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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>
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.
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'- <ref>https://stratability.co/framework/</ref><ref>http://strategyjourney.com/book/strategy-journey/</ref> lists the operating model as one of five models that help leaders navigate through different stages or phases from leadership and motivation, business design, value creation, ''[[business architecture]]'' and business transformation. In this framework, the operating model describes how the organization will implement the strategies and tactics that have been defined in the mission model, [[business model]] and value model. Through work on the operating model, leaders can think about the capabilities the organization will need to successfully transform.
An operating model can also be used as a tool when an organization is facing performance challenges. The model can help with the diagnosis (what is causing the performance problems) and with the solution (what needs to change to correct the problems).
When designing an operating model, Andrew Campbell, Director of the Ashridge Executive Education course [http://www.hult.edu/exec/dom Designing Operating Models], 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/2018/06/12/value-chain-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>https://795bbfb0-d975-4f7e-ba92-1b9e41df44ea.filesusr.com/ugd/6fbdc9_308765c0b8314f02b7abe314de1e9a9f.pdf</ref> The value chain map and the organization model are two of the core diagrams of the operating model.▼
However, probably the most common use of the operating model tool is to get alignment between managers in different functions or divisions about how they are going to work together for the benefit of the whole.
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 [http://www.operatingmodelcanvas.com 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>▼
▲When designing an operating model, Andrew Campbell, Director of the Ashridge Executive Education course [http://www.hult.edu/exec/dom Designing Operating Models], 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
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 causes of operating model change. Operating models are also changing to accommodate new ways of working, such as "agile". Combining new technology and new ways of working can be described as having an 'agile operating model'.<ref>http://strategyjourney.com/2017/04/25/singapore-agile-operating-model/</ref>▼
▲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
▲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
==History==
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