Operating Models: Gearing Up
for Optimal Performance

	Introduction by Bill McKendree, President

Business in High Gear

(Page 1 of 3)

Your Guide to the Gears
Understanding how operating models work begins with the strategy. It’s the “North Star” for the business, the one directional constant in an environment of constant change and uncertainty. In an effective operating model, strategy combines vision, mission and critical success factors. It’s not enough, for instance, to say that strategic intent is to increase shareholder value. Strategy must identify the course to that goal. It must target particular business opportunities. What holds the most promise for this business? Is it increased revenue or market share? Does the strategy call for an acquisition or an IPO?

The management infrastructure clarifies the rules needed for the business to stay on course. Structure, governance, decision-making, planning, priority-setting, business processes, and resource allocation all make up the management infrastructure. They require, however, a balance between specificity and flexibility in how they are applied.

Consider, for instance, the use of “dead reckoning” as a form of navigation in sailing. It helps you adjust your course based on your most recent data, such as speed, direction and time. Most businesses today require the same flexible, adjust-as- you-go approach to implementing a strategy. Detailed plans of the past have a short life, because today’s businesses encounter rapid competitive changes in the marketplace.

Organizational behaviors explicitly define how people - especially leaders - need to operate in order to align with a particular business strategy and management infrastructure. Not only expected behaviors, but also underlying values and beliefs can guide the alignment of important human resource systems.

With rewards, protocols, leadership profiles and role specifications rein- forcing expected behaviors, values and beliefs, everyone’s performance can contribute to the intended business direction.

Together, these three components answer the essential operational questions for any business. What? How? And, in what manner? When the three components of the operating model are fully integrated, a smooth, powerful rhythm of practice inevitably results. And that rhythm is a major force behind successful performance.

Stripping the Gears
Our experience working with companies in different industries suggests that many businesses try to function with an ill-defined operating model. Or they may tinker with a single gear, often investing a great deal of money and time. They do not realize that tinkering with a single gear affects everything. They consistently fail to synchronize the entire operation. Result? An organization out of whack, limping along with stripped gears and the following problems:

• Lack of alignment and direction
   
• Conflicting or competing priorities
   
• Initiatives begun but not completed
   
• Unclear roles, responsibilities and authority levels
   
• Unspoken conflicts about strategic intent among the members of the senior management group
   
• Incongruity between what management says and does
   
• Disconnect between senior management’s view of the business and the view held in other layers of the organization
   

So, what causes these conditions? We see companies that base their strategy on clear thinking and an intensive analysis of the environment. However, they base their organizational structure on tradition and incumbent employees, and their organizational behavior on sacred cows and beliefs, independent of the strategy. They do not carefully align the “what” with the “how.”

Indeed, they may not know how to produce such alignment. Even a company that recognizes the need to change may feel overwhelmed by attempting to fix everything at once. The usual inclination is to talk about it all, but only fix a piece of it now. It’s easy to understand why the urge to produce quick and efficient results even if they handle operations the old way, can be more compelling than taking the time to align operational activities with the strategic direction. In the long run, their short cuts cost more and take more time, just the opposite result of their “quick and efficient” intent.

In a world demanding immediate results, contemporary organizations place the highest value on action. Thinking and time are seen as inhibitors to performance, an expense. It takes time and thinking to design an operating model and really understand the operating implications of each component. You simply cannot explore those implications without group discussions and dialogue. It also takes real commitment to stay on course. Organizational lead- ers must be focused and tenacious, resisting the lure of the quick fix. They must be willing to wait for the positive consequences that unquestionably will occur, though not necessarily overnight.

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