Don't Let Poor Operating Models Undermine Good Strategy Currently, most business processes tend to evolve organically and slowly and easily concede competitive advantage to new, digital players. That's dangerous

By Tony Saldanha

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In today's volatile digital world, setting the right strategy for your business is only half the battle. The other half is to have a reliable model to turn these goals into day-to-day actions throughout the organization. That's where an operating model usually comes in. We build further upon this idea to help companies create a "dynamic operating engine". These are essentially cutting-edge business processes – whether supply chain, finance, sales, HR, etc. - that are high-powered and dynamic. Currently, most business processes tend to evolve organically and slowly and easily concede competitive advantage to new, digital players. That's dangerous.

ILLUSTRATING THE POWER OF OPERATING MODELS

The best illustration of the power of such a dynamic operating engine is Alan Mulally's U-turn of Ford in 2006. When Mulally arrived as CEO in 2006, the automaker had just posted a record annual loss of $12.7Bn. By 2010, Ford had posted a net income of $6.6Bn, and Ford's stock had appreciated more than 1,000% from its 2008 recession lows. A remarkable change, but the big question is: how it was done?

Mulally realized that the employees were very busy and stretched to their limits. But the balance between time spent on internal meetings and time spent on external customer value was off. Also, Ford's operations were having a tough time associating employees with individual accountability for business results. The measurement system was broken. Most leaders felt that their results on the scorecards were "green" (i.e., on track), yet the business was wildly off target, a strong indication of a poor operating model. Mulally decided to reapply the model of Business Plan Review (BPR) meetings, which he had used while he was at Boeing. BPRs involved weekly meetings in which every department had to break down its efforts and report them in ways that indicated measurable progress. Secondly, by moving Ford from a structure of regional business units into a global functional model to drive more efficient and effective operations.

WHAT CAN WE LEARN FROM MULALLY'S TURNAROUND OF FORD?

Ford's success story illustrates that an organization has a far better chance at succeeding when its operating model is strongly aligned with its business model. There are two key lessons that can be applied. First, the operating model must be in sync with the business model, and second, the operating model must be dynamic so as to keep changing over time.

5 QUESTIONS TO A SK FOR A DYNAMIC OPERATING MODEL

1. Are we managing our business processes end-to-end (E2E) and do we know the cost of each?

2. Do we know the number of touch points within each E2E process?

3. Do we have one operating model for business processes across the company?

4. Have we instituted practices of internal client management for business processes?

5. Do we organize and run business processes by applying product management practices to them?

Poor operating models on average result in a loss of a third of the potential market performance of companies. That's not smart. Running your company on only two-thirds of its engine power in today's volatile world is definitely unadvisable.

Tony Saldanha

Author and World-Renowned IT and Global Business Services Executive

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