The operating model is strategy’s ugly cousin. More-and-more businesses roll out sophisticated ‘always-on’ strategies, updating as needed, not the old three-to-five-year plan. A restructure often follows, usually on a two-year cadence—followed then by a new operating model which takes another two years to bed down. But then, a new restructure is in full flight – not to mention the continuous strategy evolutions.
Rapid changes fracture the relationship between strategy and operating models—reducing execution effectiveness, creating confusion, and creating silos where managers refuse to give-up resources. Operating model changes are either too low level to create real change. Shifting lines on the organisation chart, while conveniently forgetting to shift how a function supports strategy. Then political realities and cognitive bias warps the process. Or, they are too high level, based in theoretical concepts that have little practical utility. The operating model must be grounded in data-driven strategy, or it loses the ability to assist in executing that strategy. Rather than structuring to execute, a new operating model simply retains the status-quo.
Consider one of Churchill’s large clients. After great change and growth in an industry currently seeing unprecedented business model disruption, managers found their divisions lacking the direction in constant conflict with other divisions. A centralised marketing function had been empowered to execute and take accountability for developing strategic initiatives. Yet they found they were unable to influence key divisional stakeholders, with different priorities and objectives. They risked failure because their marketing operating model did not reflect the way they needed to work to achieve business objectives. They knew they needed to redevelop their operating model to execute the business strategy, but with great change, knew they needed to embed an operating model everyone would sign-up to.
In these situations, leaders must ensure the link between strategy and operations is strong, while also facilitating strategy cascading down the organisation’s divisions. Four areas enable the operating model to execute strategy: value creation, capability requirements, resource allocation, and, accountability and responsibility
Not all work is equal, nor are all divisions. Strategy determines which areas deliver outsized value contribution relative to others – then the operating model allocates resources and priority to them, processes, or brand elements which deliver outsized value contributions relative to others. While this sounds easy, it’s often left out for two reasons:
In strategy development it’s essential to bring business leaders together to identify those few critical things that make the difference, the restructure and operating model development then maps the business value chain to identify where resources must be allocated.
This process is the missing link, since it determines not only how to design a winning strategy, but also where to allocate resources to execute. The most important step is to determine which specific functions are crucial to achieving strategic objectives, then capabilities can be put in place to execute strategy.
Once you understand which areas make outsized contributions to strategy execution, you can identify the specific capabilities you need. This often means identifying capabilities that don’t make outsized contributions and redeploying, or, unfortunately, replacing them.
For our client, they saw the ability to grow their brand presence in new markets, delivering consistency in their brand promise and an integrated value proposition as having the ability to deliver outsized value contributions. But this would require the divisional leaders to agree to a marketing shared services model where strategic plans could be developed, work prioritised to reflect strategic objectives, and increase consistency across a national organisation. This had to be delivered without compromising revenue generation for divisions or any reduction in service quality to divisions.
The best operating models can’t satisfy everyone; nobody can be great at everything. Instead, you must clearly identify where you need excel to achieve strategic objectives.
This is the part where operating model development gets tricky. Difficult conversations are required to understand whether required capabilities currently exist, need to be reallocated, or entirely created, often replacing capabilities no longer required. Resourcing differentiating capabilities and identifying where they best fit requires in-depth understanding about how these capabilities truly create outsized contributions to strategy execution. Should functions and capabilities reside within the corporate centre or within operating divisions? Who is accountable for making decisions and which governance structures are required?
The key questions are: what are the most critical roles within the business? And, do we currently have the best people assigned to them? To answer this, you must understand how you create value, and identify desired capabilities, which already exist, even if they’re geographically dispersed. This provides you with the ability to match the right person to the right role to deliver the right result. It will also make your life easier by improving the ability to adapt to changes in strategy and operating models, by removing the fear for employees.
Accountability and Responsibility
When executives took a closer look at how work was delivered, they found people were prioritising individual objectives over the business objectives. Existing governance structures empowered this behaviour, and resulted in a limited ability to build enduring an brand promises and value proposition with customers. Often, collaboration and support were missing. In other cases, divisions were worried about damaging relationships with key channel partners if their colleagues recommended services that fell short of expectations.
Silos had been created and were being reinforced through existing processes which constrained the ability to grow their brand presence in new markets, delivering consistency in their brand promise
Operating Model Design Implications
Redeveloping the operating model requires you to prioritise existing strengths and fix strategic weaknesses. Only by changing the way people work, and building, redeploying, or acquiring new capabilities can you ensure strategy execution. Before embarking on an operating model redevelopment, you must clearly articulate what you want to achieve, and address implications resulting from this, to ensure the new operating model reflects them.
New operating models propose significant changes to the way people work, and they often have political implications. In these instances, performance evaluation, measurement, and reporting become critical to demonstrate the link between the new operating model and strategy execution.
Our client has developed an operating model focussing on relationship building with its divisional leaders. At their centre, these relationships rely on trust. Trust from division leaders that the new operating model will deliver enhanced services for the same cost. And trust from overhead functions that division leaders will work within the governance structures, systems, and processes developed. This will lead to increased consistency in their brand promise and messaging, while working as a partner to divisions in meeting their revenue and strategic objectives.