Why changing your operating model is necessary to remain competitive in today’s market

If there’s a guiding light to the modern marketplace, it’s because we can’t take market leadership and profits for granted. Trends come and go. Customer preferences change. Disruption challenges incumbent business models.

Public interests change as well. One example is the growing scrutiny of organizations’ environmental, social, and governance (ESG) commitments. Then there are evolving regulatory and compliance expectations as requirements change and evolve.

It’s one thing to have the ambition and strategy to stay ahead of the market. Those are critical, but only part of the picture. Companies also need a way to execute, and an operating model built for yesterday’s market dynamics isn’t up to the task.

What is an effective operating model?

At its simplest level, an operating model is how the company gets things done. But not all operating models work as well as they should. There’s no universal definition of an effective operating model, but here’s ours:

An operating model is the configuration of internal and external capabilities into the optimal design for executing work necessary to achieve an organization’s financial and business ambition, and best meet customers’ needs.

Put another way, a well-functioning operating model answers three fundamental questions for organizations:

1. What do our customers, partners, and organization need?
2. Which capabilities are required to deliver against those needs?
3. How do we execute to realize sustained results?

Why would an operating model need to change?

Sometimes it’s clear when an operating model needs an overhaul. For instance, a new strategy or business model may require operational changes to activate it. Other times, it’s not immediately obvious—the operating model falls out of alignment with the broader business environment. This can happen with:

• Evolving customer expectations. Customer preferences and expectations are shaped by companies inside and outside of the industry and can change quickly
• Continuously emerging technologies. The technology landscape is increasingly complex, with an array of solutions coming onto the market that threaten to outdate costly existing infrastructure
• Industry convergence driving change. Physical and digital fusion blur industry boundaries, tangled value chains, and disrupted historic value creation models
• Regulatory and compliance pressures. Ongoing and evolving regulatory and compliance requirements require consistency, auditability, and traceability
• Sustaining economic profits. Margin pressures are on the rise, with public companies challenged to meet short-term Wall Street expectations while simultaneously investing in their long-term strategies
• Adapting to a hybrid work environment. White-collar talent demands more digital ways of working that raise questions about how to maximize virtual productivity, minimize burnout, and maintain culture in a remote setting

Change in action: A large pharmaceutical company integrated its fragmented initiatives

A large pharmaceutical company we worked with was challenged with continuously emerging technologies and margin pressures. While automation initiatives were underway across different divisions, the strategies for these initiatives varied, as did the levels of executive sponsorship, visibility, and ability to generate value. This fragmentation kept the company from executing at scale and meeting profit expectations.

To integrate these initiatives, we engaged 100-plus leaders across all functions to identify “center of excellence” candidates in the design process. Then we developed an enterprise operating model with a refreshed portfolio of robotic process automation and AI initiatives. Along the way, we identified opportunities for over 170 new operating model improvements and $170 million in annual productivity gains.

What does a next-generation operating model look like?

Conditions like these are upending old assumptions about who does the organization’s work, how it gets done, and where it takes place. That by itself is nothing new—business environments and operations strategies have always been subject to change. What’s different this time is that the pace of change is accelerating and multiplying to the point where it’s no longer realistic to expect senior management to redesign the operating model at every turn. Instead, the operating model must be designed to adapt itself.

Let’s see what the attributes of a next-generation operating model look like.

• Connected. Operating models are explicitly linked to business ambition, operations strategy, and strive for bold operating constructs to enable and supercharge the business ambition
• Dynamic. The operating model is dynamic and self-learning, with the flexibility to adapt to both internal priorities and external shifts in the market
• Ecosystem-based. Operations are part of an ecosystem that delivers value for customers, requiring thoughtful choices about which capabilities to provide via partnerships versus internally
• Agile, rapid releases. Changing the operating model is no longer a multi-year journey. Instead, it’s a function of Agile principles that embrace speed and iterative improvement
• Bold and unconstrained. Guided by the business ambition, the operating model has a transformation path to a bold vision of the future that looks past current organizational, process, and technology constraints
• Holistic experience. Experience includes customers, internal users, and external partners, and the capabilities and activities to deliver it are orchestrated behind the scenes

Change in action: A global airline embraces a next-gen operating model

A global airline that had asked us to design and execute a digital transformation ended up embracing a next-generation operating model. We designed the airline’s new operating model around personalized customer and team member journeys, with a focus on digital channels. This included an omnichannel, advanced analytics-driven “who-what-when” solution to personalize customer offers.

To accelerate adoption of the new digital operating model, we created a communication plan and established a network of internal “change agents” to inform employees of the purpose, goals, and highlights. The result was an improved digital experience among employees, customers, and alliance partners.

Designing and building the right model

The operating model is how businesses deliver on their value proposition. We now know why companies need to evolve their operating model and what questions they need to answer. In our next blog, we’ll talk about different types of business operating models and how an operating model for one company may not be the right answer for a different company.