Operating Model Engineering
The operating model is the engine which delivers the business financial results. Whilst marketing, pricing, sales, and business model selection are all also important, the operating model must deliver the client experience at an approriate cost to provide profitability and ongoing investment, at an acceptable operating risk level, for the business to succeed.
Operating models can be very complex in large organisations and have many characteristics which are important for business success. The required characteristics are not often arrived at without deliberate design. This deliberate design is what I refer to as operating model engineering.
Operating Model Performance Objectives
I have identified 26 characteristics which I have identified and grouped them into four categories:
1. Revenue related
2. Profitability related
3. Risk related
4. Change related.
All of the characteristics listed will ultimately affect ongoing business viability with some characteristics being more influential than others depending on the nature of business.
The characteristics identified as being revenue related are concerned with how well the business delivers its customer value proposition, and thus its ability to earn revenue.
The customer value proposition needs to be delivered at a cost which provides sufficient margin for ongoing investment into the business and a return to investors. The operating cost results in profitability related indicators.
Operational risk carries a cost to the business, including costs which can be existential, so the operating model needs to have sufficient protections to ensure ongoing business viability. These are the risk related characteristics.
Profitability needs to be sufficient for ongoing investment because the business environment is continuallly changing. The cost to change the operating model determines how much change can be delivered given the level of profitability being achieved. Designing the operating model to be able to continually evolve at an acceptable cost is important to longer term reaction to threats to the ongoing business viability so the operating model must have change related performance characteristics.
Determinants of operating model performance
Operating model performance is determined by two factors:
Design decisions
Resource allocation
Resource allocation is a constraint for operations due to budget limitation according to the organisation’s financial objectives each year.
The operating model design needs to enable the required performance characteristics within the constraints of the available operating budget and investment budget.
Achieving the required performance for a given budget requires deliberate engineering and design across a wide range of factors. There are many factors in the diagram in this section.
Complicating operating model design is that some of these factors may improve some characteristics but be detrimental to other desired characteristics. Operating model design therefore requires compromises to achieve the optimal performance. How to achieve the optimal design requires specific expertise and knowledge of how and why operating models behave as they do.
Who is accountable for operating model design and performance?
Who has accountability for operating model performance is likely easily answered in an organisation - there will be a role similar to Head of Technology & Operations who will have ultimate accountability and will delegate that accountability down through the organisation structure.
In smaller businesses the Head of Technology & Operations may be able to be across all the skills required to design and resource the operating model, but in larger organisations they will be setting direction and strategy, and creating roles and organisation structure to ensure that design and operations are appropriately resourced with the required skills and expertise.
How a business is organised to design and manage the operating model has a significant impact on the performance outcome. For example, consolidating common activities to get specialisation cost savings may create efficiency but cause delay in processes impacting client experience.
Reviewing job advertisements identifies a wide range of roles which impact operating model design, as shown in the diagram in this section, but which of these roles has the full range of expertise across an operating model to understand the change impacts and determine the compromises which create the optimal design for the available resources?
If a business is not getting the operational performance it expects, or not achieving the benefits from its change programmes, then it may be worth investigating where the operating model engineering skills are and whether the holders have sufficient expertise and influence.
Operating model engineering skills & expertise
An Operating Model Engineer’s role is to ensure that all the elements of the operating model are designed and come together to achieve the performance characteristics the business needs.
To do this the Operating Model Engineer needs to understand the depth and breadth of the operating model covering structure, deliverables, operations, risk, and change. It is a broad expertise portfolio and inevitably the Operating Model Engineer would need to work with specialists in some of the skills areas. For change projects the Operating Model Engineer is likely to act in a consulting capacity or oversee the Business Analysts.
The role of a Chief Engineer seems well established across many industries, but I have not seen the role applied to operating models. There are a number of roles which could expand to cover the wider responsibilities:
Process Owner: the most likely candidate if senior enough (could also be called Capability Owner)
Business Architect: operational science is not part of the usual Business Architecture skillset but could be added
Product Owner: usually focussed to the technology ‘product’ but a potential candidate in a highly digitized environment
Operational Excellence: operations focussed and is usually deployed to investigate and address specific areas of operational deficiency.
A more usual organisational arrangement in large companies seems to be the above roles as separate roles, hopefully working together, with the consolidated view point happening at a more senior level. Such a structure has a weakness in that operating model performance is a result of the capability design and how the capabilities work together, and therefore capability integration needs to be part of the operating model design and engineering work rather than a senior executive role.
The Operating Model Engineer’s role
The Operating Model Engineer role, irrespective of the job title of the incumbent, is to ensure that all the design work on the operating model is working toward an optimal design configuration.
There are 5 key aspects to the role:
Overseeing projects from inception to completion ensuring the deliverables are fit for purpose and required change management activities have been successfully completed
Communicate the operating model performance goals to all actors
Support and sponsor projects to improve the operating model
Approve change designs and oversee benefits realization
Monitor operating model performance and recommend corrective actions.
The Operating Model Engineer is the role which senior acccountable executives look to for assurance that overall operating model design is consistent with performance objectives based on their skills and expertise in operating model design and performance.
Although Operating Model Engineer is not an established role in organisations that I have seen to date, it is the role that I identify with from my career experience to date.