Operating model: Difference between revisions

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Operating Model is a term that is used in many contexts. In essence, an '''operating model''' describes how an organization operates across both business and technology domains.<br />

==Overview==

Operating Model is a term that is used in many contexts. In essence, an operating model describes how an organization operates across both business and technology domains.<br />

The Operating Model can be a vehicle product to describe how the organization does business today - the “as"as-is”is" Operating Model. This can be the foundation for an organization that wants to transform its business. New business drivers can be translated into requirements that can lead to a new “to"to-be”be" or “Target”"Target" Operating Model. The Target Operating Model represents the high level requirements that drive the future Business and IT Architecture design.<br />

==Operating Model in Context==

Several related terms are often used interchangeably to describe a business but are actually quite different as illustrated in Figure 1:<br />

* A [[Business Model]] describes the rationale of how an organization creates, delivers, and captures economic, social, or other forms of value. The process of Business Model design is part of business strategy.<br />

* An [[Operating Model]] describes the necessary level of business process integration and data standardization in the business and among trading partners and guides the underlying Business and Technical Architecture to effectively and efficiently realize its Business Model. The process of Operating Model design is also part of business strategy.

* AnA [[OperatingCapability Management in Business|Capability Model ]] describes the capabilities necessary levelto of business process integration and data standardization inexecute the business and among trading partners and guides the underlying Business and Technical Architecture to effectively and efficiently realize its BusinessOperating Model. The process of OperatingCapability Model design is also part of businessOperations strategyPlanning.<br />

* A [[Capability Management in Business|Capability Model]] describes the capabilities necessary to execute the Operating Model. The process of Capability Model design is part of Operations Planning.<br /><br />

:::::'''Figure 1: Relationship between Operating Model and Capability Model'''

[[File:CapabilityLandscapewithlabels.jpg]]

==Operating Model Defined==

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* '''Strategic''': an Operating Model is a strategic choice as to the extent of process standardization and data integration desired to achieve business results.

* '''Relationships''': refers to the degree of cooperation across business units including customers, suppliers and trading partners, required for efficiency or leverage.

* '''Guidelines''': clarify what is important for the organization today and the rationale for investments so that leaders are aligned. When the Operating Model is changed, the “to"to-be”be" model sheds light on the transformations required for future success and the decision process for investments among the units.

==History of Operating Model Development==

===Origins in Corporate Strategy===

Operating Model as defined here is similar to '''Corporate Strategy''': “the"the relationships among the businesses in the corporation’scorporation'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>

There are three basic models:<br />

* '''Holding Company''': each business has wholly self-contained brands/businesses with dedicated core and support work. The businesses are tied together only by a common funding source and financial requirements (e.g., Tyco International)<br />

* '''Federated''' or '''Allied''': each business contains the core work required to create advantage autonomously. Issues of common interest are identified and worked among businesses. Support organizations develop uniform policies and practices across geographies, tailor them to meet the needs of each business and help achieve synergies across businesses where desired (e.g., access to customer, product files, needs to have own accounting tied to corporate). Some support work may be shared across businesses (e.g., Canon or GE today)<br />

* '''Integrated''': single business, requiring a single business strategy for competitive advantage. Important business issues are formulated centrally and tailored for local needs to optimize the entire business. Success is measured by adding up the global numbers (e.g., McDonalds or Harley Davidson).

Following are some of the operating implications of the choice<ref>Laying the Tracks for the Technology Train www.technologyevaluation.com/.../laying-the-tracks-for-the-technology-train-15640/ April 10, 2000. Adapted from original work by Novations, Inc.</ref>:<br /><br />

* '''Federated''' or '''Allied''': each business contains the core work required to create advantage autonomously. Issues of common interest are identified and worked among businesses. Support organizations develop uniform policies and practices across geographies, tailor them to meet the needs of each business and help achieve synergies across businesses where desired (e.g., access to customer, product files, needs to have own accounting tied to corporate). Some support work may be shared across businesses (e.g., Canon or GE today)<br />

* '''Integrated''': single business, requiring a single business strategy for competitive advantage. Important business issues are formulated centrally and tailored for local needs to optimize the entire business. Success is measured by adding up the global numbers (e.g., McDonalds or Harley Davidson).

Following are some of the operating implications of the choice<ref>Laying the Tracks for the Technology Train www.technologyevaluation.com/.../laying-the-tracks-for-the-technology-train-15640/ April 10, 2000. Adapted from original work by Novations, Inc.</ref>:<br /><br />

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| Enabling Processes|| Centralized|| Centralized|| Decentralized

|}

This “large"large grain”grain" view informs many decisions about how to design and build the capabilities that make up the organization. For example, the first choice for a Holding Company such as Tyco Industries would not be to try to run all of the companies in its portfolio on a single configuration of the same financial management business applications.

However, the “large"large grain”grain" view insufficiently informs decisions within each model. For example, the Federated/Allied model suggests common IT Systems. However it is common that the Corporate/Home Office Company shares little with its Divisional Companies. MIT’sMIT's Center for Information Systems Research presents a useful model which provides a way of thinking about the need for multiple Operating Models for a given Corporate Strategy.

==Center for Information Systems Research==

[http://cisr.mit.edu/res CISR], a research group at the MIT Sloan School of Management has defined Operating Model in terms of this lightweight method to capture the business needs for degree of Business Process Standardization and Data Integration. CISR suggests that this type of Operating Model is useful to establish requirements for reusable Core Capabilities and to guide IT Investment decisions governance. The Operating Model can be used to drive architecture and infrastructure development ensuring that business needs are met with the right IT foundation. The resulting IT systems enable the company to grow its business, without having to do deep surgery on the IT systems each time the business grows either organically or through acquisitions. The implementation of integrated business processes and IT systems is the realization of the Operating Model.<br />

The team of Jeanne W. Ross, Peter Weill and David C. Robertson summarized their research in Enterprise Architecture as Strategy.<ref>[http://www.architectureasstrategy.com/book/eas/about.htm.] </ref> They found that an organization with an explicitly defined operating model report 31% higher operational efficiency, 33% higher customer satisfaction, and a 34% advantage in new product development.

In an extension to the earlier Corporate Strategy work, they outline four operating models:<br/>

The team of Jeanne W. Ross, Peter Weill and David C. Robertson summarized their research in Enterprise Architecture as Strategy.<ref>http://www.architectureasstrategy.com/book/eas/about.htm.] </ref>They found that an organization with an explicitly defined operating model report 31% higher operational efficiency, 33% higher customer satisfaction, and a 34% advantage in new product development.

In an extension to the earlier Corporate Strategy work, they outline four operating models:<br/>

::::::'''Process Standardization'''

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==Role in Defining the Business and Technical Architecture==

Operating Models drive the necessary level of business process integration and standardization to deliver the organizations proposition, goods and services to customers, shareholders and it people.<ref>Jeanne W. Ross, Peter Weill and David C. Robertson, Enterprise Architecture as Strategy (Harvard Business School Press, 2006)</ref><br />

On the Business Architecture side, the Operating Model informs [[Business_Architect|Business ArchitectureArchitect]]ure as to the number of distinct market facing entities, the number of unique value propositions, and the number Capability Models required. For example, an Integrated Enterprise would have one customer facing brand and a single core Capability Model and a Holding Company would have one for each company in its portfolio. Depending on business strategy choice (profit propositions and value propositions), a Federated/Allied Strategy may require more than one Capability Model.

<br />

The Operating Model also informs IT and other support services as to the value and appropriateness of shared servicesand related Service Level Agreements. <br />

The Operating Model also informs IT and other support services as to the value and appropriateness of shared servicesand related Service Level Agreements.

On the [[Technical architecture]] side, the Operating Model informs IT leaders about how various technical and business components should be designed and implemented to enable the chosen Operating Model:<ref>Derived from: Jeanne W. Ross, Peter Weill and David C. Robertson, Enterprise Architecture as Strategy (Harvard Business School Press, 2006)</ref><br />

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| Systems Component Technology|| || || || X

|}

From the table above, it is shown that Coordination and Unification models benefit more from consolidated views of Customer and Data across the enterprise than do Diversification and Replication models.<br />

==Creating a Dialogue between Business and IT==

The Operating Model is an important tool in the dialogue between business and IT. The dialogue can take place with top management and enable them to decide which operation models best describe the way they choose to operate the company. IT can also start with individual business units to identify the models (or mix of models) are currently in place helping clarify both intent and sources of synergy and disconnect between business and IT systems.<br />

Such dialogues allow IT management to use the Operating Model as Strategy to drive design of concrete plans to enable the business in the form of IT projects.

As valuable as the result of the dialogue may be in terms of aligned plans, is the organizational learning that takes place through the dialogue, choices, and translation of the Operating Model into [[Enterprise Architecture]] and [[IT Governance]] that guide and control IT investment over time.

==Industry Standard Operating Models:==

* [[eTOM]] ([[Enhanced Telecom Operations Map]])

* IAA ([[Insurance Application Architecture]])

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* COBIT ([[Control Objectives for Information and related Technology]])

==See Alsoalso==

[[Category:Enterprise architecture]]

==See Also==

* [[Business model|Business Model]]

* [[Capability Management in Business]]

* [[Enterprise_architectureEnterprise architecture|Enterprise Architecture]]

* [[Governance,_risk_management risk management,_and_compliance and compliance|Risk and Compliance]]

* [[Shared_servicesShared services|Shared Services]]

=='''References'''==

<references>/

{{DEFAULTSORT:Operating Model}}

[[Category:Enterprise architecture]]