Just what is an operating model?
It’s the connective tissue between strategy and execution. It helps clarify how work should get done by various roles and how decisions get made, as well as the few performance metrics that matter most. It can also clarify the number of desired levels or layers in the organization as well as desired spans of control for managers and the optimal organization structure.
The 5 Operating Model Myths that Cause Companies to Execute Poorly and Underdeliver
In our work and experience with companies across industries, we run into several myths that cause organizations to stumble by failing to get their operating model right.
- Getting the organization structure right is the most critical aspect.
It’s important, but the focus on “boxes and lines” – and the names in the boxes – often obscures the need to look at what happens between the boxes and lines in the “white space”, or in other words how work really gets done across the elements in the framework above. Few leaders would point to reorganizing structure alone as a panacea, or to the benefit of seeking out the one “right” structure. If changing structure really worked, then the merry-go-round of moving boxes and lines that we see every time a new CEO arrives with his or her view on the “right structure” would be sufficient to yield improved results. It is not.
- Governance and decision committees create bureaucracy.
In truth, they don’t if they are appropriate in focus and number. Companies that revert to having all decisions made by committee will flounder and increase bureaucracy but those that elevate just the most important and complex decisions to the right group of cross-functional leaders can create an advantage. A $10Bn+ company with multiple divisions recognized that the divisions were competing for resources to innovate and grow at the division level and product level. They addressed this challenge by setting up an Innovation Council. The role of this new Innovation Council was to adjudicate where to place the “big bets” on behalf of the enterprise and it worked incredibly well. Similarly, they recognized the need to get products and solutions to market more quickly so they set up a Commercialization Council to quickly align resources and drive revenue and profit from new product and solution launches. Only these two important, complex decisions were made by decision committees; others followed acknowledged best practice of an individual owning decision rights.
- A well-defined operating model alone will enable effective execution.
As a matter of fact, a well-defined and coherent operating model is clearly an important lever of effective execution. However, companies need to constantly adjust and calibrate the connections between strategy, operating model and the talent that executes. Unless a strategy is fundamentally changing, it’s unlikely the operating model will need a complete overhaul. Rather, refinements may be required when barriers to execution or increased complexity creep into the organization. Put simply, a great strategy plus a tightly-coupled operating model without sufficient talent to execute will come up short.
- An organization can have only one operating model.
We’ve worked with successful organizations who have different businesses or divisions that for reasons including their growth phase (e.g., start-up), growth rate, tech concentration or competition need to have different, distinct operating models. For these different operating models to co-exist in a company, it is critical that each model be clear and driven by the strategy dictated by the business or division. Even so, at the enterprise level there should be a single, clear, overarching operating model.
- A new operating model can be implemented by gaining alignment and commitment from senior leaders. Senior leader alignment and commitment around a new operating model is necessary but not sufficient. Deeper change across divisions, functions, and product lines and new behaviors are required. Once the new operating model is defined, engaging all employees — from leadership to the front line — in understanding what is of expected of them and how they need to adapt and work to deliver results is required.