FIVE

INCONVENIENT
TRUTHS
AND A WORD OF
ENCOURAGEMENT

ABOUT YOUR
OPERATING
MODEL
2018
Introduction

Strategy Operating model Execution

“No outward change need trouble him who is inward-

ly serene”. Although this may sound like a clichéd
quote better fit for a coffee mug than a serious
whitepaper, there is an important learning to take
away from the words written by Hosea Ballou, an
American clergyman and theological writer from
the 19th century. In an age where businesses on a
daily basis are struck by news of disruptive tech- ”Operating model” may sound like a dull and
nologies and the need for digitalising their offering, strangely nondescript term with little inherent
it is only natural that they have an increased focus meaning. It has a technical air about it, and on the
on their external surroundings. However, too often face of it, it seems a lot less appealing than work-
this happens at the expense of “inwards serenity”, ing with world-conquering strategies, innovation
meaning that organisational leaders forget to focus and everything related to disruption. But think of
on aligning and developing internally in their eager- your operating model as the vehicle that allows – or
ness to respond to external change. Their strategy prevent – the translation of your strategic intent into
and operating model fall increasingly out of sync operational capabilities and, ultimately, into reality.
with each other. The CEO and Chairman often shine In short, your operating model determines your
in the strategy process – but they virtually ignore the organisation’s ability to execute what it intends to
operating model. do. It is as important as that.

2
 The six components of
your operating model
In our definition, every organisation’s
operating model consists of six components:

The base structure, which often translates

into the organisational chart. It determines
the overall organising principles of your
organisation and the boundaries of the
organisational logic.

The collaboration models, which are both the main

horizontal processes connecting the different units
of the base structure (typically illustrated by classi-
cal process flows) and the more fluid/agile project
structures that emerge around certain priorities.

The leadership mandates, which define

who holds which responsibilities in both
the base structure and the collaboration
models, how decisions are made and the
overall governance modus.

People, which covers the important questions

of how many people with which skill set and
profiles should be deployed in different parts
of the organisation, and how they are balanced
with the use of external resources.

Culture, which defines our corporate

values and the ways in which we interact
with each other and with external partners.
This includes the corporate storytelling a
nd how we “do things around here”.

Digitalisation and systems, which are the formal

structures of what we know, which data we use
(and how) to manage, operate, optimise and
innovate the business, both as a collective and
on the level of the individual employee.

These six components need to be well calibrat-

ed with each other – and with your strategy. For
example, if your performance management system
does not adequately support your leadership man-
dates, leadership will be ineffective. If you want a
collaborative culture, but put heavy emphasis on
individual goals, there will be a disconnect. And if
you pursue a strategy of becoming your industry’s
most agile competitor, but you are bogged down by
heavy processes and a large cost base, you will not
succeed.

3
 Base structure Collaboration models
Our verticals define where we 2-3 key horizontal processes and
build scale and competences agile resource allocation define our
value creation ability

Permanent
Temporary (scrum)

Leadership mandates People Culture Digitalisation

Accountability in Organisational sizing, Our culture and values & systems
verticals and horizon- competences and define our ability to Digitalisation and sys-
tals define our ability balance of internal vs. engage employees and tems define our ability
and effectiveness in external resources de- differentiate towards to optimise perfor-
decision making fine effectiveness and customers mance, and innovate
flexibility

Change does not get

easier with time
Adapting your operating model to both internal
and external changes becomes increasingly difficult
as your organisation grows. In large corporations
and public agencies, it is all too easy to succumb
to the temptation of continuing on the current path
rather than making the needed changes to be able
to succeed in the longer term. Lack of agility means
that large incumbents often end up developing at a
pace below the industry. The investors’ patience for
incumbents eventually getting it right is decreasing.
In 1964, the average tenure of the companies on the
S&P 500 index was 33 years. In 2016, this narrowed
to 24 years, and it is forecasted to shrink to just 12
years by 2027. At the forecasted churn rate, about
half the S&P 500 companies will be replaced in the
next decade.

4
 LESS OF... MORE OFF...

Profit Purpose

Inside-out perspective Outside-in perpective

Talking about customers Listening to customers

Hierarchy Networks

Controlling Empowering

Specialised functional teams Cross functional teams

Leading by directing Leading by influence

Pursuing the full shift from a profit-driven to

a purpose-driven company, with all that it entails is
an unrealistic path for most organisations. But the
expectations from workforce, customers, clients and
the surrounding society of at least modifying belov-
ed classic control mechanisms, such as rigid perfor-
mance management, meritocracy fuelled by indi-
vidual bonuses and large support functions, is likely
to increase, just like the expectations to increased
automation, adjusting to a more flexible job market,
embracing increased globalisation and catering to
millennials. Little wonder that most CEOs and other
The challenge facing well established organi- top managers lose a sense of direction, or even fail
sations resembles the proverbial rock and the hard altogether to pay attention to the complex question
place. Sticking to what is tried and tested may seem of operating model adjustment.
increasingly out of date – but insisting on adopting In this whitepaper, however, we will argue that
the practices of young start-ups and tech giants ignoring the development of the operating model
seems to involve throwing away what their historic is a significant mistake, as common as it is serious.
success was built on such as scale, functional exper- Based on our extensive experience from working
tise, industry insights and customer relations. with a large share of the largest Scandinavian corpo-
Finding the “right” way to configure your op- rations and government institutions, we have extract-
erating model in an ever-changing environment is ed five inconvenient truths about the consequences
not simple, and chasing new management practices of leaving the operating model off the top manage-
without considering whether they fit your strategy or ment agenda – and we offer a hopefully encouraging
company DNA is not the solution. word of advice on how to take a better approach.

5
#1.
Your operating
model gets too
little leadership
attention

In cases of large reorganisations like this, we of-

ten see that insufficient time was spent on truly un-
derstanding the state of the operating model ahead
of the redesign and on making key decisions around
vital processes, talent or system support. The conse-
quence? The operating model develops without the
attention of top management, often in the shape of
mushrooming with new functions, teams and respon-
sibilities added to the existing structure and increas-
In the 1920s, the Belgian surrealist René Mag- ing complexity. Workarounds, inconsistencies and
ritte crafted a series of paintings of tobacco pipes inefficiencies grow until the need for a new reorgani-
and named them Ceci n’est pas une pipe – this is not sation is irresistible – and a new pipe is drawn.
a pipe. His point was that the picture of a thing is not
the thing as the actual object. In the same manner, What about delegating?
a picture of an organisational structure is not an Your reaction to the paragraph above may be
organisation, but just a physical representation of a that yes, you and your top management team are
real-life object of much higher complexity. It ought, not paying too much attention to the other elements
however, to come with the reminder that “this is not of the base structure … but that you do not have to.
an organisation”. After all, top managers are busy, and you have qual-
Defining the operating model solely through the ified and highly paid specialists that you delegate
organisational base structure is fast-paced, requires these tasks to.
little effort and has a decisive air about it. Structuring Indeed, we often see that this is the case. HR
and restructuring happens a a frequency that is easy will work with people propositions and culture, LEAN
to understand and communicate and is a favourite consultants with collaboration models and IT con-
top-management tool: sultants with digitalisation and systems, and defining
leadership mandates is either decentralised to mid-
• Many private corporations over time gyrate dle management, non-existent or made up of long
between a market-focused organisation task lists instead of actual mandates.
structure and a more functional structure, There is nothing wrong with involving the ex-
trying to solve the collaboration challenge pertise of your organisation in developing the details
their previous organisational structure did of the solutions. But the consequence of premature
not address. delegation, however, is that there is a lack of a shared
• In many political systems, ministries and vision of where the overall operating model needs
agencies are radically merged or split after to go, and that makes it difficult to fit the different
general elections to fit the number of minis- pieces together into a consistent whole. HR may be
ters needed in a new coalition government. enthusiastic about experimenting with new ways of
This means a vast reorganisation after every working, your finance department ready to roll out
general election, often decided with little due a new performance management system and your
diligence of the consequences. Best Practice-team on the job of ISO-certifying all
• Companies are often acquired with weak un- your processes. Each initiative may be valuable in
derstanding of their operating models – and itself – but will they support each other and are they
are subsequently force-fitted into the organi- in alignment with the organisation that top manage-
sational chart with only superficial integration ment wants to build and the strategy the owners
assistance. want to pursue?

6
 KEY POINTS

• Top management typically focuses

too much on the structure part of the
operating model and too little on the
other parts
• Dividing and delegating the task of
improving the operating model often
leads to costly complexity and mis-
alignment

Delegation and initiative are definitively good.

But some of the challenges, especially relating to
base structure and leadership mandates, cannot be
handled by the people most affected by the con-
sequences. In addition, there must be answers to
questions such as:

• What are the three core processes, and

who is responsible for improving them?
• How many of our managers will be able to
tell us their top-3 leadership tasks?
• What competences do we need to realise
our strategy – and can we attract them?
• Is our organisation more complex than
it needs to be – have we allowed it to
mushroom?
• What deliberate trade-offs are we making in
the set-up of our leadership mandates?

Finding the best answers to these questions

belong on the agenda of the combined management Consider the six components as a set of com-
team. passes – all six needles need to point in the same
direction; or rather, any deviation should be inten-
Getting your operating model right is not an tional, as a consequence of deliberate choices, such
easy task, which is exactly why it should make the as making cross-cutting processes compensate for
top management agenda; there is nobody else to rigidity in functional organisation. The responsibility
ensure that the interactions and the fit between the of this type of alignment cannot be left to chance
six components are the right ones. But in the situ- or delegated downwards. Therefore, we urge top
ations where it is done correctly, the organisation management to “look beyond the pipe” and allocate
experiences an effortlessness that frees up resources more time to creating that shared vision for how you
to bold new ambitions and strategies. aim to take strategy to execution.

7
#2.
Your operating
model exists to make
your people perform
– not the other way
around
Carefully engineered operating models have
many obvious benefits, such as clear accountability,
transparency and precision, but there is substantial
evidence that they fail in another vital aspect: creat-
ing employee engagement. For example, according
to Gallup’s annual workplace surveys, only about 13%
of the global workforce are actively engaged in their
workspace – almost twice as many are actively dis-
engaged, and the rest are just disengaged. It stands
to reason that if employees feel like they are replace-
able resources in a well-calibrated machine, their
engagement levels will decline. With that goes their
interest in staying on board, giving their best and
taking on tasks outside their ordinary job description
– and with that the organisation’s ability to deliver on
its strategy.

What workplace do you want

to be? What people do you want
”People are our most important assets”. Though to have?
this is often presented as a novel idea and expressed More than anything else, your operating model
with deep conviction by CEOs, the way that operat- determines the type of workplace that your employ-
ing models are often constructed testify to quite the ees and managers experience on an everyday level. It
opposite. In fact, most operating models are de- massively impacts their roles, their room for decision
signed to reduce the dependence on individuals. making, the way they collaborate with each other,
The overreliance on the “structure” part of the the information available to them, etc. On a more
operating model often leads to highly complicated intangible level, key parameters of the culture define
organisational charts that try with millimetre preci- the “right” approach in your organisation to address
sion to define functional responsibilities and line- trade-offs such as focus on individual vs. team per-
of-command, often supplemented by very detailed formance, formality vs. informality, speed vs. thor-
process manuals and elaborate RACI-mappings. The oughness and clarity vs. fluidity.
ambition seems to be the creation of a self-wind- The people that will thrive in your operat-
ing clock that without human interference can keep ing model will be those who are comfortable with
itself running – monolithic on the outside, delicately what you are offering in your specific context. Your
calibrated on the inside. Frederick Taylor, the early operating model will determine who you can attract
20th century mechanical engineer wrote the highly and who you can keep. If entrepreneurial employees
influential “The Principles of Scientific Management”, are important for your business to succeed, do not
outlining an industrial view on labour in mass pro- smother them in corporate red tape and endless
duction. Max Weber was similarly scientific in his coordination meetings. If reliability and predictabil-
recommendation of a bureaucratic model. Among ity matters more than anything, do not articulate a
the six pillars of his model were hierarchy, formality risk-taking culture. If you want strong team players,
and impersonality. These “engineered” approaches do not gear your performance management on high
to operating models have been reproduced countless individual bonuses. Otherwise, you will end up at-
times ever since, by management gurus and consult- tracting people that are quite different from the ones
ants alike. you really want.

8
 KEY POINTS

• The operating model an organisation

has determines the people it can
attract and retain
• The operating model needs to be as
simple as possible and help answer
fundamental questions of the people
working in it
• Prevailing culture will often affect the
effectiveness of the other parts of the
operating model

Call up Occam
With age and size, an organisation’s operating
model tends to become more complicated. New
challenges are handled by a new process, coordi-
nation requirements by a new middle management
layer and an increasing number of organisational lay-
ers by introduction of support functions, compliance
standards and rules. To get away from the result-
ing complexity, corporate incubators are launched,
almost as escape pods, only to find re-entry into the Acknowledge the ghost
parent organisation at a later point difficult. in the machine
There are normally very good reasons for A well-designed and well-implemented operat-
deciding on and implementing the operating model ing model allows the people of the organisation to
adjustments exemplified above. But they are rarely function optimally by providing the right conditions
off-set by similar de-complicating initiatives, and for their work. No wonder that the metaphor of a
over time, the share of an employee’s time being “well-oiled machine” is often applied to companies
spent on navigating the operating model, or even un- that are able to act with agility to changing market
derstanding it, goes up, taking vital time away from conditions or to deliver consistently high quality over
customers, employees and partners. a long period of time.
Thus, Occam’s Razor is an important tool in World-class organisations, including some of
working with operating models: simpler solutions those that we have been fortunate enough to work
should always be preferred over the more compli- with , distinguish themselves by being assembled
cated ones. Employees should spend as little time as and maintained in the right way. They also allow
possible considering what the right course of action room for the employees and managers to build a
in a specific situation is. Ideally, they will intuitively culture (or even spirit) that may appear idiosyncratic
know without reading a manual or navigating the and even irrational, but becomes a clear identifier
blind angles of an overdone matrix organisation. As of “our tribe” and “the way that we do things”. This
a minimum, the operating model must help answer can be a force for good or for bad, depending on the
the fundamental questions of each employee and organisation’s particular situation and the inherent
manager about why what they do is important, how culture in the company. It can certainly be influenced,
well they are doing and how to develop further. also for good and bad.

9
#3.
Your operating model
is the single biggest
barrier to realising
your digital potential

Repeating the survey in the Danish public

sector and in Norway and Sweden showed similar
results.
The above wish list of capabilities bears witness
to the fact that succeeding with digital transforma-
tion requires all aspects of a company’s operating
model to function under new circumstances – from
leadership to talent management, processes and
Digital technologies are rapidly changing the collaboration models. This is true for both radical
face of business. However, this change is happening changes and a digital transformation implemented
at a pace far exceeding that of transformations in op- through a portfolio of smaller initiatives.
erating models. This poses a challenge: the strength Finding the right people to initiate a digital
of technologies such as AI and advanced analytics transformation might be difficult enough. But actu-
amount to little, if they do not transform the way we ally keeping them in the slightly longer run is just as
and our organisations work. challenging in a formalistic, risk-adverse operating
Their advantages are bountiful, as numerous model. This seems to be a key learning in many gov-
studies have established. For example, an MIT study ernment agencies and traditional companies.
with over 400 participating companies worldwide
concluded that companies with strong digital intensi- Buying new machinery will not
ty derive 9% more revenue from their physical assets, make old ghosts disappear
are 26% more profitable and achieve a 12% higher There are plenty of potential benefits that
market valuation than the average of their peers. businesses can derive from digital transformation.
The inconvenient truth, however, is that organ- However, going digital for the sake of digital will not
isations are unlikely to experience any of the above ensure that any of those benefits are derived. We
benefits if their operating models are not adjusted as often see businesses hoping that adding technology
part of their digital transformation. and new types of decision data will magically end
turf wars, simplify processes and make their busi-
Digital is different and it ness more customer-oriented. Digital technology is
challenges your operating model indeed capable of aiding in achieving those objec-
When QVARTZ, on behalf of Microsoft, asked tives, but the mere implementation of technology
20 of the largest companies in Denmark about the does little in itself to alter the habits, collaborations
importance of digital transformation, 18 identified it models and culture of the people working in the
as one of the most or even the most important prior- organisation.
ity on the executive agenda. However, these com- For example, knowledge sharing and
panies also recognised that digital transformation is cross-functional use of data is often not restricted by
hard, and success driven by seven capabilities, many availability, as many unsuccessful implementations of
of which they found themselves lacking on: CRM systems and intranets bear witness to, but by
operating models that do not promote collaboration.
1. Digital Leadership Another example is the classic conflict between sales
2. Functional Clarity and marketing on customer ownership. The typical
3. Future Way of Working advice of implementing a shared system to open
4. New Competencies up for and integrate customer information across
5. Adaptive Governance departments will often end in frustration; new sys-
6. Two-Speed technology tems in themselves do little to improve on personal
7. Open Collaboration relations, incentives and behaviour.

10
 KEY MESSAGES

• An organisation's operating
model can serve both as a great
enabler of and as a barrier to digital
transformation
• Digitalisation rarely makes existing
challenges in the operating model
disappear
• Choosing a separate operating model
for digital activities is possible, but
adds new complexity

In short, buying a solution will not in itself make

your employees use it – or use it in the right way.
A study published in the MIT Sloan Management
Review surveyed 1,559 people across 106 countries The integrated structures (such as “Embedded”
on the topic of digital transformation. Overall, they or “Governing”) will mean that digital transformation
found that companies routinely invest in technology, is fully anchored in the organisation and any future
but too often get routine results. The main reasons adoptions will be easier with shorter lead time. How-
reported were not related to technology, but to ever, an integrated unit meant to develop something
challenges in the operating model, sometimes even “new” might be hindered by existing structures and
made worse by large IT implementations. culture, meaning that any drastic digital changes are
The inconvenient truth is that the equation likely to be suppressed.
for successfully realising your digital potential will Choosing the right approach is essential, but
almost certainly involve people, and when people are remember that organisational structure is just one
part of the impact equation, buying a new solution element of your operating model that must translate
will never turn out to be the panacea someone has strategy into execution and eventually results. Top
promised you. management needs to ensure that the five other
elements follow suit. This holds inconveniently true,
Separate operating models are an even in digital times.
option – but one that comes with
drawbacks
When companies launch digital initiatives, we Support Parallel Across
often see them struggle to find the right timing,
speed and organisational flexibility to ensure suc-
cessful implementation. This is especially true when
digital initiatives are kept organisationally separate
from the daily business. The key question here is
which parts of the operating model must remain
stable, and which parts must stay agile.
Six archetype approaches exist for how to
organise your business when the aim is to integrate a
“digital business development”. Some of them, such
as the “Support” or “Parallel” model, provides the
opportunity for the organisation to build separate Embedded Governing Autonomy
operating models where an innovative culture can be
fostered in the new unit outside the confinement of
existing rigidness and bureaucracy. However, these
models require significant management attention
to the interface between the “new” with the “old”. If
a unit is kept separate for too long, the chances of
ever successfully integrating it into the core business
are diminished significantly.

11
#4.
No-one else has the
operating model that
you need

One size does not fit all

One method for simplification seems particu-
larly popular when it comes to optimising operating
models. In recent years, we have received an increas-
ing number of requests from clients who would like
to understand how successful companies (typically
exemplified by tech titans such as Netflix, Google
or Amazon) think about their operating model, with
the aim of copying their practices, ways of working,
culture and set-up. Although there is plenty of inspi-
ration to be drawn from other companies, there are
very few blueprint recipes for success. The inconven-
ient truth is that nobody else has exactly the operat-
ing model that you need. Furthermore, even the suc-
Large organisations are deeply complex enti- cessful companies used as inspirational cases fight
ties. They typically consist of numerous structural their own battles in the trade-offs they have made.
units with different purposes linked together through In a recent survey of employee retention, Paysa (a
formal and informal processes, operating in a num- leading analyst of salary date) disclosed that the em-
ber of geographical and functional arenas and gov- ployee tenure in successful tech companies such as
erned by multiple layers of decision makers. In most Facebook, Google and Apple on average is less than
cases, they attract a diverse group of professionals two years, indicating that their operating model does
with different skill sets that must all be brought into little in terms of retaining coveted talent.
play in the best possible way. Not to mention the Although relevant learnings can be drawn from
challenges that most industries face in the light of the operating models of Facebook, Google and
digital transformation, new competitive situations Apple, both in the eye of the job seeker and the CEO,
and disruption from new business models, etc. Or for many are very context-dependent. A “fail fast”-de-
government agencies: the intricate web of political velopment approach which is highly meaningful
and administrative stakeholders in which the organi- in software development is less important in the
sation operates. development and manufacturing of pharmaceutical
For many CEOs and others tasked with devel- products. Bureaucratic approval processes create
oping the operating model of their organisation, vital predictability and consistency in some contexts,
the appreciation of these complications leads to an but destroy motivation and nimbleness in others.
understandable urge to reduce the complexity of the For a public transportation provider, predictability is
task at hand. In many ways, the search for simplicity essential, whereas an entertainment company needs
is healthy; it can unfreeze a state of paralysis where a high degree of creativity. What an organisation
the magnitude of the task of improving the operating needs at a given point in time is, in other words,
model leads to inaction. highly differentiated.

12
 KEY POINTS

• Operating models are complex and

must be tailored to your specific
situation
• You can (and should) find inspiration
Getting the context right from leading players and manage-
There are a number of reasons why it is hard to ment fashions, but no-one else has
successfully copy somebody else’s operating model. the right model for you
Many of them have to do with the context the organ-
isation operates in.

The industry: What are the industry require-

ments to predictability, efficiency and control
vs. agility, speed and creativity?

The stage of maturity: What is the maturity

state of the company – industry challenger,
growing and entrepreneurial vs. incumbent,
expert and market-leading?

The legacy and DNA: What are the values and

core strengths of the company that the oper-
ating model needs to build on and enhance?

The society: Which markets and regions is the

company operating in and how do their
characteristics (labour market regulation,
workforce characteristics, etc.) influence the
operating model?

These questions must be reflected in the design practices as alienating to humans.

of the operating model. It is easy to be cynical about these manage-
ment fashions that seem to rely on the fallacy that
Valuable nuggets exist one size indeed fits all and an insistence on being su-
– alchemy does not perior to the concept that it replaces. Dismissing all
Another way of seeking inspiration for your management fashions as useless, however, is missing
operating model design could be to adopt manage- the point. They have many compelling characteristics
ment practices and frameworks that have proven which can serve as useful sources of inspiration. At
themselves successful across industries and com- the core is their ability to depict an optimistic and
panies with different characteristics. The list of such often quite simple view on what it takes to improve
practices is long and typically codified in the shape a company. They often come with a uniform set of
of management fashions (or even fads) with clever tools and concepts, which can serve as a common
acronyms. Examples are Total Quality Management framework across functions. They are prescriptive
(TQM), ISO9000-standards and formal certification by nature and typically align well with the general
processes, Lean Manufacturing, Six Sigma, JIT, BPR, zeitgeist. Little wonder that the messages of “do
etc. More recently, agile emerged as a method for what the competitors do” sold well in the early years
managing the software lifecycle, with Sprints and of global competition, and that Agile has appeal
Scrumm-methodologies being central components. outside software development in times that appear
It seems inevitable that it would all merge into a characterised by disruption.
“Lean Agile” methodology, and that this method Management fashions thus contain useful
would be promoted to a panacea for all ailments of nuggets of truths and – when applied to the issues
modern corporations. From our perspective, there they were meant to solve – can bring great value. If
appears to be a dialectic between management they are implemented correctly, with patience and
fashions that advocate more structure and those that sufficient tailoring, that is. But even in that case, they
advocate less. At the time of writing, the pendulum are not able to turn lead into gold, and they rarely
is certainly gravitating towards the latter. It is be- provide the answer to what the operating model for
coming trendy to attack process-heavy management your specific organisation should be.

13
#5.
The work is never
quite complete

Moving towards something better

If you subscribe to the evolutionary school of
thought, you can probably be convinced that the
work is never done; something new and better will
arrive. The preferences of the people you would like
to employ and keep will change. Just as the width
of trousers, the layout of newspapers, names and
language itself, operating models can reach a point
When one management fashion replaces the where they feel old-fashioned and stale. Something
other, there is an underlying idea of progression and new needs to happen.
evolution – that our thinking on how to structure and There is another, more profound, reason why
operate organisations is constantly improving. Our the work is never quite done. Every improvement
thoughts in this millennium are thus superior to those you make to your operating model is likely to cre-
of the 1980s, which were better than the antiquated ate new (hopefully smaller) challenges that must be
models of the 1950s. Some management observ- handled. A de-layering of your organisational struc-
ers even link this development of organisations to ture creates a larger span of control, which calls for
the development of human consciousness (Laloux), new management practices. The introduction of a
implying that as we grow more advanced as human sophisticated matrix organisation, with the objective
beings, so does the quality of our organisations. of creating shared objectives will result in a new set
With this progressive view on operating models, of co-ordination vehicles and unclear responsibilities.
a nagging feeling emerges of risking being caught Creating a more inclusive governance structure with
with an old-fashioned organisation, out of sync with direct market input will foster innovation and market
what is needed – wearing yesterday’s fashion for relevance – but it is also likely to lead to slower deci-
the party of tomorrow. And more positively, there sion making. And so on.
is a promise of the possibility of reaching “a final Absolute improvements to your operating
stage”, where all challenges in the current operating model exist, for sure. But there are always trade-offs,
model have been weeded out, equilibrium has been and changes will give you some benefits at the cost
achieved, “level 5” in the consultant’s assessment of some expenses. The good news is that if you do
tool is reached and the weary CEO can focus her it correctly, you get to choose your own challenges.
mind on the market and competition exclusively. And hopefully, the inevitable necessary adjustments
For a couple of reasons, the inconvenient truth will be of smaller magnitude and come with less
is that this point in time never arrives. disruption.

14
 KEY POINTS

• Improving your operating model is an

ongoing task for three reasons
• The environment and your strategy
will change over time
• When you make improvements to
your model, it will create new trade-
offs and challenges
• Your operating model consists of
people with changing preferences,
skills and leadership styles, which
makes the model dynamic

What got us here won’t

take us there
Another reason why the work never ends is that
the environment and strategic position that your
organisation finds itself in is likely to change. Public
sector organisations are often massively affected by
changing political agendas and changing expecta-
tions from citizens and companies. Private-sector
companies in most industries face changes in relation
to customer preferences, competitive landscape and
geographical footprint. Most organisations change
in size and competencies over time, organically or
through M&A activities. An exciting new strategy
may call for something fundamentally different. The
operating model that seemed perfect at a given
point in time is not exactly right anymore.
In our experience, most CEOs are often late in A life of its own
reacting to the changes in their environment and in Finally, operating models have a momentum of
creating a natural reflection in the way their operat- their own and evolve over time, even when nobody
ing models work. It is natural and prudent to gauge deliberately wants them to. Process descriptions,
whether the changes are temporary or of a more structures, the composition of the work force, etc.
permanent nature; and to stick with what is famil- may stay permanent, but how they actually work is
iar to the organisation. Changing prematurely is at highly sensitive to changes in leadership and contact
least as risky as changing too late. However, once with suppliers, customers and partners, as well as the
you have realised that the changing conditions are overall performance of the company and individuals.
of more permanent nature, you should conduct a
diligent review of your operating model and your These, and many other factors, will gradually
ability to succeed in the new conditions. What needs shift your operating model in new directions and
to be adjusted? And equally important – what is it shape the behaviour of everybody participating in
that we need to preserve even as our surroundings it, even if not a single comma is changed in corpo-
reshape themselves? Creating a bridge between rate manuals. Many of these changes may be for
what we were and what we have to become is what the better and a natural organic development of the
ensures continuity, and elements such as corporate “operating model as a machine”-blueprint, and these
culture and collaboration models are quite vulnerable changes need to be nurtured and acknowledged. But
to larger shocks, such as restructuring and process in every case, the potential gap between how your
redesign. Maybe they need to change too … but it organisation was intended to operate and how it ac-
should be the result of a deliberate choice. tually works is likely to widen, even if you do not act.

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The good news:
You can get it right …
and unlock massive
potential

It starts with the “Why”

A simple way to start off the work on the
operating model in a way that maximises chances
of success is summarised in the illustration below.
In a simple manner, this methodology imposes an
element of analytical rigor that guides the operating
We started off by asserting that “No outward model adjustments to where they are truly needed.
change need trouble him who is inwardly serene”.
By now, you are hopefully convinced that getting It consists of three elements:
to that state of ‘serenity’ is not easy, will require a
lot of work and is only temporary of nature. Howev- Future requirements: The operating model work
er, the prize of getting your operating model right starts with a clear understanding of what demands
justifies the effort you put into it. The organisations the strategy puts on the capabilities of the organi-
that succeed are far better able to translate their sation. Do new competitive dynamics mean that we
strategy into execution. They become more agile must become more cost competitive? Will new dig-
and are better equipped to react to external change italisation opportunities mean that we can provide
and competitor moves. Frankly, they are also more better and more relevant customer service if we alter
motivating to work for. Getting your operating model our business model? Are we on a globalisation jour-
right improves employee engagement, and Gallup ney? The organisation’s strategy should identify such
found that business units in the top quartile of their requirements and ideally translate them into changes
global employee engagement study are 17% more to capabilities, composition of employees, etc. – if
productive and 21% more profitable than those in the not, this is the place to start.
bottom quartile. Getting your operating model right
is a good business case and can help you get a sus- The vision and strategy should be tested against
tainable competitive advantage by being more agile a sombre assessment of the organisation’s talent
and purpose-driven. situation. Will the organisation be able to attract,
Any lasting improvement of the operating develop or source the required skills to fulfil the
model of course requires thoughtful design and thor- strategy requirements? How is its employer brand in
ough anchoring in the organisation. From our expe- the most-needed groups, and does it provide a total
rience, however, top management tends to forget to value proposition, including compensation, culture
satisfactorily identify an answer to the fundamental and purpose that will make it succeed in the compe-
question: Why do we need to change our operating tition for that type of talent? If the answer is no, the
model? strategy should probably be adjusted.

1. REASON 2. DESIGN 3. ANCHOR

Why do we need to change What should our future How do we implement &
our operating model? operating model look like? ensure lasting change
to realise the benefits of
the new model?

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 KEY POINTS

• If you take a structured approach to operating model

design, you can get it right and realise hard benefits in
company performance and employee engagement
• We propose a 3-step model for operating model design: 1)
Defining the reason for change, 2) Designing the operating
model and 3) Transforming the company
• Ample effort should be spent at the "Reason-for change"-
phase, which is all about defining the "big WHY" behind
the operating model transformation and understanding the
capability gap between the company's point of departure
and where it wants to go strategically

FUTURE REQUIREMENTS POINT OF DEPARTURE NEED FOR CHANGE

Vision & strategy People and talents What is our starting point Which gaps are most
What are the future What is the availability on the six dimensions critical to close, why
requirements to our of key capabilities and in our operating model do we need to change
operating model talents and are we and how does it support and what key design
from our strategy? able to attract them? value creation? principles?

Point of departure: With the requirements of most in our industry? Most organisations will find
the strategy to the operating model made clear, the that they generally succeed with certain parts of
second step is to get a clear and honest picture of their operating model, sometimes at the expense
what the organisation’s current operating model of others. Making sure that the leadership team has
looks like in order to understand the gap that must the same picture of strengths and weaknesses in the
be closed. This happens by first clarifying the core current operating model is a vital step in designing
strengths and trade-offs in our current operating and anchoring subsequent changes.
model. For example, do we have scale-advantages in
our support functions, but at the cost of local close- Need for change: The final step is to combine
ness and accountability? Do we have strong, predict- the requirements following from the strategy with
able processes, but at the cost of flexibility? the assessment of the current point of departure.
This typically takes the shape of identifying the
Next comes an assessment of the absolute strength current gap levels in the critical capability areas, as
of the different components in our operating model. defined by the strategy, and prioritise them. Subse-
What is the true nature of our culture and does it quently, this analysis is used to look at the operating
support the organisation that we want to be? What model to understand how the necessary capabilities
is the quality of our processes? Are our governance can best be created. It is rarely as simple as just
structures and leadership mandates clear? What adding the right people, though understanding that
is our competence level in those areas that matter need is certainly a good place to start. But the five

17
other components of the operating model should
also be carefully considered to ensure that they also
reflect the change in strategy and support each
other in a consistent operating model. The top man-
agement should also agree on the design principles:
what is it that we need “more of” and “less of” in the
changes ahead of us. What trade-offs are we willing
to make?

As a summary, the analyses conducted in all

three phases are summarised in a short and compel-
ling core story that clearly and logically explains the
“why”, also to the leaders and employees outside top
management, to guide and inspire the subsequent
transformation.

***

Hopefully, by now we have convinced you that

it is essential to care for your organisation’s operat-
ing model – in fact, it may well be the most impor-
tant task of you and your management team. Any
time spent in a good way on this complicated matter
will make a tremendous difference for your ability
to execute your strategy and for creating an organ-
isation that is not only successful, but also engag-
ing to work for. As you grow more proficient in this
discipline, you will experience an increased ability
to identify the necessary small adjustments to your
operating model in due time, avoiding the need for
big-bang restructuring, and preserve the serenity,
even in the face of large external turmoil.

Endnotes

1 Innosight; 2018 Corporate Longevity Briefing

2 A scientific principle named after the
medieval philosopher William of Ockham, stating
that among competing hypotheses, the one with
the fewest assumptions should be selected
3 For a deeper discussion of the performance
questions, see “Performance Management –
deliver results and build a stronger company”,
QVARTZ 2016
4 Find the reports at www.qvartz.com
5 https://sloanreview.mit.edu/projects/
embracing-digital-technology/
6 Read more about these archetypes in QVARTZ’s
Whitepaper on the topic
(https://qvartz.com/wp-content/uploads/
organisationnewera_310118_pages.pdf?x16467)
7 Gallup “State of the Workplace”, 2017

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Do you want to
Know more?
Please reach out to:

Christian Løken Sparrevohn Jens Buur Madsen

christian.sparrevohn@qvartz.com jens.buur.madsen@qvartz.com
+45 31 93 31 93 +45 29 69 69 57

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www.qvartz.com