operating model

The operating model is how a company organizes and manages its resource. It’s the bridge between strategy and execution and can help bring agility to your business. In a Harvard Business Review webinar, sponsored by Bizagi, Bain & Company’s Eric Garton, a specialist in organization design and effectiveness shared his blueprint for an operating model.

Today there is a great deal of competitive intensity and now many are organizations are struggling to compete effectively. Garton believes that those who are going to thrive are companies that can build more agile, higher velocity, more entrepreneurial, digitally-enabled organizations.

In the first part of this blog series, find out how to set up your operating model with integrity and scale your business for success by tapping into virtualization.

Read on for a rundown of the key insights from Garton, and if you like what you read, you can watch the webinar, ‘Set up your company to support your strategy’ on demand.

 

Establishing your operating model

“When we talk about an operating model what we mean is the organizational blueprint that dictates how a company is going to make decisions and execute the work required to deliver its business strategy, business model, and customer mission,” says Garton.

A great operating model always starts with a very clear understanding of what it’s trying to do. Bain and Company refer to these five points as the design inputs:

  • Growth ambition –an achievable yet stretching ambition
  • Culture – a purpose and what values will bring that mission to life
  • Strategy –a clear articulation of what the business unit and portfolio strategies are and how partners can help you get there
  • Cost envelope – investment in key areas that build competitive advantage
  • Leadership model – the leader must execute their role in the company

But one size doesn’t fit all. This is a framework for deciding what your operating model is going to be. They need to be fit for purpose choices.

“You can find the same businesses in exactly the same industry under the same dynamic forces and pressures, trying to serve the same customer needs with very different operating models,” says Garton.

“So we do believe that the most important thing is that you have integrity and harmony in the operating model, and the choices you make are consistent and then executed consistently and with excellence.”

 

Scale your business with virtualization

Garton discusses five key forces that are shaping the competitive landscape and operating modes, but one that is key if you are going to scale your business is virtualization. This defines the changing business boundaries of a firm. It’s no longer a company operating everything within its own four walls, it’s relying much more on an ecosystem and a set of partnerships to deliver its business model and value proposition.

“The Coase theorem says that you do inside the four walls of your company what’s too expensive to contract to transact for outside of the four walls. But if you look at the evolution of the marketplace, just about everything can be sourced today,” says Garton.

“If you are a manufacturer, you can outsource your manufacturing to contract manufacturers, especially for the non-critical things you’re producing. In the most extreme cases, you can outsource your labor, like Uber does. As long as you can transact for that in an efficient way, it may be cheaper to rent than to own those capabilities.”

Garton gives the example of companies that are using the concept of virtualization by operating on asset-light models, like Dollar Shave Club and Harry’s that are competing with very asset-intensive companies like P&G and Unilever. They chose asset-light models because they don’t require that much capital and it’s a much easier way to start-up and scale a company.

 

Part two is coming soon. You’ll learn more from Eric about how companies that use operating models composed of the five design inputs and the four building blocks have an agile advantage about their competitors.

To get more information on how to adopt transformative technologies with the continuous renewal of capabilities and future-proofing your human capital, watch the webinar, ‘Set up your company to support your strategy’ on demand now.