operating model

An operating model is the organizational blueprint that dictates how a company is going to make decisions and execute the work required to deliver its strategy, business model and customer mission.

In Part 1 of this blog series, we began to share the insights from 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.

In this concluding blog, we detail how to future-proof your operating model. The velocity and the rate of innovation currently at play in the market means that only organization who are agile, entrepreneurial, digitally-enabled organizations will survive.

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.

Scale insurgent firms represent the organizations of the future

The organizations of the future, or as Bain calls them ‘scale insurgents’, get the scale of a traditional hierarchical company without sacrificing the entrepreneurial energy and agility of a start-up. That’s what every company needs to be striving for. These scale insurgents can be identified by six key features:

  • Customer centric – rally around their customer mission
  • More virtual – asset-light companies
  • De-layered – lower complexity, lean companies by design
  • Agile – in terms of mindset, principle, and structure.
  • Digitally-enabled – across the entire value chain
  • Human capital leaders – get the best value from the time, talent and energy of their workforce

It’s all about striking a balance between the traditional hierarchies and agile organizations. The table below illustrated how scale insurgents strike a balance between the predictable, results-driven traditional hierarchies with the innovative and dynamic agile organizations.

scale insurgent business agility
(Image from Harvard Business Review/Bain & Company)

 

“It’s not a journey for the faint of heart but it’s a journey that you have to be prepared to take if you want to be successful today,” warns Garton. And there are design challenges along the way. You need to figure out how do you want to design agile and non-agile parts of the business to work.

Design challenges – Firms must decide how to design agile and non-agile parts of the organization. No company should be 100% agile. Some areas of an organization can benefit from proven, repeatable processes based on best practices. In areas where more innovation is needed, firms must follow more agile approaches.

P&L fragmentation – In traditional organizations, P&L ownership is clear. In more agile companies, however, visibility into end-to-end P&L management can get lost. This can cause problems.

“Big bang” or evolutionary change –  Bain & Company has found that an evolutionary approach to scale insurgency is less risky and more likely to be successful. An evolutionary approach enables firms to retain talent with critical domain knowledge. Managing the talent transition well is critical.

“We favor an evolutionary approach to implementing agile, because it’s consistent with agile’s philosophy of testing, learning, experimenting, and then scaling,” says Eric Garton

 

How the scale insurgent fits on top of the operating model

All organizations need a high-resolution strategy. In scale insurgent companies, however, that strategy must be communicated broadly. The strategy is a compass for autonomous and agile teams as they engage in high-velocity decision making. Changes must be made to the four operating model building blocks:

  1. Architecture – Structure and accountabilities must be approached in new ways. The structure should consist of a network of autonomous teams. When you have empowered teams, they don’t need micromanagement. Not only is this an efficient way to do things, but it’s also empowering and motivating. On the accountability side, you need a customer experience overlay. Agile organizations are deeply customer centric and designed around customer episodes and journeys.
  2. GovernanceThe leadership team has to change the way it runs the enterprise. If you can start to act in a more agile way as an executive team, you set the right tone for the rest of the company. This means removing roadblocks for autonomous teams that are trying to execute their missions as well as accelerating learning across your teams.
  3. Ways of working – Understand where you want to follow agile ways of working, versus where you want to follow non-agile, repeatable routines and practices. These ideas can co-exist inside the same company as long as you’re clear about the run rules.
  4. Enabling and sustaining capabilities – Talent deployment has to be much more dynamic than it’s been historically with a new talent management system in place for composite workforce planning. Robust partner management capabilities are essential as you think about managing an entire ecosystem to deliver your customer value proposition, and you have to build in sophisticated learning systems.

operating model

 

There’s a lot of moving parts here, and there are several ways to establish this operating model. There are companies like Spotify that are born agile, then there are businesses that have taken an agile, evolutionary approach of testing, learning, experimenting and scaling. There are three different ways to approach this.

 

Agile inside – Amazon is not a company that was born agile, it was a company that was born digital. You increasingly see teams in Amazon are using agile methods to complete their mission because it’s a better way of working and it is highly consistent with a high-velocity organization.

 

Agile from the top – Bosch the German-based industrial conglomerate are using agile innovation in large parts of the organization. Today they’re developing autonomous vehicles and next-generation power tools using agile experimentation. They introduced agility into their executive suite and their boardroom before moving to more dynamic issue resolution and strategic planning and resource allocation.

 

Agile at the edge – SAP started with a little bit of experimentation, they had a couple of teams running agile and IT and software development. Then they made a full commitment to agile. SAP is a company that’s about 80% agile today and they have over 2000 agile teams running innovative operations.

 

 

Listen to the webinar to hear 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 and how you can apply this blueprint to your own business.