The Iceberg of Operating Model Design  - ON THE MARK
21st June 2024

The Iceberg of Operating Model Design 

Operating model modernization isn’t what it seems. The familiar iceberg metaphor is instructive. Above the water is the visible design that can be captured in written language. It’s organized by the elements of the star model, the Seven S model, or any other representation of the major features of an operating model.

Below the waterline is the bulk of the iceberg. It is the hearts and minds of the people in the organization. This is the domain of complexity, psychology, transformation, and other messy, non-linear dimensions of organization.

Operating model modernizations are vastly different activities above and below the waterline. You can achieve the former with a good guide, a handful of leaders, and an offsite retreat. This is essentially what most consultants will sell to you – modernization above the waterline. It’s an easier, more predictable, and more controllable project. The same recipe will not get you anywhere near a new, realized operating model below the waterline.

With the iceberg in your mind’s eye, you’re well positioned to understand the often-overlooked aspects of operating model modernization and the reason most consultancies make up processes as they go, if they go here at all.

Organizations are Both Social and Technical

Organizations are comprised of two distinct and related systems. The technical system includes the tools, techniques, and activities needed to produce goods and services. The social system is the people in the organization, the relationships between them, and their commitment. These two parts, the technical and social systems, are independent of one another because each follows a different set of principles that govern their operation. The two parts are also related because both must work together to deliver the purpose of the organization.

Consequently, these two systems produce different outcomes – products and services for markets and social and psychological consequences for employees. The key issue in operating model design is to make each system compatible with the other to produce favorable and sustainable technical and social outcomes.

Because of the interdependence, it isn’t possible to change one system without impacting the other. To treat social change as naturally compliant with technical change is to view organizations as machines and people as substitutable parts that are fit into the machines. In most cases, change doesn’t fail because of technological limitations. Change fails because of inattention to social factors. Most consultancies understand this conceptually and can speak about it, but don’t really practice in accordance with this understanding.

Most Consultancies Aren’t Built for Social Transformation

First, the evidence. You don’t need to talk with too many leaders to accumulate stories about ‘the binder’. The story goes like this: lots of smart consultants off doing work in my organization culminating with a well-delivered and compelling presentation and a binder, neither of which helps me do anything with my consulting investment. Others will use more colorful metaphors like being left at the altar (of implementation). Why are stories like these so easily found if there isn’t some truth in them?

It’s the consulting paradigm that matters. The paradigm is organization as a technical system – a machine to design. From this point of view, it’s sensible to separate the planners from the implementers. The planners are a small cadre of very bright and well-educated leaders and consultants who, among themselves, develop articulate and justifiable operating model choices. They generate the presentation and binder. Then, they leave.

The problems follow. The plan is a high-level plan that doesn’t extend to implementable detail. The plan is a product of leadership and consultants. Only they are invested in it. Only they know how it works. It’s a plan that must be sold into the organization. However, nobody but the design team is invested in the plan or understands the decisions and trade-offs made along the design journey.

Personnel also matters. Many young consultants at the big brand name consultancies have a common background. Most graduated with an MBA from a marquee business school. There is nothing inherently wrong with this fine degree and these intellectually gifted graduates. Many will claim they loved their class in organizational behavior. That one class, however, neither deprograms these consultants from their expert mindset nor embeds a replacement mindset and related skills oriented to transforming human systems. There are always exceptions, but by and large the academic background of most brand name consultants is misfit to the demands of organization transformation.

We Don’t Make It Up as We Go

Operating model modernization is found in behavior change, not binders, and not superior technical operating model design. Because of this truth, the social system must have equal attention as the technical system. And the process of design must promote the transformation to the future organization.

We don’t separate the designers from those who must implement the design. We call this a commitment-based, collaborative approach. By systematically involving the organization along the entire design path, it’s possible to bring an organization to change readiness without all the internal selling needed to overcome resistance and achieve “buy in”. What is possible is a ‘designed by the people for the people’ social movement. People are prepared to support what they create. Transformation is much easier in such an environment.

This approach to change integrates much learning from social sciences and psychology. It interweaves consulting with large-group facilitation and organization design knowledge. It has principles that flex and allow adaptation to the client situation. It is put into action by people with academic and experiential backgrounds that don’t generally look like the MBA graduate. For these reasons and more, it’s easy to see that making up such a methodology as you go isn’t possible. Quite the contrary, the methodology is carefully considered and deployed based on a deep reservoir of knowledge and experience that is simply not common in the big-name consultancies.

It’s the Social System that Transforms – Not the Technology

If operating model transformation is your objective, then you must ask a prospective consultant how it engages and moves the social system. It is people who must transform if your operating model redesign is to be successful. This inquiry is particularly important if you’re talking with a technology-centric consultant. Ask them for the principles of their transformation methodology. Ask them for their views on organizational change. Ask them what marks the beginning of implementation.

With questions like these, you’ll understand what transformation or operating model modernization truly means to your consulting partner. If the response relies heavily on the language of technology go-live and change management then you are likely interviewing a consultant focused on the technological system above the waterline but poor or avoidant of the much larger and consequential human system below the waterline. You’ll also develop informed judgment to help you answer the question, “Does this outfit know how to modernize my operating model, or will they be making it up as they go?”

Dan Schmitz is an Operating Model Principal Consultant at ON THE MARK. OTM’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 35 years and is a leading organization design firm. 

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