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30 second guide to building an Operating Model

In my previous article I discussed what an operating model was and what value it brings. I also said that I would go through approaches to building your operating model.

First lets go back and state what an operating model is:

  • An operating model describes how the business is run. It describes how the business deliver value and enacts its strategy.
  • So, in this article we will be looking at approaches to build your target operating model and how that might translate into implementation. We cannot look at all options but I will give you some of my views and a couple of tools that you can use.

    How to build your operating model
    The key pre-requisite of building or changing your operating model is to have a strategy that is clear and agreed. If you don’t have a clear strategy or the strategy is trivial (in the nicest sense of the word) then you have one of two problems:

    1.Your area of responsibility is too small to have its own strategy. This is easier to deal with and requires you to be contributing to the operating model that exists at a higher level both from a delivery point of view and get involved in changing or building the operating model. So for example if you look after the development of a particular application or you manage storage for a typical organisation then you probably don’t need an operating model, but will be working within the operating model of the application delivery or infrastructure and operations area.

    2.The second problem is more serious but also solvable. You need to have a decent strategy – if you don’t have this then you cannot create an operating model as the operational expression of the strategy is the operating model. While you can create your own strategy, it is often useful to get an outside perspective on your organisation and employing the use of consultants to help, should not be ignored. This does not mean you have to bring in McKinsey or BCG; there are many organisation that can help (rather than take over) at a more reasonable price, such as ourselves.

    So after much gnashing and grinding of teeth, long discussions, reasoned(?) arguments, you finally have a strategy that the significant majority agree on – not everyone will, but that is just life! What next? For one thing it is not easy, don’t expect the model to be complete in a week or even a month as a new or changed operating model will change:

  • Processes
  • Organisational structure
  • Roles
  • Some technology
  • Your organisation should focus on the processes and people first. Bear in mind that operating models across similar organisations have common components but not two will be exactly the same.

    Here is my 30 second guide to building your operating model:

  • Define your operating model design principles
  • Define your operating model operating principles
  • Understand and document the value chain(s)
  • Understand and define the capabilities required to deliver the value chains including supporting capabilities
  • Understand and define the processes that make up the capabilities
  • Organisation and roles and skills of the people
  • Organise the resources and location to support the people doing the work
  • Identify the information and systems to support the capabilities and processes
  • Define the management systems supporting the planning and performance tracking of the work
  • I am describing a couple of the parts of the above so they are clear in what I mean. Some actions are part of normal project management or ongoing management of the organisation.

    Design principles and operating principles provide the foundation guidance for the implementation and then the on-going run. The principles have different focus: design principles focus on the non-negotiables of what is trying to be achieved; operating principles focus on the execution of the operating model once it has been designed as well as governance.

    The value chain describes the high level value adding activities that deliver the product or service supported by the operating model.

    The capabilities are the combination of people, process and technology that deliver outcomes to support the value chain.

    What tools are available to help me build my operating model and what about approaches?

    What is available to help me build my operating model apart from the information above? Well there is quite a bit, searching Google will give you quite a bit of information but I thought that I would cut short some of that and provide a good base from which to work from.

    The first and most important is the value chain or value chains (for a large operating model). These are also known as value chain maps. These represent the logical steps to deliver value in supplying the end service or product. There is the classic Porter value chain model but this is probably less useful here but his later work does have some areas worth reading. Some examples follow:

    Payments

    Generalised manufacturing

    Enterprise Financials

    I really like the operating model canvas by Andrew Campbell, Michael Gutierrez and Mark Lancelott. They have an excellent website at https://operatingmodelcanvas.com/. The following is the basic template:

    There is an associated website ashridgeonoperatingmodels.com which has lots of useful information.

    Another good resource is the book Enterprise Architecture as Strategy by David Robertson, Jeanne Ross and Peter Weill, out of MIT Sloan, which despite its name is about execution rather than strategy.

    Defining the design and operating principles will be a key governance and guidance task. It will be complicated by the need to gain agreement from quite a few stakeholders. This leads on to understanding that defining or changing your operating model is as much about communication and buy-in as anything else, as the people change can be significant.

    The organisational model is likely to be fairly specific to your organisation however skills profiles for various job families are available for areas such as IT, HR, Finance etc.

    Business architecture courses can be a good way to get in to the understanding of how to start building value chains and operating model, but does not provide the whole story by any means. There are not that many business architecture courses; Enterprise Architects run one as well as a number of other companies.

    A number of the large consulting organisations, e.g. McKinsey, Strategy& (ex Booz), Boston Consulting (BCG), etc., have good articles on operating models but less on the actual implementation. This is probably because they want to do this for you! But you can glean good direction. My caution is that they can be very high level and not entirely practical – good for the board but not so good for the execution team.

    Are there any operating models bases I can just use?

    You may be wondering if there is a way you can shortcut some of this work by using pre-existing models and there is, but you have to be sure that the model you are taking on does not impact your competitive advantage. Generally within IT this is not an issue unless you are selling IT products or services directly. Below is a list of models that you could use, some of which you may well be already familiar with.

  • ITIL – the well-known service framework model about identifying, running and maintaining services. To my mind it is less on the build and more about the run, but the concepts have applicability outside of IT
  • COBIT – Control Objectives for Information and Related Technology
  • eTOM – Telco based operating model that can be adapted for IT
  • IT4IT – OpenGroup IT operating model
  • BIAN – Banking Industry Architecture Network
  • IAA – Insurance Application Architecture (IBM)
  • IFW – Information Framework (banking framework from IBM) – this has been adapted to a number of industries and has IT specific sections
  • Of these IT4IT is probably one of the most interesting as it starts moving away from the traditional “Plan, Build, Run” model that many organisations try to use. The model has four distinct values streams (chains) of which ITIL generally corresponds to the last two along with some of the supporting activities

    Conclusion

    I have provided a view of the steps needed to create a basic operating model, some tools and techniques to help you along the way and finally a couple of shortcuts (pre-done operating models) to give you an idea of what they should come out like or, to adapt for you own needs.

    Your operating model will not be exactly the same as someone else’s as, while there will be some commonality (especially in IT), the combination of organisational culture, organisational maturity, size and the focus of outcomes will alter each end result.

    My final word is: don’t try this yourselves if you have not had any experience. It takes existing knowledge and a consulting mindset to make this successful. This is often not a skill that IT teams have, especially in smaller organisations that do not have dedicated strategy and enterprise architecture staff. It is also not a typical project management role; your standard project manager will flounder, direct focus to the wrong areas or need too much detail. So again get some professional help if you are looking at this for the first time.