Your operating model represents the tracks on which the train of your business either chugs away happily or goes off the rails.
It’s critical to your business, yet in every digital transformation that I’ve seen it is either overthought and overprescribed, or scarcely considered at all.
As a result, the organisation’s ambitions are never realised!
In this two-part blog series, I’m going to try to demystify operating model transformation and explore this topic in-depth.
In this first part, we will take a look at the theory of what it is as well as what makes a good or bad operating model:
- What is an operating model?
- 3 common pitfalls when transforming an operating model
- 6 indispensable principles of a killer operating model
In the second part, we will look at the practicalities of implementing and evolving your operating model successfully:
- How to harmonise the different business domains
- How to evolve your operating model effectively over time
- Top tips for getting started with your operating model transformation
Let’s jump in.
An operating model describes the key processes, technologies, roles, responsibilities, ownership structures, organisational structures and financing models that enable your business.
If your business strategy defines the ‘what’ of your business, the operating model defines the ‘how’.
A good operating model will contain the following (inspired partly by OpexSociety):
- Processes: the steps that make up how your organisations delivers value
- Organisation model: the types of people and culture needed to support this and how these people are connected in an org structure
- Governance: horizontal cross-cutting functions that determine how the org is managed and support the value chain processes
- Decisions: who is responsible for what and how decisions are taken
- People: ownership, incentives, metrics, accountability and cultural values
- Technology: the technologies you need to have in place to effectively deliver value
- Information: data and information that link different parts of the organisation
- Management: how objectives are determined, reviewed and measured and the rhythm of meetings that are used to run the organisation
But transforming an operating model is difficult business.
And it’s probably easiest to start with how not to do it. In the next section I’ll share the biggest pitfalls that I’ve seen companies fall into.
There are a number of mistakes that people make time and again when they want to transform how their business operates at a deep level.
Some people have a tendency to overthink things. They will spend months getting lost in detailed models and spending loads of money on fancy consultants and they end up completely disconnected from the reality of their business.
At no point do they talk to people around the business and ask them what they need or gather feedback on the viability of their ideas.
Creating an operating model is a collective, emergent process. No one person understands the whole business so trying to do everything upfront is destined to fail.
Similarly, it’s easy to get consumed by pie-in-the-sky visions of operating model greatness that are simply unrealistic from where your business is at.
The question is not about what’s the best operating model we could have, but what’s the most feasible and realistic next step?
Getting to grips with where you’re at is just as important as figuring out where you’re going. Because then you’re in the best possible position to chart a path between the two.
When your plan is too detailed and overwrought and too focused on the outcome, there’s no room left to be flexible and adaptable in response to feedback from the business or the environment.
In any large transformation attempt you aren’t going to be able to predict everything up front. There needs to be slack in the system so there’s space to gather feedback, learn and adapt.
Now that we’ve covered some common pitfalls, let’s turn towards the core principles that make an operating model profoundly transformative and very effective at delivering business value to customers.
Regardless of the content of your operating model, there are certain concepts and ideas that must be included if you want to ensure you get the most out of your business strategy.
When talking about operating models, the emphasis is often put on the technology, but technology does nothing by itself.
An operating model should describe how the key pillars of your business can deliver outcomes, enabled by technology in service of your business strategy.
It’s the people and process parts of an operating mode—especially lines of ownership, decision-making and accountability and the structures that underpin these—that really deliver outcomes and help to realise the ambitions of the business.
Your IT operating model will fail if it is limited only to the IT department.
Say, for example, that you’re a financial services company that is building a new piece of software like a new banking application.
You might have software development teams vertically aligned into product areas. And this might fall within the remit of the IT function in conjunction with the business stakeholders.
But then you have all these other supporting functions that are involved in how these products are built and run: compliance teams need to make sure the app is within regulatory frameworks, Legal teams need to ensure the apps terms and conditions don’t expose the business to any potential litigation risks, business operations teams need to be able to integrate the product into reporting and support processes and so on.
These horizontal cross-cutting functions need to be included equally as peers alongside IT in the operating model.
What’s key to avoiding delays, misaligned goals and unnecessary risk is to involve these functions too late in the concept to customer lifecycle. Shift left the consultation with these supporting functions into the planning before you start the initial build and subsequent features. The operating model should enable continuous collaboration between IT and non IT supporting functions at each key stage of delivery thereafter. Trust will start to naturally form between these currently siloed functions and common goals and overarching interests will emerge.
What your devs are doing has repercussions across the whole business. And the scope of your operating model must reflect that. Because every single domain is ultimately involved in the building and running of software.
An effective operating model is not a top-down command-and-control type of approach.
Instead, it will provide a set of guardrails and rules within which people are empowered and trusted to do their job as they see fit.
I call this moving from a top-down to a federated trust model.
People should be given the autonomy to make local decisions for themselves, knowing that, so long as the right incentives, metrics and governance processes are in place (i.e. the guardrails), their actions are contributing towards common business goals.
Then you can set a different risk appetite for different parts of the business, being more risk averse in systems more critical to the business and less in areas where it's possible to enable higher levels of innovation and experimentation.
Another critical point is to keep a firm eye on what the operating model is ultimately trying to support.
Namely, the realisation of your business strategy in pursuit of specific business goals.
So, for example, a business goal might be to improve customer experience, which will be strategically enabled by reducing time-to-market for new products and features by optimising your software delivery capability for speed of change.
This is where the operating model comes in to (hopefully) provide the right context in which this can be achieved. But to do so it must be carefully aligned with business goals from the very outset.
Every single aspect of your operating model should be linked back to a business outcome in a way that is specific and measurable.
Traditionally, many organisations have been aligned around horizontal technologies with objectives and metrics measured on output (e.g. Lines of code committed, change tickets completed, resource utilisation targets etc).
Instead we want to organise vertically around customers needs and make their objectives and metrics about the customer outcome.
You can do this by changing team structure, lines of ownerships, objectives and metrics.
Alongside you might have horizontal enabling functions (e.g. Risk, compliance, legal etc.) that enable the vertically-aligned customer-outcome-focused teams to deliver.
The best way of ensuring that you continue evolving your operating model is to treat it as a product and your employees, board members, leadership teams etc as the customers.
Identify the customers of the product, what their needs are and how the features of the operating model can meet those needs on the basis of metrics that can be linked back to overall business goals.
You can define a product owner for your operating model who builds relationships with the other parts of your business, manages requirements and oversees the operating model roadmap and rollout.
And this product mindset can be spread throughout your organisation such that internal teams treat the other internal teams they are serving as their customers. Because any work done within the business eventually affects the end customer in some way!
An operating model is a complex beast and there are almost infinite ways of developing them.
So long as you stick to some of these key principles (aligning with the business; including people, process and tech) and avoid some of the key pitfalls (overthinking, being too prescriptive etc.) you should be able to minimise mistakes and iterate your way to a killer operating model.
That’s it for part one.
Join us in part two where we explore some of the more practical points of how to implement and evolve your operating model over time!
If you’re looking for some help demystifying your operating model and transforming towards modern ways of working, the folks here at Mesh-AI have deep experience in creating and transforming operating models in a wide range of enterprises.
If you want to be competitive, you need to sort your data constraints, and that's where Mesh-AI can help. Identify the areas in your organisation that require the most attention and solve your most crucial data bottlenecks. Download our Data Maturity Assessment & Strategy Accelerator eBook.
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