Design the right business model for your company

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Partner & co-founder at Kuroshio adviceadvising clients on strategy, transformations and leadership.

Since I got my first episode of Star TrekI’ve been fascinated to watch the crew work together seamlessly as they follow their mission “to explore strange new worlds, to seek new life and new civilizations, to boldly go where no one has gone earlier.” You often see teams working together in engineering, security, science (Mr. Spock’s department), and of course the senior officers (or command). I think it’s a model of how business departments should work together to solve a problem.

If this were true in our non-fictionalized world, organizations wouldn’t undergo operational model redesigns as often. The triggers for the redesign vary: a new strategy focused on customer or operational excellence, a change in leadership, centralization of federated functions, an agile way of working to increase speed to market for products, or a new technology platform that way operational tasks are performed.

What is an operating model? It is the way an organization delivers value to the customer and manages itself. It usually includes aspects of people (structure, roles and responsibilities, culture), processes (the blueprint of how to do something), governance (decision making), technology and measures at the center. What are some key elements to consider when undergoing an operating model transformation?

Contents

Structure

There are a few basic ways to organize a department or the entire company, depending on the results you’re looking for and the drive of your organization. Do you operate in a market where customer needs are complex and customer intimacy (that is, constantly adapting your product to their needs) is key? Is cross-functional collaboration crucial? Or do you operate in a highly regulated environment with complex products?

The answers to these types of questions based on the market you operate in and your internal needs determine the primary alignment of your organization. If you lead a highly innovative organization that requires customer focus and frequent cross-functional collaboration, product is likely your primary orientation. The key to your primary orientation is to focus on generating the most value for your customer.

That said, no model is perfect, and with the right accountability, governance, and culture, most organizational models—functional, product, geography, or channel—can work for your organization. Apple is a classic example of a highly successful, customer-centric product company organized into one functional structure. Each structure has strengths and limitations. Before going through a reorganization, consider whether setting the right expectations and driving the right behaviors can get you the results you want; being aware of the barriers your new structure puts up is key to putting the right mechanisms in place to minimize its impact.

Clients often want to know how others in their industry or world leaders organize themselves. While benchmarking provides an interesting data point, I’ve found that it doesn’t always provide the right level of insight into the cultural norms and practices an organization adopts to achieve its goals.

Responsibility

When designing operational models, leaders often become entrenched in roles and responsibilities and who plays a role in the current construct. Instead, think about what the ideal state is and make changes to get there. Roles and responsibilities are important to understand, but an organization relying solely on one RACI (responsible, accountable, consulted, informed) matrix as a Band-Aid to avoid tackling design can be a sure sign of dysfunction.

I worked with a client a few years ago who had co-leads on testing. Their team culture, behaviors and leadership incentives diverged and together they created a RACI to help them navigate the complexity. While this was a workaround, the differences in their team standards were apparent at each test event with different reports and a lack of accountability.

Measurement

Some key steps need to be taken to evaluate the success of the business model redesign. To determine the right measures, start with the purpose of the redesign. For example, if you are moving to a product-centric business model to aim for a faster return on investment by reducing time-to-market (TTM), measure TTM both before and after the transformation to ensure your goals are met, and if not, adjust elements to achieve desired results.

Many of the ultimate measures of a business model’s success can be lagging indicators, so use leading indicators such as cycle time for a specific step and/or productivity to spot early signs of improvement or failure.

Culture

Many organizations today have to work in a fast-paced environment with interdependent teams. I have found that no matter how theoretically perfect the structure and measures are, it is the ecosystem of connections within the organization, with partners and with suppliers that generates value for the customer.

What are your cultural norms? Do you expect your managers to be absorbed in the details or do you expect them to be excellent coaches while the individual contributors own the details? If it’s the former, are your cross-functional leaders capable of making decisions? If it’s the latter, do your managers prioritize this and spend time weekly with each of their direct reports for feedback and coaching?

Culture is an often neglected aspect of a business model that has the potential to drive value-creating connections.

In order to successfully execute the strategy, a transformation of the operational model is carried out. Additional elements such as talent, enabling factors such as talent management and performance management, processes, governance, and systems and tools must be considered. Organizations often spend the vast majority of time on the structure and assume that the rest will follow. A key to success is focusing on the elements most critical to changing behaviors and norms – and perhaps we will all behave like the fictional crews in Star Trek.


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