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An operating model is both an abstract and visual representation (model) of how an organization delivers value to its customers or beneficiaries as well as how an organization actually runs itself.
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An operating model is both an abstract and visual representation (model) of how an organization delivers value to its customers or beneficiaries as well as how an organization actually runs itself.
There are different ways of defining the elements that make up an operating model.
An organization is a complex system for delivering value. An operating model breaks this system into components, showing how it works. It can help different participants understand the whole. It can help leaders identify problems that are causing under performance. It can help those making changes check that they have thought through all elements and that the whole will still work. It can help those transforming an operation coordinate all the different changes that need to happen.
An operating model is like the blueprint for a building. It is more dynamic than a building blueprint, with changes occurring regularly. Also, an operating model is not usually just one blueprint. There are likely to be blueprints for each element: processes, organization, decision making, software applications, locations and so on.
An operating model can describe the way an organization does business today – the as is. It can also communicate the vision of how an operation will work in the future – the to be. In this context it is often referred to as the target operating model, which is a view of the operating at a future point in time. Most typically, an operating model is a living set of documents that are continually changing, like an organization chart.
An operating model describes how an organization delivers value, as such it is a subset of the larger concept 'business model'. A business model describes how an organization creates, delivers and captures value and sustains itself in the process. An operating model focuses on the delivery element of the business model. There are plenty of disagreements about the use of the words business model and operating model. [3] [4] [5]
The term operating model may have been first used in corporate-level strategy (see History below) to describe the way in which an organization is structured into business divisions, what activities are centralized or decentralized and how much integration is required across business divisions. The term is most commonly used today when referring to the way a single business division or single function operates, as in 'the operating model of the exploration division' or 'the operating model of the HR function'. It can also be used at a much more micro level to describe how a department within a function works or how a factory is laid out. The section below titled Business/IT dialogue , explores one framework for thinking about the IT implications of different corporate strategies.
An operating model is one of the tools that leaders can use to help them formulate and execute strategy. Typically work on an operating model starts after some strategic plan has been proposed. It translates that plan into operating requirements and decisions and often also contributes to the plan by showing areas where the plan will be hard to implement.
An operating model can also be used as a tool when an organization is facing performance challenges. The model can help with the diagnosis (what is causing the performance problems) and with the solution (what needs to change to correct the problems).
However, probably the most common use of the operating model tool is to get alignment between managers in different functions or divisions about how they are going to work together for the benefit of the whole.
Additional maps and charts are often needed. For example, an operating model will typically include an IT blueprint, locations maps, a supplier matrix, people models, decision grids and other elements such as a scorecard for assessing performance. The particular set of documents created will depend on what the operating model is being used for. There is no generally accepted set of charts or at least there is no agreement yet about what charts make up an operating model.
The term operating model has been used in corporate strategy to mean what Lynch, et al., of corporate strategy describe as: "the relationships among the businesses in the corporation's portfolio and the process by which investments will be determined among them." [6]
Corporate strategy grew out of the research of Harvard Business School professor Bruce R. Scott who developed a model of the stages of corporate development. [7] He traced the evolution of a firm from "Stage I" with a single product (or line of products) to "Stage 3" with multiple lines of business, markets and channels. Following this work, Leonard Wrigley [8] and Richard Rumelt [9] developed ways of classifying company structures and comparing their strategies. They identified four different operating models: [10]
The nomenclature evolved, but the categories survive:
Some implications of the choice: [12]
| Component | Integrated | Allied-related | Allied-unrelated | Holding |
|---|---|---|---|---|
| Business strategy | One | Many | Many | Many |
| Customers | Same | Shared | Some shared | Many |
| Corporate role | Resource allocations | Define protocols | Define protocols | Financial roll-ups and analysis |
| Human capital | Common | Some shared | Some shared | Independent |
| IT systems | Common | Common | Few, interconnected | Different |
| Enabling processes | Centralized | Centralized | Some centralized | Decentralized |
Operating models have become popular with service organisations, looking to improve processes to deliver greater value to customers and/or beneficiaries. One such operating model is the Service Operating Model Skills (SOMS) framework. [13]
SOMS is an operating model focused on the service sector. SOMS stipulates the expertise needed for people creating and working with operating models. The framework consists of seven elements:
SOMS was created by the Centre for Service Management in the School of Business and Economics at Loughborough University [14] in response to requests from trainers and instructors in the service sector; and is based on academic research from the Centre for Service Management. [15]
The MIT Center for Information Systems Research (CISR), a research group at the MIT Sloan School of Management, suggests that an operating model is useful to guide IT investment decisions. [16] IT investment must support the operating model.
Ross, Weill and Robertson found that an organization with an operating model reported 31% higher operational efficiency, 33% higher customer satisfaction, and a 34% advantage in new product development. [17] In the book Enterprise Architecture as Strategy, they outline four operating models:
| Process standardization | ||
|---|---|---|
| Process integration | Low | High |
| High | Coordination | Unification |
| Low | Diversification | Replication |
Operating models inform the appropriate level of business process integration and standardization to deliver the organizations promises to stakeholders. [17]
The operating model informs IT leaders about how various technical and business components should be designed and implemented to enable the chosen operating model: [17]
| Component | Coordination | Unification | Diversification | Replication |
|---|---|---|---|---|
| Customer data |  | | ||
| Product data | | | ||
| Shared services | | | | |
| Infrastructure technology | | | | |
| Portal technology | | |||
| Middleware technology | | |||
| Operational processes | | | ||
| Decision making processes | | |||
| Application systems | | |||
| Systems component technology | |
Coordination and unification models benefit more from consolidated views of customer and data across the enterprise than do diversification and replication models.
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.
Porter's Five Forces Framework is a method of analysing the competitive environment of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.
A business process, business method, or business function is a collection of related, structured activities or tasks performed by people or equipment in which a specific sequence produces a service or product for a particular customer or customers. Business processes occur at all organizational levels and may or may not be visible to the customers. A business process may often be visualized (modeled) as a flowchart of a sequence of activities with interleaving decision points or as a process matrix of a sequence of activities with relevance rules based on data in the process. The benefits of using business processes include improved customer satisfaction and improved agility for reacting to rapid market change. Process-oriented organizations break down the barriers of structural departments and try to avoid functional silos.
Information technology (IT)governance is a subset discipline of corporate governance, focused on information technology (IT) and its performance and risk management. The interest in IT governance is due to the ongoing need within organizations to focus value creation efforts on an organization's strategic objectives and to better manage the performance of those responsible for creating this value in the best interest of all stakeholders. It has evolved from The Principles of Scientific Management, Total Quality Management and ISO 9001 Quality Management System.
Information technology service management (ITSM) are the activities performed by an organization to design, build, deliver, operate and control IT services offered to customers.
Business process modeling (BPM) is the action of capturing and representing processes of an enterprise, so that the current business processes may be analyzed, applied securely and consistently, improved, and automated.
Enterprise architecture (EA) is a business function concerned with the structures and behaviours of a business, especially business roles and processes that create and use business data. The international definition according to the Federation of Enterprise Architecture Professional Organizations is "a well-defined practice for conducting enterprise analysis, design, planning, and implementation, using a comprehensive approach at all times, for the successful development and execution of strategy. Enterprise architecture applies architecture principles and practices to guide organizations through the business, information, process, and technology changes necessary to execute their strategies. These practices utilize the various aspects of an enterprise to identify, motivate, and achieve these changes."
Agile Manufacturing is a modern production approach that enables companies to respond swiftly and flexibly to market changes while maintaining quality and cost control. This methodology is designed to create systems that can adapt dynamically to changing customer demands and external factors such as market trends or supply chain disruptions.
A federal enterprise architecture framework (FEAF) is the U.S. reference enterprise architecture of a federal government. It provides a common approach for the integration of strategic, business and technology management as part of organization design and performance improvement.
Technology strategy is the overall plan which consists of objectives, principles and tactics relating to use of technologies within a particular organization. Such strategies primarily focus on the technologies themselves and in some cases the people who directly manage those technologies. The strategy can be implied from the organization's behaviors towards technology decisions, and may be written down in a document. The strategy includes the formal vision that guides the acquisition, allocation, and management of IT resources so it can help fulfill the organizational objectives.
Design management is a field of inquiry that uses design, strategy, project management and supply chain techniques to control a creative process, support a culture of creativity, and build a structure and organization for design. The objective of design management is to develop and maintain an efficient business environment in which an organization can achieve its strategic and mission goals through design. Design management is a comprehensive activity at all levels of business, from the discovery phase to the execution phase. "Simply put, design management is the business side of design. Design management encompasses the ongoing processes, business decisions, and strategies that enable innovation and create effectively-designed products, services, communications, environments, and brands that enhance our quality of life and provide organizational success." The discipline of design management overlaps with marketing management, operations management, and strategic management.
Performance measurement is the process of collecting, analyzing and/or reporting information regarding the performance of an individual, group, organization, system or component.
An enterprise architecture framework defines how to create and use an enterprise architecture. An architecture framework provides principles and practices for creating and using the architecture description of a system. It structures architects' thinking by dividing the architecture description into domains, layers, or views, and offers models – typically matrices and diagrams – for documenting each view. This allows for making systemic design decisions on all the components of the system and making long-term decisions around new design requirements, sustainability, and support.
In the business sector, business architecture is a discipline that "represents holistic, multidimensional business views of: capabilities, end-to-end value delivery, information, and organizational structure; and the relationships among these business views and strategies, products, policies, initiatives, and stakeholders."
Information Framework (IFW) is an enterprise architecture framework, populated with a comprehensive set of banking-specific business models. It was developed as an alternative to the Zachman Framework by Roger Evernden.
A view model or viewpoints framework in systems engineering, software engineering, and enterprise engineering is a framework which defines a coherent set of views to be used in the construction of a system architecture, software architecture, or enterprise architecture. A view is a representation of the whole system from the perspective of a related set of concerns.
Capability management is the approach to the management of an organization, typically a business organization or firm, based on the "theory of the firm" as a collection of capabilities that may be exercised to earn revenues in the marketplace and compete with other firms in the industry. Capability management seeks to manage the stock of capabilities within the firm to ensure its position in the industry and its ongoing profitability and survival.
Operations support systems (OSS), operational support systems in British usage, or Operation System (OpS) in NTT are computer systems used by telecommunications service providers to manage their networks. They support management functions such as network inventory, service provisioning, network configuration and fault management.
The service blueprint is an applied process chart which shows the service delivery process from the customer's perspective. The service blueprint is one of the most widely used tools to manage service operations, service design and service.
The history of business architecture has its origins in the 1980s. In the next decades business architecture has developed into a discipline of "cross-organizational design of the business as a whole" closely related to enterprise architecture. The concept of business architecture has been proposed as a blueprint of the enterprise, as a business strategy, and also as the representation of a business design.