The Operating Model as Company Vision
Note: This article is updated at How Choosing an Operating Model Improves Business Agility.
The operating model is the level of business process integration and business process standardization for delivering goods and services. The operating model is one of the three keys to building a strong foundation for execution (The three keys are: operating model, enterprise architecture, and IT engagement model.)
The key benefits for building a strong foundation for execution include better profits, faster time to market, and cheaper IT costs, as well as more business agility.
By choosing an operating model, you enable IT to play a proactive role in identifying future strategic initiatives, and you define the role of business process standardization and integration that guide daily decisions and tasks.
In the book, Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, Jeanne W. Ross, Peter Weill, and David C. Robertson explain why it’s worth choosing an operating model, how it enables IT to become proactive, and how your operating model becomes a driver of business strategy.
Debate Your Company's Operating Model
Debating your operating model creates clarity and helps drive a foundation for execution. Ross, Weill, and Robertson write:
"We encourage senior managers to debate their company's operating model. This debate can force managers to articulate a vision for how the company will operate and how those operations will distinguish the company in the marketplace. In clarifying this vision, management provides critical direction for building a foundation for execution."
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)
The Operating Model Becomes a Driver of Business Strategy
Choosing an operating model puts a stake in the ground, and your operating model becomes a driver for business strategy. Ross, Weill, and Robertson write:
“Because the choice of an operating model guides development of business and IT capabilities, it determines which strategic opportunities the company should -- and should not -- seize. In other words, the operating model, once in place, becomes a driver of business strategy. In addition, the required architecture -- as well as the management thinking, practices, policies, and processes characteristics of each operating model -- is different from one operating model to another. As a result, the operating model could be a key driver of the design of separate organizational units.”
IT Becomes Proactive
By choosing an operating model, you enable IT to become proactive, and you define the role of business process standardization and integration that impact daily decisions and tasks. Ross, Weill, and Robertson write:
“Focusing on the operating model rather than on individual business strategies gives a company better guidance for developing IT and business process capabilities. This stable foundation enables IT to become a proactive -- rather than reactive -- force in identifying future strategic initiatives. In selecting an operating model, management defines the role of business process standardization and integration in the company's daily decisions and tasks.”
Not Choosing an Operating Model is as Risky as Choosing One
Without a clear operating model, you can’t leverage reusable capabilities, and you’ll lack a strong foundation for execution. Ross, Weill, and Robertson write:
“The operating model concept requires that management put a stake in the ground and declare which business processes will distinguish a company from its competitors. A poor choice of operating model -- one that is not viable in a given market -- will have dire consequences. But not choosing an operating model is just as risky. Without a clear operating model, management careens from one market opportunity to the next, unable to leverage reusable capabilities. With a declared operating model, management builds capabilities that can drive profitable growth.”
You can clarify, debate, and define your operating model (the level of process integration and process standardization) across your business units using the four operating models: diversification, coordination, replication, and unification. By doing so, you set the stage to build a strong foundation for execution, empower IT in a more proactive way, and use your operating model as a driver for business strategy.
For a deeper 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.