A Guide To Successful Operating Model Transformation

Every executive I meet with has concerns about the future. They all understand conceptually, that business stability and remaining the same is not a viable option. They observe the Amazons, Home Depots, Walmarts, and other giants battling it out on the e-commerce playing field and wonder how their market disruptions will impact their own $150M company or business unit’s future state. These inevitable disruptions are being fueled by warp speed emerging global market opportunities, technology and process innovations, empowered consumers with changing preferences, and evolving regulatory and compliance challenges. Welcome to the digitized economy . . . Where the world and business are evolving at a faster pace than ever before, where the rate of adoption is increasing exponentially with no end in sight.

Help – Where And How Do We Begin?

These harsh realities leave executives daunting and confused about how to change at the required scale of magnitude, velocity, and repetitiveness to achieve sustainable success. The chaos, turmoil, fears, unknowns, perceived risks, costs/benefits, and other critical factors of change are very real and in fact, even higher in business model transformation initiatives. To top it off, protecting revenue and short term financial performance often makes major change the first casualty. Returning to the well (i.e., same thinking, same processes, same people, same metrics, and same results), procrastination, postponement, or complacency are all much riskier and costly choices.

The light at the end of the tunnel in all of this is that an infinite world of new possibilities opens for companies to re-imagine their business models, the way they work, and how they compete. The limitations of old processes and old technology are lifted. The new limit is the self-imposed limits that executives and their organizations choose to place upon themselves.

Transformation Requires A Systematic Approach

The initial human impression to words chaos and disruption is negative. Face it – Anyone who has been in the change and improvement business for decades knows that these words do not make organizations jump for joy. The very real forces that we mention above are causing convergence between short term and the long term as we have known it. There is no long term, just Transformation Opportunity Horizons and S-Curves, appearing one after the other. Organizations ascend success via Jump-Off points, or they experience a maturity and a eventually a decline in success.

How do executives and their organizations respond to these breakthrough challenges? The answer is simple and easy: With a breakthrough operating model. We view this process as a series of major platform changes (transformation) followed by derivative (continuous) improvements. We also view transformation as a network of prioritized changes to core process segments based on a combination of innovation, science, and facts: Supply Chain, Manufacturing, Distribution, Customer Service, Order Fulfillment, Cash-To-Cash, Sales and Marketing, Advertising and Promotions, etc. In other words, don’t attempt to transform the universe based on emotions or someone else’s models. Understand and focus on the key value drivers (wherever they exist) within your business.

While no single operating model is applicable to every company’s business requirements and cultural development needs, there are common mission-critical attributes of an operating model transformation:

Bold, Courageous Leadership

Today’s global economy will continue to evolve disruptions at an endless, inevitable, and increasing rate.  Executives need to think beyond knocking off or mimicking someone else’s business models. Organizations must become business model innovators and forever alter their dynamic culture and very DNA to stay relevant. Forget calm, and embrace the humility situations – You can’t avoid them anyway in this global digitized economy. Humility disrupts the status quo and the you don’t know what you don’t know cycles of stagnation. This drives a higher order of KATA where we continuously and deliberately change patterns of behaviors so that people accept and embrace a fuzzy state of flux as the new norm

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Customer Centricity

Companies must spend more time exploring new business opportunities and relationships with customers. Voice of the Customer is important, but in this economy they are not always talking and expressing their needs and changing preferences. The knowns can be factored into the transformation sauce. A capability must exist to integrate the unknown and emerging requirements, and they must either be defined for the customer, predicted, or quickly identified and adapted into transformation initiatives.  Winning is a new game of out front thinking and first responder actions.

Strategically Sound and Executable

We talk with many organizations who have developed a holistic strategy to transformation, but it has not, is not, and will not be executable in its current state. Strategy alone doesn’t win the game, especially when the answers to the questions Why, What, When, Where, Who, and How are missing. There is nothing new here, just an old never-ending lesson about change. Transformation requires the unwavering leadership, strategy, governance, deployment infrastructure, talent, resources, time, bandwidth, culture, and metrics to achieve success. These are the critical underpinnings, and emerging technology is a given.

Global and Agile in Scope

Growth in developed domestic and regional markets is maturing. Organizations must place much more focus and effort on the next emerging customers, markets, products and services that will double or triple revenues. This includes a surfing and navigation capability to identify new opportunities, and a conversion capability to translate opportunities into competitive advantage and operating performance.

Scalable and Flexible

Well architected operating models have the stealth to compete fiercely on performance and own their existing customers and markets. They also have the flexibility to continuously morph and scale functionality into higher capabilities in near real time when new and emerging opportunities arise. This is an attribute of owning the bar vs. raising or following the bar. It’s a scale or fail world.

Digital Technology-Enabled

Transformation is impossible without leveraging digitization. Operating models must define and integrate the right digital technology capabilities (e.g., cloud, big data, mobility, business analytics, social media, real time performance dashboards, predictive and preventive process analytics, etc.). The digital strategy should be uniform from an enterprise perspective, but allow for digital enablement – The smart consumption of digital assets in order to maximize operational excellence, implement evolving intelligent processes, maximize internal and external value contribution, and optimize the customer experience.

Talent Management Rich

Operating model transformation requires the continual process of talent management: Acquisition, deployment, development, retention, rationalization, and planning. Organizational learning and development is not enough. Talent management also requires a complete rethinking about how people and organizations work in more of a freestyle thinking and flowing manner. Every platform and derivative change on the operating model transformation journey requires new injections of skills and talent.

Reconfigurable and Adaptive On-Demand

A concept operating model may have specific design footprint, infrastructure definitions, and operating capabilities. Often these criteria are directly applicable to a facility and its situational requirements. In emerging opportunity situations, operating models need to be reconfigured and adjusted to meet local market needs. Consider a distribution network in today’s economy. A single one-size-fits-all warehouse model is obsolete. Every warehouse should be configurable to its particular needs, and additional warehouses with different configurations of the same operating model footprint (e.g., capacity, #SKUs, equipment, people, space, etc.) to satisfy the new needs in that area. Other warehouses may be closed or consolidated to continually optimize the network over time.

Proactive Compliance to Regulatory Requirements

In a global economy organizations are challenged by country, state, and industry compliance expectations. In many organizations these known and hidden costs of compliance represents millions of dollars in opportunities. Governance, Risk Management, and Compliance (GRC) is an internal oversight discipline that must be integrated into the operating model transformation. GRC aims to synchronize process and information value streams in order to operate more efficiently by enabling effective process and information value stream management, sharing knowledge across these end-to-end streams, more effectively reporting non-conforming and/or corrective action activities, and avoid wasteful overhead maintenance and costly non-compliance penalties.

Mindware-Wired for Continuous Improvement

Unfortunately the need for improvement never goes away and operating model transformation does not occur in a single giant step. Transformations are never-ending journeys that require renewal through incremental and step-function improvements. This requires creative, no-fears talent that comes to work every day looking to push the limits, strive to get even better, look for the next operating innovation. When organizations are missing this valuable characteristic in their culture, transformation becomes a destination, a dead end of missed goals and disappointments. Transformation success also depends on age-old basics like engagement and empowerment, integrating process and technology, team and collaborative-based execution, visual performance, and many other fundamentals of previous improvement initiatives. Transformation is an evolve or dissolve proposition.

Culturally Grounded

The right cultural attributes of passion, commitment, one cohesive team, and open fluid collaborative holocracy structures. These organizational models increase focus, alignment, engagement, empowerment, self-management, innovation, and creativity in organizations. The never-ending challenge is how best to structure and deploy the right resources at the right time to get everything done. At the same time, organizations must leverage their operating models as a continuous developer of talent, individual behaviors, and nurturing the right cultural standards of excellence (Kata).

Collaboration Integration

Many organizations do not have the unwavering commitment, internal skills competencies, bandwidth, resources, time, or technologies to transform their operating models organically. Hubris is transformation’s worse enemy, and executives should never underestimate the cost and complexity of transformation initiatives. Organizations need to set up and acknowledge the capabilities and risks of their transformation initiatives for success. This includes the right internal/external focus, competencies, time, and resources to overcome all the unknown obstacles of success.

This is not by any means the full design guide for operating transformations. However, it provides a good starting point for testing and calibrating an operating model transformation strategy up front, thereby flushing out many of the largest detractors to success.

Summary

The sheer complexity of the above attributes is often underestimated and oversimplified – Or worse yet, not even considered. Failure to deal proactively with these attributes can create a false sense of security and invincibility by masking existing vulnerabilities and unforeseen polarizing forces that run transformation initiatives off the tracks. Let’s revisit implementation for a moment. Large organizations have more capital and resources to commit to transformation initiatives. For small and mid-sized organizations, a different implementation approach is necessary – A holistic strategy followed by deliberate, prioritized, high impact/quick ROI transformation activities that all fit together. Small and mid-sized organizations cannot afford the one-time investments, churn, and political complexities of their larger counterparts.
Operating models serve as a blueprint for how the company is organized, and how people, processes, and technologies are deployed and operated to produce breakthroughs in operating performance. It encompasses decisions about the shape, size, and scope of the business, where to draw the boundaries for each line of business, how resources collaborate within and across these boundaries, how the enterprise will add value to the business units, what behavioral norms and codes of conduct are encouraged and expected, and how to measure progress and success.
This begins by expanding the strategy in sufficient detail according to the attribute guidelines in this post.

A final thought. Many organizations are great on the strategy side of the fence, not so great on the deployment, execution, and sustainability side of the fence. Organizations must own up to their persistent gaps between strategy and execution and not continue to believe that the situation does not exist. The consequences of poor execution are much higher and costly with transformation. Diligent use of the above attributes will expose any elements of the operating model that present excessive risk or are not working in harmony. Operating models misalign, it’s a fact of life in an imperfect world. Organizations will benefit significantly by adapting the mission-critical attributes of a successful operating model transformation. If you don’t have the skill competencies, bandwidth, resources, and time to define, organize, and implement transformation initiatives with 100% success, consider the use of the right outside expertise to shore up the effort. In this economy you can’t afford to be wrong or too late. If you don’t overcome your limitations, you will be overcome by stronger competitors.