Two-thirds of businesses recognize the need for speed and agility in order to stay competitive in the digital age. Yet, industry conglomerates including GE and Ford have poured around $1.3 trillion into transformation initiatives, 70% of which, $900 billion that is, was wasted on failed programs (1). One of the biggest reason for this was the failure to address the operating model to deliver on the strategy.
For the purpose of this article, let us define an operating model as the blueprint of how an organization (or individual business unit or function) organizes its resources and capabilities, and establishes processes around to accomplish its critical tasks. Included in the operating model are Integration of people, processes, and technology (2). Now, what are the typical stumbling blocks and signs you might be stuck with an outdated operating model?
1.Your company, business unit or function was experienced growth in size, complexity or the number and variety of projects, processes, services and stakeholders has increased. You find it difficult to successfully deliver strategic benefits and outcomes. There is hardly any sustained growth without a state-of-art operating model. One component of success is technology literacy, as also pointed out be a recent survey (3) according to which 65% of the CxO leaders expected the company use of technology to be a driving force for the growth over the next three years. This may encompass use of tool, automation, data, and tech-enabled services ands business models embedded to the business.
2.You have experienced performance-driven issues such as insufficient resources, capabilities, stalled or slow decision-making, or lack of cross-functional information flow. A survey (3) indicated that nearly all organizations (99%) have pursued a technology transformation within the past two years and technology is thus perceived as a competitive edge and growth engine. While keeping up with the pace with new technologies is valuable, this has created cultural and talent gaps, and lack of partnering between the IT and other functions in the organization.
3.There are technology-driven reasons for stalled performance due to legacy applications, infrastructure, or unpaid technical debt. Companies who place an emphasis on the relationships among the IT/technology and business functions experience returns on their efforts (4). In a recent study, top-quartile organizations experience 2,8 times greater digital business enablement, 2,6 times higher financial benefits capture, 1,6 times higher new revenue potential, and 1,2 times lower costs of technology delivery than their lower-quartile counterparts.
First step is a diagnosis of the current state of company infrastructure (spending and modernization roadmap, particularly with cloud), application rationalization, and business relations management.
4.Your company has undergone a merger, acquisition or carve-out. These transactions, experienced by up to 81% of organizations within the past year (5), most likely change the company's objectives and priorities, unit structures, processes, and supplier/ partner relations. The high percentage emphasizes the pace of business environments and the constant pressure for operating model assessment and design. In these situations, cooperation across functions is necessary to align the design principles and to establish baseline and preliminary end-state for the operating model. From here, the design work may continue to organizational blueprint, structure, governance, and processes. Thus large restructuring efforts may require an interim operating model to manage the transition.
Melkki has worked with all the above scenarios since 2015, our focus being in the intersection of IT and Business. Here are some examples:
Banking: In a major bank, customer service is a key in the Internet era. Melkki team designed and led a product driven operating model that allows the bank to deliver and change the services to be the best for the customer. Our experts had overall responsibility to define the service management based on customer value delivery, and was leading the program to implement new operating model. Implementation included organizing service management and outsourcing of Application development, maintenance and IT operations.
Energy: In the midst of rapid global business growth and new strategic direction, an energy sector client required a strong ICT department to partner for new innovations and better services. The operating model was to establish dialogue between IT and Business, and took a form of an internal “Digital Team” (a hybrid of technology and business representatives). This strategically focused global unit was designed to provide a wingman for the divisions with an emphasis on customer needs. Governance was led by business functions, and prioritization made to embrace technological possibilities for further efficiency and innovation. Partners included mainly local, agile niche players.
Media: Enhanced customer data, modern business services and customer understanding are key-components when executing digital transformation in traditional media company. The company identified it’s need for system renewal program as technical depth prevented the provision of new digital business services and process automation. The operating model was targeted towards renewal of the existing circulation management system and self service site, and to provide possibilities for data-enabled business and innovation.
In sum, the article argued that operating model design is about choosing a right path and cutting through the complexity of the technology backbone, critical business initiatives, processes and culture.
Adapted from Bain, 2014
McKinsey Global Institute, 2020
McKinsey & Co, 2019