An Operating Model describes how a business is organised and run. It is the combination of processes, systems, people, measures and physical locations which enable the business to deliver value to its customers.
There are three interconnected elements of an effective Operating Model: The organisations Strategy; the Design of the model to deliver the strategy; and the Operation of that model.
Components of an Operating Model
An effective Operating Model has many interrelated components which require careful consideration in the design phase. Here are the key elements we have identified through our work.
This article considers how to design an effective Operating Model, turning an organisations strategy into a fully functional business capable of meeting customer needs in the most frictionless and efficient way possible.
1. Start with the Customer
The design process begins by identifying the organisations customers, their needs and the outcomes that they desire. Customers may be categorised into groups with similar needs although this can lead to generalisations and assumptions. It is far better to gather Qualitative feedback from customers to build a picture of the range of needs and requirements.
Care should also be taken to ensure that the customers Covert needs are identified by observing how they interact with the produce or service, rather than relying on what they say they want – their Overt needs.
The organisation designs, manages and delivers outcomes to customers through a series of connected activities (or “Value Streams”). Some Value Streams may be core to the required customer outcome (manufacturing a product or delivering a service) whereas others may support those outcomes (HR, Finance or IT) or help to manage them (Strategy, Policy or Measurement).
2. Map the customers journey
Internal and external customers navigate and interact with the organisations Value Streams to obtain the desired product or service. The next stage in the design process is therefore to map the Customers journey through each of the Value Streams. This is a customer-centric view, mapping both activities within the organisation and those undertaken by the customer themselves.
The best way to understand the customers journey is to follow real customers, recording what they do in order to obtain the desired product or service, identifying points of pain and opportunities for improvement.
Any redesign of the Operating Model design should be centred around the customers journey, aiming to make it as frictionless and easy to navigate as possible.
3. Understand Demand
The complexity and variety of customer demand should inform how each value stream is designed and how the work is organised within it. Demand may be categorised by two factors – its volume and its complexity. In general, high volume routine demand should be dealt with separately from low volume bespoke demand.
The seasonality of demand should also be considered since the volume and nature of work may change over time, perhaps following a monthly, quarterly or annual cycle. For example, a Payroll team may experience a monthly peak in demand just before the cut-off date for the next pay run. The drivers of such peaks need to be identified and understood to determine if they can be influenced and smoothed in any way.
4. Catalogue Processes
Each of the activities identified in the end to end Value Streams will have underlying process which can be mapped to successively lower levels of detail. To make progress with the design it may be more practical to document processes in a hierarchy or catalogue without creating detailed maps at this stage. This enables the main process elements to be identified and to facilitate further design decisions.
5. Make, buy or collaborate
A critical design decision is to determine which processes the organisation should deliver itself, which it should out-source and which it should co-create. In other words, what are the “core competencies” of the organisation. Where financial resources and management time are limited, careful thought needs to be given to prioritising what is core.
For example, a University would consider that Teaching and Research activities are core but may outsource its building maintenance and catering. An Insurance company may manage motor claims in-house but outsource vehicle repairs.
In general activities that deliver competitive advantage, or which have the greatest risk of customer detriment should be managed and delivered in-house, whereas low risk generic activities may be managed more efficiently externally.
A third option may be to work in partnership with other organisation where economies of scale can be leveraged without impacting competitive advantage. For example, several organisations with similar needs may collaborate in their procurement activities to leverage increased buying power.
6. Organise the Work
Responsibility for work that remains within the organisation must be designed in a way which minimises hand-offs between teams and which differentiates based on the nature of the demand. A balance must be struck between operational efficiency and the ease with which customers can engage with the organisation to receive the service or obtain the product.
Many different forms of Service work organisation exist, for example: cross functional hubs; help desks; relationship managers; and centres of expertise. In each case the exact design selected depends on the nature of the demand and the degree to which they involve customer interaction.
7. Ensure sufficient people with appropriate skills
Team should be sized and skilled to enable them to deal with the responsibilities identified and the volume of demand. The design should consider ways to manage peaks in demand and compensate for staff absence, by multi-skilling and cross training staff.
Consideration should also be given to the management of these teams, identifying the appropriate span of control and therefore the number of Team Leaders and Managers required to lead the teams identified.
8. Manage delivery channels
Customers may connect with the organisation to request and receive goods or services through a variety of channels: face to face; electronically or through a third party for example. Careful consideration should be given to how customers wish to interact with the organisation and the necessary channels to enable this.
For example, a customer may place their order through a website, receive goods via a courier and request service by telephone. In many cases it may be necessary to provide several channels for the same purpose, either to meet the expectations of different customer segments or to provide resilience in case of failure.
9. Identify technology needs
Technology may be required to facilitate the execution of processes and to enable interaction with the customer. Where appropriate opportunities should be sought to simplify processes, reduce manual effort, increase quality and speed up delivery using automation.
Although traditionally associated with manufacturing, intelligent robotic systems can also have a big impact on service delivery. Eliminating low value, high frequency, routine process steps, automating customer interactions and streamlining communications.
10. Measure performance
A well-designed Operating Model will have effective feedback loops which use performance measures to inform continuous improvement. The design should consider what measures are required to enable issues or concerns to be identified and addressed before they become a major problem. These “leading” or “proactive” measures are a critical component of an agile and flexible Operating Model.
Measures should also be designed so that they consider a balance of Quality, Cost and Delivery both from the Customers perspective and from within the organisation itself
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