systemic impacts of COVID-19. For most this will require a transformation in many aspects of enterprise operations.
We are going through a global health crisis that is impacting our social and economic systems ultimately transforming our ways of working. There is an emotional process we will all go through in dealing with it – we are likely not all on the same part of the cycle. This is also true of our enterprise teams and more broadly our enterprise operations.
Some enterprises are able to maintain some sort of Business as Usual (BaU), some are in crisis, some are reviewing themselves in light of the situation and some are planning changes to leverage opportunity from crisis. The circumstantial impact for many is not a choice – sectors are impacted differently. The response for all, however, is some form of understanding our current reality, visualising and transitioning toward a new reality.
Exhibit-3. Stages of Enterprise transformation
This change process may be viewed through the perspective of the individual1 or from the enterprise. Either way, understanding there is a change process to go through where vision and planning for a new reality within which we will thrive are key.
For our enterprises, the actions we choose and the speed with which we can navigate them are a function of our ability to understand the various elements of our enterprises that need to improve, change, transform – our enterprise operating model elements.
Once the need for change is realised, your operating model may be used to both evaluate the impacts of the external forces on the enterprise and consider the responses required. In doing so, current-state operating model elements are evaluated. Similarly, future-state operational performance targets may be set. A change program may then be designed to bridge the gap in a planned and timely manner. As such, operating models are a constant frame of reference to guide your enterprise to its desired future-state of performance.
The key elements of your operating model do not change – it is really the performance of the elements individually and together as a management system that differentiates where you are from where you want to be.
Exhibit-4. Navigating to Future-state Operating Model Performance
Using an operating model as the basis for current-state performance assessment considerate of external environment changes provides a strong and consistent foundation from which future-state performance may be planned and realised.
Now, more than ever is the time to design and/or review your enterprise operating model and determine whether it is sufficient for you to weather the changing environment. Then – make sure you use it as a planning and management tool on an ongoing basis.
The need for remote working is a very real impact of the physical distancing requirements of the current pandemic – an external influence that is affecting many enterprise operations.
We can use operating models to analyse enterprise impacts and appropriate responses. The following table is an example with emphasis given to those elements highly impacted.
Table-2. Simplified illustrative Operating Model impact assessment (remote working)
1 As per the Kubler-Ross stages of grief model
2 Importantly, the relationships between operating model elements also informs the change plan eg. New remote collaboration tools [TECHNOLOGIES] will need to be supported by changed ways of working [METHODS] which in turn require staff training [PEOPLE].