High-impact operating model design in action

Part 1: Reducing the risk of a failed transformation

Posted by Tiffany McDowell,  Uzair Qadeer, and Julia Rudansky on September 20, 2017.

Influential and instrumental, operating models are a vital link connecting business vision to an organization’s design and ultimately to a company’s success or failure. In a truly remarkable way, operating model design acts as connective tissue between theory and reality. Yet effective operating model design tends to remain one of the least understood organizational topics and continues to evade armies of sophisticated professionals. In the first of our three-part series on high-impact operating model design, we look at the (often overlooked) role of operating models in achieving business transformation, particularly their role in enabling and supporting desired behaviors.

What drives business transformation? Often it’s the need to compete, to grow, to adapt to changes in markets, technology, customers, the workforce, and society in general. Like many of these forces, today’s business transformations should be revolutionary, rather than evolutionary (it’s not easy building the organization of the future), compelling operating model design to become more holistic, nuanced, and sophisticated. The customer-centric organization demands a structure that secures internal behaviors that drive customer value. Yet, the continued existence of failed business transformations has prompted us to consider a key question:

Why do employees fail to make the necessary behavior changes, rendering transformation efforts useless?

The likely answer is obvious: the operating model hasn’t been designed to support the behavior change necessary for the business transformation. Becoming a modern, customer-centric, digital organization demands a structure that drives and supports customer-centric, digitally enabled behaviors that ultimately create customer value. An operating model influences how people work on an emotional, philosophical, and behavioral level; it provides the organization with a construct to effectively execute tasks for common values. This construct, in turn, provides the critical spark for people to adopt new ways of working, in turn helping to create value for customers and the organization.

In essence, companies should consider values, principles, and downstream impacts on behaviors when designing operating models, not just the redesign of processes, the implementation of new technologies, or the sticks and boxes of reporting relationships. People do not magically embrace new ways of working; they need a purpose in the workplace for which to work.

Once companies can effectively link operating models to employee behavior, they can substantially increase the success rate for transformation to their desired future state. Thus, a tremendously powerful frontier awaits.

Rethinking the steps of operating model design
To reach this frontier, let’s first break down what we mean by an operating model. A model, by its simplest definition, is a prototypical system used as an illustration to follow or imitate. For example, you might have a 3-D architectural layout of a high-rise condo, with different units designed to accommodate different occupant needs in terms of size, configuration, and activities (sleeping, eating, relaxing, entertaining, working) and to provide the desired user experience. Similarly, an operating model offers a visual depiction of how an organization functions, dictating not only where and how critical work gets done across the organization, but why. Simply put, an operating model provides the link between business strategy and organization structure.

Not only should operating models be treated as nimble structures, like a high-rise that can accommodate different lifestyles, it’s important to think about the intricacies involved in selecting the type of materials, deciding on how to build the high-rise, creating a structure that can successfully shelter its inhabitants, and most important, designing the very user experience of those within. The type of rooms you build dictates how a family lives with one another, often determining what size family can live in the dwelling, how that family will interact in that space from dining to watching TV, and what type of gatherings may be hosted.

Much like building homes, selecting an operating model has downstream implications for structure and roles, which drive behaviors independent of who fills these roles and what processes these roles execute. Just as an architect obsesses over every single angle and edge, material, and amenity to design the experience for the people who will live or work in a space, corporations should design operating models beyond the traditional components of people, process, and technology and consider the organizational outcomes they desire and expect from a particular operating model design. Ultimately, an operating model groups capabilities, defines relationships, and dictates how work must be executed in support of the organization’s desired strategy and vision.

For example, if a company has a stated objective that “the customer comes first,” what steps does it take to ensure that each individual in the organization has every opportunity to put the customer first? Does it install a customer relationship management system? Does it put a new incentive structure in place to pay more for individuals with higher customer satisfaction scores? Does it create “customer relationship leaders” and structure the company around unique customer segments? Does it launch a flashy internal communications campaign shouting “customers first”? Typically, one or more of these tactics are deployed, often with some incremental improvements, but rarely the wholesale change in behaviors that is required for success. That is likely because the leaders failed to describe the exact behaviors they needed from their constituents to be successful before they started their intervention.

Stepping back to move forward
What if first, before designing an operating model, before implementing a technology, changing metrics and rewards, restructuring roles, or spending money on flashy campaigns, leaders reflected on how each individual or group should behave in order to make the target state operating model a success? Companies across industries are realizing and adopting this new way of designing operating models. This new way focuses on end behaviors that not only activate an operating model but also organically drive the desired value case, as opposed to the old way in which operating models were designed to support an established value case without consideration of the end behaviors. This design approach often left a void because the operating model did not consider behaviors, leaving nothing in place to drive the value case. A behavior-driven operating model establishes a customer-centric organization that organizes around behaviors to drive profits.

old way-new way

Source: Deloitte Consulting LLP

We’ve just looked at the “what” of high-impact operating model design. In part two of this series, High-impact operating model design in action: Realizing the ultimate influencer, we’ll take a closer look at “how” operating models influence behaviors.

Tiffany McDowell is an Organization Transformation & Talent principal in Deloitte Consulting LLP’s Human Capital Practice, where she focuses on helping companies improve performance by building organization structures to execute new capabilities through their workforce.
Uzair Qadeer is an Organization Transformation & Talent manager in Deloitte Consulting LLP’s Human Capital Practice, where he specializes in organizational development with deep focus on supporting culture, change management, and talent strategies. Uzair has delivered transformative organizational strategies work both in the United States as well as internationally.
Julia Rudansky is an Organization Transformation & Talent consultant in Deloitte Consulting LLP’s Human Capital Practice and focuses on organizational strategies, talent, change management, and strategic communications.

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