The Business Operating Model. What is it? Why should I be interested? And how can I orchestrate change?
In the current environment of global change, it is becoming increasingly important to think about the design of your business. Is your Business Operating Model optimised to meet the needs of your target market? Is there a better way that your business could be designed? This article discusses the conscious design of a business.
Due to the complexity Business Operating Model Design, this can only be an introduction to the concepts.
What is a Business Operating Model?
A Business Operating Model is the combination of roles, skills, structures, processes, assets and technologies that allow any organisation to deliver on its service or product promises. In effect, it is the way the business is set up to deliver.
Common components of a Business Operating Model include vertical or horizontal integration, the way the organisation thinks about its staff (e.g. contract or permanent), the way personnel work together or the way responsibilities are divided up within the enterprise.
Let’s imagine an extreme example which will help illustrate this. Let’s consider a retailer which is very clear about what it is trying to be. It is a catalogue and e-channel company of fashion which offers reasonably priced, good quality, and conveniently available goods to a targeted market. The business is:
- Retailer of fashion clothing and footwear
- Catalogue and web based model
- Centralised management, IT, product development and buying operating out of the Middle East
- Procurement operating out of Asia
- Manufacturing is outsourced to Asian enterprises
- Target markets are Australia and NZ (first), followed by Canada and UK
- The business is a low cost in comparison to its physical shop front competitors
This enterprise has thought about the following dimensions of its Business Operating Model
- Capabilities – Essential elements of core competencies, including product development, buying, procurement, pricing and web retailing. However, manufacturing and physical retailing are not required competencies.
- Functions – those that need to be together and those which can be separated in order to deliver on the essential capabilities. E.g. Web skills and manufacturing do not need to be co-located.
- Geographies – those which are best placed to accommodate the different functions. E.g. Asia for procurement most manufacturing is sourced from Asia.
- Role and Process Design. – Who is accountable for what, and how the processes will work. Role and process must be considered together – separating them is a fundamental design error which many companies make. Bevington Group has specialised tools and methodologies that ensures they are linked.
- Structure – how the roles and processes are integrated. For example, structure along process lines (e.g. Design to Order process, or Order to Cash Process), along functional lines (e.g. GM of web development), or along geographic lines (e.g. country head of Australia).
- Technology – the technologies that are required. E.g. Web retailing and catalogue development technology, but also those required to support effective communication and knowledge management.
As you can see from the example, if you break up the design of your organisation into dimensions, it is possible to make rational decisions based first on your strategy and secondly on available data.
However, some of the dimensions will require more professional support to make your decision. For example, role and process design is a real skill, and if done poorly, will cost you dearly. It is helpful to ensure you enlist professional support to construct your design in detail.
How can I improve my current Business Operating Model?
In the retailer example, the enterprise is new, and had some early advice. However, most organisations have a Business Operating Model which has evolved rather than been designed from a clean sheet of paper. The design may never have been optimal, and it may be largely out of alignment with today’s realities. In such a circumstance just what do you do?
Fortunately there is a structured approach to improving a Business Operating Model. The following provides an overview of this approach.
Firstly, it is important to be able to integrate a number of factors into your design:
- A clear understanding of what you want to be as an organisation, and a high level plan to get there (the “strategy”)
- A set of principles to inform your organisation design
- A willingness to look outside of the organisation and even outside of the industry for different ways of doing things
- A willingness to challenge the organisation’s assumptions and sacred cows
- An ability to capture role and process information in detail quickly (so you can plan how to get from where you are to where you want to be)
- A willingness to involve a broad representation of personnel and management in an intensive organisational design workshop (so the design is not just done at the desk of the CEO, but engages staff and maximises buy-in).
Due to complexity we can’t cover all of the factors in this article. Instead we will examine two of the most critical factors in detail:
- Defining a set of principles to inform your organisational design.
- Engaging personnel and management in an organisational design workshop.
Principles to inform your organisational design
- Functions will be placed where there is access to appropriate high quality skills and resources at a globally competitive price. If it is not necessary to co-locate functions, then they will be placed where there is the most advantage
- Processes will have clear ownership at an executive level, and clear accountabilities will be designed into the roles, processes and structures (leaving no staff member in doubt)
- The organisation will be structured first of all along process lines (e.g. Design to Procure), then along functional lines (e.g. Buying), then lastly along geographic lines
- Business processes will be designed for speed (as we are in the fast fashion business) and Ease of Use for our customers (as convenience is a key customer value proposition)
- We will outsource to the most appropriate provider where the function is not core to our competitive success
- There will be a full investment in the required technologies to ensure a ready interaction between all functional units
When considering these principles, there is no doubt that this organisation will go where it needs to go to geographically, will source externally as required, and will design processes which ensure clear accountabilities (to ensure speed).
It is crucial that each organisation develop their own principles, as they limit the possible design options. Without a clearly defined set of design principles you will end up either with too many options to consider, or you will apply a hidden set of principles that have not been tested.
How to rapidly, but thoughtfully, consider the design of your organisation
How are these principles developed into the organisational design? Common approaches include a discussion between the top executives, or a report by a consultancy. However, both of these options are often a poor way to proceed. To achieve a design that can be implemented, you need to engage the people who know about the realities at the front line, and who are influential enough to help maximise buy in. This will significantly improve your chances of implementation success
Bevington Group recommends a multi day design forum, spaced out over three weeks. The forum will bring together personnel who know the problems of the business today, and who can act as change champions. The forum will integrate deliberations of frontline personnel with executive management to agree the:
- Problems to be resolved
- Design principles
- Design options
The forum will produce a series of design options, with executive management making the final decisions.
In order to be successful, the forum should be facilitated by experts who have previously supported Business Operating Model redesign. It should also incorporate different thinking and practices from other markets and industries.
These forums are successful as they force timely decision making. At pre-set stages in the workshop, executive management need to approve (or otherwise) of the progress to date. This can save many months of costly deliberations, condensing it to just a few days. At the end of a design forum, the executive leadership should have no more than three options from which to choose.
The workshops are also powerful because they consciously engage the potential influencers. These influencers are not only the managers, but personnel who are willing to change and who have earned broad respect. Having participated in the decision making process, they will be more willing to back the solutions. This leads to a more readily implementable program.
Implementing a Business Operating Model redesign
Once decisions have been made on the preferred Business Operating Model, the organisation must progress to implementation. At a high level, the implementation must consider:
- A clear understanding of the current state so a pathway can be developed from the As-Is state to the designed To-Be state.
- A way to divide up the implementation into phases.
- A way to manage the change with agility so that solutions can be tested, monitored, and promptly responded to.
At Bevington group, over hundreds of engagements we have developed and refined methodologies and tools to meet these challenges and ensure redesign and implementation success, including XeP3 (robust process improvement methodology), SMART (role redesign tool) and Momentum Methods (change management system).
In conclusion, the current Business Operating Model of your organisation may have been consciously designed for a different time or different set of conditions and over time it has evolved, or alternately, it may never have been consciously designed in the first place. However, you are not stuck with this model.
You can redesign your Business Operating Model to improve performance, as long as you can also robustly implement the changes. Your new design must consider a broad range of dimensions such as capabilities, functions, geographies, roles and processes and technologies. A conscious and informed design based on principles will produce a good result, while one that actively engages critical change champions will produce an even better result. This sort of redesign activity will unquestionably become more common as the pace of global change accelerates.
Roger Perry is Managing Director of the Bevington Group, Australia’s leading specialist in organisational design, process improvement, and change management. He publishes widely and is one of the region’s foremost productivity improvement and organisational design experts. Contact Roger at firstname.lastname@example.org
Learn more about business operating model design.