Operating model: Difference between revisions

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{{Short description|Abstract model of organizational processes}}

An '''operating model''' is both an abstract and visual representation (model) of how an organization delivers value to its customers or beneficiaries as well as how an organization actually runs itself.

By Ayush Rajbahadur Yadav

==Definition==

There are different ways of defining the elements that make up an operating model.

:''People'', ''process'' and ''technology'' is one commonly used definition,<ref>{{cite web |author=Daniel E. Williams and Jay Leask |title=People, Process, Technology Strategy for Enterprise 2.0 |publisher=Booz Allen Hamilton |date=1 July 2011 |url=http://www.boozallen.com/media/file/People-Process-Technology-Enterprise2.pdf |access-date=2015-11-29 |archive-date=2015-11-22 |archive-url=https://web.archive.org/web/20151122232441/http://www.boozallen.com/media/file/People-Process-Technology-Enterprise2.pdf |url-status=dead }}</ref> ''process'', ''organization'' and ''technology'' is another.<ref>Marne de Vries, Alta van der Merwe, Paula Kotze and Aurona Gerber. (2011) A Method for Identifying Process Reuse Opportunities to Enhance the Operating Model, and 2011 IEEE International Conference on Industrial Engineering and Engineering Management</ref>

An organization is a complex system for delivering value. An operating model breaks this system into components, showing how it works. It can help different participants understand the whole. It can help leaders identify problems that are causing under performance. It can help those making changes check that they have thought through all elements and that the whole will still work. It can help those transforming an operation coordinate all the different changes that need to happen.

An operating model is like the blueprint for a building. It is more dynamic than a building blueprint, with changes occurring regularly. Also, an operating model is not usually just one blueprint. There are likely to be blueprints for each element: processes, organization, decision making, software applications, locations and so on.

An operating model can describe the way an organization does business today – the ''as is''. It can also communicate the vision of how an operation will work in the future – the ''to be''. In this context it is often referred to as the [[target operating model]], which is a view of the operating at a future point in time. Most typically, an operating model is a living set of documents that are continually changing, like an organization chart.

An operating model describes how an organization delivers value, as such it is a subset of the larger concept 'business model'. A ''[[business model]]'' describes how an organization creates, delivers and captures value and sustains itself in the process. An operating model focuses on the delivery element of the business model. There are plenty of disagreements about the use of the words ''business model'' and ''operating model''.<ref>Amit, Raphael and Zott, Christopher "Creating value through business model innovation", MITSloan Management Review, Spring 2012</ref><ref>Zott Christopher, Amit Raphael and Massa Lorenzo, "The Business Model: Recent developments and future research", Journal of Management May 2011</ref><ref>http{{cite web |url=https://www.ashridgeonoperatingmodels.com |title=Ashridge on Operating Models |access-date=2024-11-30}}</ref>

The term operating model may have been first used in corporate-level strategy (see ''[[#History|History]]'' below) to describe the way in which an organization is structured into business divisions, what activities are centralized or decentralized and how much integration is required across business divisions. The term is most commonly used today when referring to the way a single business division or single function operates, as in 'the operating model of the exploration division' or 'the operating model of the HR function'. It can also be used at a much more micro level to describe how a department within a function works or how a factory is laid out. The section below titled ''[[#Business/IT dialogue|Business/IT dialogue]]'', explores one framework for thinking about the IT implications of different corporate strategies.

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Additional maps and charts are often needed. For example, an operating model will typically include an IT blueprint, locations maps, a supplier matrix, people models, decision grids and other elements such as a scorecard for assessing performance. The particular set of documents created will depend on what the operating model is being used for. There is no generally accepted set of charts or at least there is no agreement yet about what charts make up an operating model.

As conditions and strategies change operating models need to change. Business architects, who typically help design the [[target operating model]], ensure that change is managed in an orderly way. Technology, such as digitization, big data analytics and robotic process automation are some of the causes of operating model change. Operating models also change to accommodate new ways of working (such as "agile" or "work at home") new people (especially leaders), new capabilities, new geographies, new suppliers and other reasons.

==History==

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The term operating model has been used in corporate strategy to mean what Lynch, et al., of ''[[corporate strategy]]'' describe as: "the relationships among the businesses in the corporation's portfolio and the process by which investments will be determined among them."<ref>Richard Lynch, John Diezemann and James Dowling, The Capable Company: Building the capabilities that make strategy work (Wiley-Blackwell, 2003)</ref><!-- as written, the similarity is not apparent. if strategy is about investment, it isn't about operations. Just sayin'.-->

Corporate strategy grew out of the research of [[Harvard Business School]] professor Bruce R. Scott who developed a model of the stages of corporate development.<ref>Bruce R. Scott, "Stages of Corporate Development (Part I)" (Harvard Business School Note 371-294) (1970, 1977)</ref> He traced the evolution of a firm from "Stage I" with a single product (or line of products) to "Stage 3" with multiple [[line of business|lines of business]], markets and channels. Following this work, [[Leonard Wrigley]]<ref>Leonard Wrigley, Divisional Autonomy and Diversification (Thesis for Doctor of Business Administration, Harvard University, 1970)</ref> and Richard Rumelt<ref>Richard P. Rumelt, Strategy, Structure, and Economic Performance, (Harvard Business School, Boston, 1974, Revised edition published by the Harvard Business School Press, 1986)</ref> developed ways of classifying company structures and comparing their strategies. They identified four different operating models:<ref>Kenneth R. Andrews, The Concept of Corporate Strategy (Irwin, 1986)</ref>

# Single line of business firms, where most revenue comes from a single activity;

# Related businesses where diversification is achieved by adding businesses that complement the original activity;

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===Service Orientation Operating Models===

Operating models have become popular with service organisations, looking to improve processes to deliver greater value to customers and/or beneficiaries. One such operating model is the Service Operating Model Skills (SOMS) framework.<ref>{{Cite web |url=http://www.service-operating-model.co.uk/ |title=Service Operating Model |access-date=2016-12-07 |archive-date=2016-12-01 |archive-url=https://web.archive.org/web/20161201014221/http://www.service-operating-model.co.uk/ |url-status=dead }}</ref>

SOMS is an operating model focused on the service sector. SOMS stipulates the expertise needed for people creating and working with operating models. The framework consists of seven elements:

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# Strategy, governance, and leadership

SOMS was created by the Centre for Service Management in the School of Business and Economics at Loughborough University <ref>{{Cite web|url=http://www.lboro.ac.uk/departments/sbe/csm/|title = Centre for Service Management &#124; Centre for Service Management &#124; Loughborough University}}</ref> in response to requests from trainers and instructors in the service sector; and is based on academic research from the Centre for Service Management.<ref>Radnor, Z, Bateman, N, Esain, A, Kumar, M, Williams, S (2015) ''Public Service Operations Management A Research Handbook'', Routledge, {{ISBN|9781138813694}}</ref>

==Business/IT dialogue==

The [[MIT Center for Information Systems Research]] (CISR), a research group at the [[MIT]] [[Sloan School of Management]], suggests that an operating model is useful to guide IT investment decisions.<ref>{{Cite web | title=Homepage {{!}} MIT CISR | url=http://cisr.mit.edu/ | access-date=2025-04-27 | website=cisr.mit.edu}}</ref> IT investment must support the operating model.

Ross, Weill and Robertson found that an organization with an operating model reported 31% higher operational efficiency, 33% higher customer satisfaction, and a 34% advantage in new product development.<ref name=rwr>{{cite book |last1=Ross|first1=Jeanne|first2=Peter|last2=Weill|first3=David C. |last3=Robertson|author-link1 =Jeanne W. Ross|author-link2 =Peter Weill|author-link3 =David C. Robertson|year=2006 |title=Enterprise Architecture As Strategy: Creating a Foundation for Business Execution |publisher=Harvard Business Review Press |isbn= 978-1591398394 }}</ref> In the book ''Enterprise Architecture as Strategy'', they outline four operating models: