In today’s highly competitive business landscape, a unique strategy isn’t enough. What truly separates winners from losers is execution. It’s how you weave your strategy into the DNA of your organization through your operating model.
Traditional management research and business approaches (e.g., Porter’s industry forces framework or the resource based view), approach sustainable competitive advantage in terms of a firm’s positioning within a chosen industry. These approaches, however, fail to consider the inherent significance of the core value-creating work that directly contributes to a company’s competitive differentiation. This article outlines an operating-model-centric view as an alternative to traditional models of competitive advantage and provides insights on the true source of sustainable competitive advantage.
An operating model refers to how an organization aligns its critical business elements, including its strategy, value stream, structure and management systems. It encompasses the processes, systems, and structures that underpin an organization’s ability to execute its strategy effectively and efficiently. Modernizing the operating model enables organizations to unlock their strategic advantage. Evaluating the various facets of your operating model is an effective way to assess ‘fit’ and align organizations to their strategies.
To Achieve a Sustainable Competitive Advantage, Master the Art of Core Value Creation
1.Prioritize the ‘How’ for lasting competitive edge. Staying competitive requires more than just delivering a product or service –it demands a profound understanding of the intricacies embedded within the ‘how’ of your operations. Companies often prioritize the ‘what’ without recognizing the potential of the ‘how,’ and the ‘how’ is needed for propelling them forward. This overlooked dimension is key to OTM’s ability to help businesses unlock a sustainable competitive advantage that can revolutionize the landscape of their operations.
The ‘how’ of establishing a lasting competitive edge is composed of the methodologies, processes, and approaches that deliver the ‘what’ efficiently and seamlessly. Holding a myopic view of organizational optimization results in missed opportunities for holistic development and sustainable growth. Emphasizing the ‘how’ not only ensures streamlined operations, but it also
cultivates a culture of innovation and adaptability, paving the way for a resilient and forward-thinking business model.
The fundamental difference between the traditional strategic differentiation approach and the ‘how-centric’ approach lies in the comprehensive understanding of the underlying processes that drive core value creation. By methodically delving into the intricacies of the ‘how,’ organizations can identify inefficiencies, streamline workflows, and foster a culture of continuous improvement. This transformative shift from traditional competitive difference methods to a core-work approach empowers businesses to proactively adapt to market fluctuations, customer demands, and emerging technologies, thereby securing a sustainable competitive advantage in an ever-evolving marketplace.
2.Unveil core value-creating work. Identifying the core value-creating work of an organization is not easy. Lack of as-is data can create major challenges, often resulting in expensive diagnostic procedures and documentation. All too frequently, organizations are quick to narrow in on their organizational charts but organizational charts can’t reveal an organization’s value-creating work or how that work gets done. Identifying value-creating work requires a structured methodology and approach, knowledge of organization design, and strong facilitation skills. According to a 2019 study published in the Journal of Organization Design, nearly five out of ten respondents indicated that documenting how organizations utilize resources is a challenge (Wooren, et al., 2019).
OTM’s Constellation of Indicators© tool helps organizations map the challenges and opportunities inherent in their existing operating models. By prioritizing the golden thread (aka core value-creating work) within the operational model, employees can see the larger picture, enabling them to and align processes, resources, and talent to optimize the delivery of products and services. This approach ensures the efficient allocation of resources and enhances the overall customer experience, fostering long-term relationships and loyalty.
Most importantly, focusing on core value-creating work allows businesses to identify and capitalize on their unique strengths and capabilities. By understanding and leveraging these distinctive qualities, organizations can develop a competitive edge that is difficult for competitors to replicate, fostering long-term sustainability and resilience in the face of industry challenges and disruptions.
3.Build Interconnections and True Operating Model Modernization
Traditional business approaches emphasize improvements in strategy, structure, management systems, rewards, and culture as separate entities and initiatives. A counterintuitive approach
emerges when we consider the holistic alignment of these critical elements within an organization’s operating model.
Take, for example, an OTM client and leading software firm in the US that achieved remarkable success by aligning and modernizing its operating model. This organization recognized that its strategy of innovation, rapid product development, and acquisitions required a corresponding core work structure that fostered collaboration and cross-functional agility and dynamism. By applying OTM’s approach to operating model modernization, the business unified its operations and enhanced its ability to respond swiftly to market demands, resulting in increased improved effectiveness and agility.
An organization can also more effectively pull levers around strategy, core work, management systems, rewards, trainings and culture when viewing them as interconnected components that influence and reinforce one another. This systems-thinking approach challenges the notion that success can be achieved by optimizing each element in isolation, emphasizing the need for a holistic and integrated approach. Else one risks sub-optimizing the whole.
4.Drive Alignment in Your Operating Model Through the Industry Life Cycle
Immense opportunities exist for deploying organization design work into businesses at every stage of an industry’s life cycle. An organization’s ability to comprehend the nature of those opportunities, however, is largely informed by its existing operating model’s characteristics. Operating model challenges and risks in each phase of the industry life cycle are intrinsically interconnected with the organization’s strategy, core value work, structure, and management systems. Adapting the operating model to align with these factors is essential for ensuring the organization’s long-term success and sustainability.
Key Takeaway: The true essence of competitive differentiation lies not merely in the ‘what’ of operating model redesign, but also in the intricate tapestry of the ‘how.’ Embracing a holistic approach that prioritizes an organization’s core work is essential for releasing the untapped potential within the ‘how’ and for propelling your organization towards sustained success and unparalleled competitive advantage. By recognizing the transformative power of the ‘how,’ businesses can transcend limitations and chart a path to enduring success and excellence in the competitive marketplace.
Worren, N., van Bree, J., & Zybach, W. (2019). Organization design challenges: Results from a practitioner survey. Journal of Organization Design, 8(1). https://doi.org/10.1186/s41469-019-0053-x
About the author:
Rahul Lama is a Support Consultant at OTM and is passionate about leveraging organization design capabilities to align organizations and deliver their strategic or competitive advantage.