Operating model: Difference between revisions

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Revision as of 10:38, 29 June 2018

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==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>http://www.boozallen.com/media/file/People-Process-Technology-Enterprise2.pdf</ref> ''process'', ''organization'' and ''technology'' is another, and <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> ''Process'', ''Organization and people'', ''Locations and buildingsLocation'', ''Information systems'', ''Suppliers and business partners'', ''Management system'' yet another.<ref>http://www.ashridgeoperatingmodelcanvas.org.uk/domcom</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, organisation structureorganization, decision making, software applications, locations and so on. There are also likely to be some integrating blueprints.

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 viewpointview of the operating at a future state point in time. Most typically, an operating model is a living set of documents that are continually changing, like an organization chart or the capability model or functional model.

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://www.ashridgeonoperatingmodels.com</ref>

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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. In the section below titled ''[[#Business/IT dialogue|Business/IT dialogue]]'', this article explores one framework for thinking about the IT implications of different corporate strategies.

An operating model is one of the tools that leaders can use to help them formulate and execute strategy. Typically work on an operating model starts after some strategic plan has been proposed. It translates that plan into operating requirements and decisions and often also contributes to the plan by showing areas where the plan will be hard to implement. A framework for thinking about the transformation journey from strategy development to successful outcome - 'The Strategy Journey'- framework<ref>https://stratability.co/framework/</ref><ref>http://strategyjourney.com/book/strategy-journey/</ref> lists the operating model as one of five models that need to be strategically designed and executed along the journey of any organization ashelp itsleaders navigatesnavigate through different stages or phases from leadership and motivation, business design, value creation, ''[[business architecture]]'' and business transformation. In this framework, which has undergone extensive studies with manythe organisationsoperating frommodel globaldescribes tech giants, automotive innovators and start-ups,how the operatingorganization model is responsible forwill implementingimplement the strategies and tactics that have been defined in the mission model, [[business model]] and value model. ItThrough iswork on the homeoperating tomodel, anleaders organization'scan think about the capabilities whichthe changeorganization continuouslywill throughneed theto transformationsuccessfully modeltransform.

When designing a business or functionalan operating model, Ashridge Executive Education recommends that the work starts with creating a 'value-chain map'.<ref>http://ashridgeonoperatingmodels.com/2015/05/06/working-on-an-operating-model/</ref> This is a way of laying out the work that needs to be done to deliver value to customers. It shows the different delivery chains and how they are linked together or need to be kept separate.<ref>http://ashridgeonoperatingmodels.com/20152018/0106/2112/value-chain-maps-or-capability-maps/</ref> The second step is to create an 'organization model' based on the value chain map. The organization model shows how the different value chains are structured into an organization and includes the support functions, such as Finance, HR and IT.<ref>httpshttp://wwwtools.ashridge.org.uk/getmediawebsite/e9dbb283-5a04-4079-981a-bda9a4fa9ffacontent.nsf/AOD_Organisation-ChartsFileLibrary/C7BFBBE7EED4272180257926004B90F9/$file/HowToDrawOrganisationCharts.pdf</ref> The value chain map and the organization model are the core diagrams of the operating model.

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 performance management score sheet. 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. The Operating Model Canvas is a tool that displays an operating model on one page <ref>http://www.operatingmodelcanvas.com</ref><ref>Campbell, A, Gutierrez, M, Lancelott, M, "Operating Model Canvas", Van Haren Publishing, 2017</ref>

WhenAs consideredconditions asand astrategies system for delivering value, thechange operating modelmodels naturallyneed undergoes continuousto change or business transformation. Business architects, who typically take responsibility forhelp designingdesign the [[target operating model]] must, ensure that change is managed sustainably and in cohesionan withorderly theway. strategicTechnology, objectivessuch ofas the organisationdigitization, including any key performance indicators. Today's operating models must also learn how to bebig data intelligentanalytics and berobotic inprocess theautomation positionare to leverage the powercauses of data along with managing the process activities in an organisation. With data science or big data, and where the organizational culture is highly innovative, the operating model canchange. becomeOperating trulymodels agileare andalso operatechanging atto itsaccommodate highestnew levelways of maturity with predictive analyticsworking, thatsuch allowas it"agile". to changeCombining proactivelynew rather than reactively,technology and delivernew theways bestof possibleworking servicescan to customers. This is what defines asbe organizationdescribed as having an 'agile operating model'.<ref>http://strategyjourney.com/2017/04/25/singapore-agile-operating-model/</ref>

==History==