When You Should Design a New Target Operating Model | OTM
12th April 2019

When You Should Design a New Target Operating Model

ON THE MARK (OTM) ran Executive Briefings on both sides of the Atlantic on the theme of When to Know It’s Time to Modernise Your Operating Model Real Stories from the Frontline. These were informal gatherings where senior executives had an opportunity to raise and discuss front-of-mind issues about their current or planned business operating models with both their peers and organization design experts from OTM, whilst enjoying a delicious breakfast. The following are main themes to have arisen throughout the events.

Having banned any mention of ‘Brexit’ or ‘The Wall’, the issues that senior executives brought to the table seemed to cluster around three big themes. However, before we explore these in a little more detail let’s remind ourselves of the definition of ‘Operating Model’ that we used to frame the conversations.

In simple terms, an Operating Model is an organization’s operational blueprint of how it brings value to its customers.

An Operating Model is an organization’s operational blueprint of how it brings value to its customers.

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A company’s business model, on the other hand, defines a strategic intent about how it will make money. Its operating model defines how it organizes around the work necessary to deliver its strategic intent.

Clarity around what we mean by “operating model” provided a very clear focus to conversations about what was ‘keeping people awake at night’ and, as mentioned above, three big themes emerged. That is not to say that these themes covered everything that was discussed, but they did capture much as what was raised.

Times That Call for a New Target Operating Model

1. Agile

Agile is a term that is now widely written about, repeatedly searched on Google, championed by many, and rigorously researched.  We have written extensively on this topic and in doing so have tried to help organizations and their leaders understand the differences between the Agile Methodology (an iterative development methodology with its roots in software development) and an agile organization (an outcome of an organization design which is responsive and flexible), recognizing that you can have one without the other.

You can find deeper information on Agile in the articles below:

No one disagrees that a move to become more responsive, flexible and agile is clearly a case for designing a new target operating model. In the limited time available in the executive briefing events, we discussed the pitfalls to avoid when deciding to implement Agile methodologies into one part of a company’s structure, whilst hoping to leave the rest of the structure untouched.

In fact, changing the way one part of the work is done impacts on all the remaining parts of the structure. It requires changes in roles, including management roles and jobs. It changes management mechanisms, particularly planning, budgeting and objective setting. And finally, implementing Agile methodologies changes the way people are rewarded and recognized, fundamentally changing the social system (mindset and culture).

It’s clear that regardless of whether the intent is to implement Agile methodologies (even in a small way) or to become more agile, both require a modernization of the operating model. This happens through a holistic redesign, as a few tweaks to the existing operating model is not the answer.

2. An unclear structure

Although the term ‘the role of the Centre’ was probably never explicitly voiced and is probably a phrase of my own making, it does sum up the kernel of a series of interesting and wide-ranging discussions.  Phrases that emerged from the executive briefing discussion about centralizing or localizing included:

  • Roles and responsibilities are unclear, particularly in relation to decision-making
  • As we have grown, we have lost track of what work gets done where
  • We seem to have more ways of doing things than we have people
  • Everything seems to have to go to Head Office for approval

The above are all indicators of a lack of clarity in the structure about both how work gets done, and where work gets done.

Although the topic was wide-ranging, we also had some interesting discussion around the concepts of standardization and integration of work in the target operating model design.

Standardization involves the decisions that are made during the design of the Operating Model about the extent to which work will be standardized across the whole enterprise. That is to say which work will be done in the same way everywhere versus which work can be varied ‘locally’.

Integration involves deciding how, or even where, that work will be done. Integration of the work could be achieved by bringing all the work into ‘the Centre’ and then passing it back out, or it could be achieved by ‘the Centre’ producing Standard Operating Procedures (SOPs) for all to follow locally then potentially policing, checking or auditing the work. More local responsiveness and flexibility can be achieved by designing the role of ‘the Centre’ as being to produce frameworks and guidelines to be followed and implemented locally.

Again, there is no doubt in our minds that whether the intent is to ‘centralize’, even in a small way, or to ‘localize’, both required a modernization of the operating model through a holistic redesign, not just a few tweaks to the existing structure.

3. Mergers & Acquisitions

Although the topic of Mergers & Acquisitions never goes away, there seems to be something in the air at the moment. Whether it is lack of confidence or market instability is unclear, but consolidation and M&As do appear to be demanding an increasing share of airtime.

M&A is not a new topic, but the fears of perceived benefits not being realized and of value being eroded through poor integration of the acquired/merging entities remains at the forefront of the minds of senior leaders who are smart enough to know that M&A is not just a case of bolting two organization charts together and hoping that costs fall out of the sides.

The discussion in our executive briefings was not about whether a merger or an acquisition was a candidate for a need to modernize the operating model, this was just taken as read.  The key discussion was about how the redesign work gets phased, and ensuring that sufficient focus is given to ‘prediction of fit’ at the Due Diligence phase. Without this the scale and the scope of the Business Integration Strategy will always be an unknown.


It’s Time to Modernize Your Operating Model

In summary, many changes in operating model were discussed and in the cases above, the ‘Tipping Point’ has clearly being passed. There are sufficient indicators telling us that It’s Time to Modernize Your Operating Model. Sometimes it is not always clear and we are trading off the risk of not taking a holistic approach to changes in the operating model and creating further problems or starting a redesign when it is not required and wasting valuable time and resources.

If in doubt, always undertake a quick Fit for Purpose review looking at all the points of the OTM Applied Star Model to assess the degree of fit between your strategic intent and your current operating model. This will quickly tell you if you have passed the Tipping Point and that It’s Time to Modernize Your Operating Model.

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Peter Turgoose is a Senior Consultant at ON THE MARK.

OTM is the leading global boutique organization design consultancy with offices in the USA and UK. With over 450 successful redesigns and operating model modernizations completed, OTM is owner of the industry’s most integrated, comprehensive and holistic organization design solution. OTM enables its clients to realize their future ambitions.

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