Diversification, Coordination, Replication, and Unification
Note: This article is updated at 4 Operating Models for Business Agility.
Your operating model is determined by your choices around how you handle integration and standardization for your business processes. Your choices around your operating model can dramatically influence and impact your ability to compete in the market.
A clear operating model decision has a profound effect on how you implement your business processes and IT infrastructure. For example, if you don’t have a clear operating model, then it can be like starting from scratch, each time you have a new imitative. You won’t be able to bring forward any automated, pre-existing, low-cost capabilities to your new strategic pursuits.
The challenge is that selecting an operating model is a commitment to a way of doing business. The upside is that if you make deliberate choices around the integration of shared data, you can gain increased efficiency, coordination, transparency, and agility. And, through deliberate choices around standardization of business processes, you can drive efficiency and predictability across the company, which can lead to dramatic increases in throughput and efficiency.
In the book, Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, Jeanne W. Ross, Peter Weill, and David C. Robertson write about how to analyze and categorize your company or business unit’s operating model based on four models: Diversification, Coordination, Replication, and Unification.
Why It’s Worth a Clear Operating Model
You can increase your operational excellence, customer impact, product development and strategic agility through better choices around business process integration and business process standardization. Ross, Weill, and Robertson write:
“Our research suggests the payoff for making that choice can be huge. Companies without a foundation for execution supporting an operating model reported 17 percent greater strategic effectiveness than other companies – a metric positively correlated with profitability. These companies also reported higher operational proficiency (31%), customer intimacy (33%), product leadership (34%), and strategic agility (29%) than companies that had not developed a foundation for execution.”
Business Process Integration and Business Process Standardization
When you analyze how a company approaches business process integration and business process standardization, four different quadrants emerge. This helps you see the distinctions between each strategy in a s simple way. Ross, Weill, and Robertson write:
“We have developed a straightforward two-dimensional model with four quadrants, representing different combinations of the levels of business process integration and standardization. Every company should position itself in one of these quadrants to clarify how it intends to deliver goods and services to customers.”
4 Types of Operating Models
According to Ross, Weill, and Robertson there are four operating models for how a company addresses business process integration and business process standardization.
- Diversification (low standardization, low integration)
- Coordination (low standardization, high integration)
- Replication (high standardization, low integration)
- Unification (high standardization, high integration)
Two Questions to Determine Which Quadrant Your Company Belongs In
According to Ross, Weill, and Robertson, companies adopt different models at different levels. For example, they might adopt one operating model at the enterprise level, but then a different model at the division, business unit, region, or other level. To figure out which of the four quadrants your company or business unit mostly belongs, Ross, Weill, and Robertson suggest asking two questions:
- To what extend is the successful completion of one business unit's transactions dependent on the avaiability, accuracy, and timeliness of other business units' data?
- To what extent does the company benefit by having business units run their operations in the same way?
This helps you figure out your business process integration requirements and your business process standardization requirements.
Diversification is effectively "independence with shared services." Ross, Weill, and Robertson write:
"Diversification applies to companies whose business unit have few common customers, suppliers, or ways of doing business. Business units in diversified companies offer different products and services to different customers, so central management exercises limited control over those business units.”
Coordination is "seamless access to shared data." Ross, Weill, and Robertson write:
“Coordination calls for high levels of integration but little standardization of processes. Business units in a Coordination company share one or more of the following: customers, products, suppliers, and partners. The benefits of integration can include integrated customer service, cross-selling, and transparency across supply chain processes. While key business processes are integrated, however, business units have unique operations, often demanding unique capabilities.”
Replication is "standardized independence." Ross, Weill, and Robertson write:
“Replication models grant autonomy to business units but run operations in a highly standdardized fashion. In a Replication model the company's success is dependent on efficient, repeatable business processes rather than on shared customer relationships. The business units are not dependent on one another's transactions or data; the success of the company as a whole is dependent on global innovationand the efficiency of all business units implementing a set of standardized business processes. Accordingly business unit managers have limited discretion over business process design, even though they operate independently of other business units.”
Unification is "standardized, integrated processes." Ross, Weill, and Robertson write:
"When organizational units are tightly integrated around a standardized set of processes, companies benefit from a Unification model. Companies applying this model find little benefit in business unit autonomy. They maximize efficiencies and customer services by presenting integrated data and driving variability out of business processes.”
For a deep dive into each of the operating models as well as case studies and examples, check out Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, by Jeanne W. Ross, Peter Weill, and David C. Robertson. It’s one of those kinds of books that you can tell is born from experience, rather than just theory. It’s rich with data and authoritative, prescriptive guidance to help you mature and transform your company to compete in today’s arena (it’s a powerful collection of proven practices and timeless advice, and extremely relevant to our emerging digital economy.)
Make your operating model a clear choice. Choose the appropriate levels of integration and standardization that help you build a strong foundation for execution and improve your strategic agility.