Strategic Operating Model

Strategic Operating Model

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  Strategic Operating ModelDesign
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  Agenda and Objectives Definitionof a Strategic Operating Model Understand the Linkage Between Strategy and an Operating Model Key Components of an Operating Model Recognize the Key Components of a Company’s Operating Model Summary Familiarize Use of Operating Models to Make Comparisons Across Companies
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  Strategic Operating ModelDefines How a Company Looks and Works Definition Key Components Summary Organization Vision /Mission Business Strategy Value Propositions  Who are we?  What do we do?  What is our role?  Where will we compete?  Who will we compete against and when?  How will we compete? - method of competition - goals and objectives - critical success factors  Who are our customers?  What do they want?  What can and will we offer to our customers to meet their needs and improve our value exchange? Strategic Operating Model  What do we need to do to deliver the value propositions (e.g., objectives, operating principles)?  What organizational constraints exist?  What are the expected results?  What do we need to do differently? - business structure - process architecture - organization structure
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  An Operating ModelConsists of Three Primary Components Definition Key Components Summary  Business Unit Structure: Determination of how the company is organized (i.e., around customers, markets, products, geographies) and how the business units should work together (i.e., allied vs. integrated)  Shared Elements: Delineation of dedicated and shared services across business units, countries and areas  P&L Responsibility: Preliminary evaluation of profit and loss responsibility, revenue responsibility, and cost centers  Rules of Operation: The unwritten rules which govern the way we work together and manage our business  Clearly identified and defined business system that support the strategy and the high level business structure  Organizational Structure which supports the operating model and the business system describe at a high level all elements of: - span of control - reporting structures - roles and responsibilities (RASCI) - job description and requirements  Design of an organizational structure that is aligned with the strategy and other operating model components High Level Business Structure Organization Structure Business Process Architecture Sales Marketing Call Center (Service) BillingOperators Remittance Processing System Control Center Ops Generation Engineering and Construction Environmental Regulatory (Lobbying) Legal Services Human Resources Finance External Affairs Business Planning Administration One Operating Business Unit Regulatory (Lobbying) Legal Services Human Resources Finance External Affairs Business Planning Administration Engineering Environmental Compliance Transaction Management Regulatory Compliance Energy Generation Unit (Genco) Customer Operations Unit (Disco) Energy Delivery Unit (Transco) Low Cost Differentiated Services By-Product (Ash) Management Maintenance Operations Maintenance Operations Customer Service Product Development Marketing Sales Business Processes Culture/ Values Jobs, Skills, Organizatio n Information Technology Management Processes
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  What business unitstructure will best support business requirements of customers, markets, products and geographies? What degree of shared, dedicated and outsourced services should exist across business units? Minimize costs while providing necessary services to effectively run the business Leverages resources when business requirements are similar, yet allows for dedicated resources when requirements are unique Minimizes redundancy of duplicate infrastructure Outsource non-core activities when they can be more efficiently delivered by others Who has control over P&L, Revenue and Cost Centers? Creating an Operating Model Starts With Several Key Questions Which Define the Business Structure Definition Key Components Summary Supports the development of a competitive advantage (e.g., low cost, product differentiation, service differentiation) Aligns to substantive differences in customer, market, product or geographic needs and the skills required to fulfill these needs Reflects differences that warrant top management attention Responsibility, authority, and accountability must be aligned Accountability will be assigned to those who can truly influence revenue, costs and investments
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  The Business StructureIllustrates How a Firm Organizes to Meet Customer Requirements/Value Proposition Definition Key Components Summary Customer Value Proposition Determines Business Configuration (Example Depicts a Single Country Model) Operating Model Impact DifferentiationLow Cost Sales Finance Tech Reps Mfg./Distrib. R&D/Eng. Purchasing Info. Tech. Sales Mfg./Distrib. R&D/Eng. Purchasing Info. Tech. Tech Reps Human Resources Finance Sales Cust. Service Marketing Sales Cust. Service Marketing Customer Value Proposition: Provide consumer segments the lowest total cost Customer Value Proposition: Provide consumer segments unique offerings to fill their needs Shared Services Outsourced Services • Heavy reliance on shared and outsourced services in order to reduce cost structure • Each business unit focused on producing a high volume of standard products • Only customer facing processes are dedicated within each business unit • Predominately utilizes dedicated services in order to focus on the unique needs of each distinct customer group • Focused on building products around customer requirements and to order • High degree of customer interface to allow “customization” for large spectrum of needs Business Unit #1 Business Unit #2 Business Unit #1 Business Unit #2 vs.Purchasing Human Resources Mfg./Distrib. Information Technology Low Cost Strategy: Differentiation Strategy:
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  Market Complexities DriveLarger Companies to Adopt a Hybrid Business Structure Definition Key Components Summary Shared Services Outsourced Services Low Cost Differentiation Information Technology Product Innovation Marketing Sales Customers “A” Total Cost Focus Marketing Sales Information Technology Sales Prod. Specialists Distribution Channels Prod. Innovation Customers “B” Customers “C” Best Product Focus Information Technology Sales/Service Specialists Prod. Specialists Distribution Channels Best Service Focus Purchasing Human Resources Finance Distribution Channels Cust. Service Cust. Service
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  A Typical BusinessStructure Consists of These Common Business Functions Definition Key Components Summary 01 Sales Develop customer relationships and identify needs; sell products/services that meet those needs 05 Procurement Manage vendor relationships and maintain parts/raw materials inventory 06 IT Services Build and maintain information systems to support operations 07 Finance Track financial performance, ensure compliance with reporting requirements and manage financial assets 08 Human Resources Hire, train, and manage the career development process 02 Customer Service Assist customers during and after a sale; provide ongoing support 03 Marketing Determine what messages will generate customer demand and how to deliver them 04 Manufacturing Make products and send them to customers
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  Business Process ArchitectureDefines the Way Work Is Accomplished Definition Key Components Summary Business Processes Culture/ Values Jobs, Skills, Organization Information Technology  Human Resource processes  Core competencies  Skill requirements  Accountabilities  Job categories and descriptions  Tasks  Decision support requirements  Technology platforms and architecture  BU specific tools and infrastructure  Widely held organizational beliefs (Paradigms)  Values  Rules of operation (unwritten rules of how work is accomplished)  Demand creation  Service creation  Service delivery  Supply chain and logistics  Engagement management  Shared/support services (e.g., finance, HR, IS) Management Processes  Leadership, decision making and accountability  Business performance metrics  Management incentive and reward structure  Resource allocation and investment strategy  Planning (strategy, budgeting)
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  Business Process ArchitectureDefines the Activities of Each Major Function Definition Key Components Summary Components Example Activities Business Processes  Identify value chain of critical activities  Establish a cause and effect relationship between business issues and activities  Identify points of cross functional interaction  Generate alternatives to resolve issues Culture and Values  Identify changes in behavior required to support desired culture and values  Link desired behavior to appropriate incentives and rewards Jobs, Skills and Organization  Identify changes in skills and competencies required to execute new business processes within the organization  Determine career progression that supports development of required skills Management Processes  Identify business drivers which need to be monitored  Identify critical decisions which need to be made concerning drivers  Identify committees that need to exist and the members Information Technology  Identify information required to make decisions  Identify data flows between systems that need to take place
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  World Class CompaniesSuccessfully Integrate Their Strategy Into Their Business Process Architecture Definition Key Components Summary Business Processes Culture and Values Hallmark • Optimized its supply chain by integrating suppliers into product development, manufacturing and inventory management Federal Express • Expects its employees to go to almost any means to ensure package delivery Toyota Corolla (Japan) • Dedicates one salesperson to deal with an individual customer throughout every interaction Home Depot • Empowers personnel to go to any length to satisfy a customer regardless of the time or expense required Hallmark • Streamlined its product development process by creating cross-functional teams to simultaneously create products Microsoft • Allows software engineers incredible flexibility in developing new ideas and supports them with the necessary resources • Rules are de-emphasized Low Cost Best Service Innovative Products
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  World Class CompaniesSuccessfully Integrate Their Strategy Into Their Business Process Architecture (Continued) Definition Key Components Summary Organization Skills Culture and Values Information and I/S Walt Disney • Trains park “actors” rigorously to deal with all customer problems and to maintain exacting standards of appearance and service Nissan • Rewards associates based upon their ability to reduce costs and improve quality • Performance is constantly monitored and communicated Wal*Mart • Links suppliers directly to point-of-sale transactions to enable inventory Nordstrom • Empowers employees to respond to customer’s needs • Sales force relies on “good judgment” and bends rules if necessary Bergen Brunswig • Mandates that all Vice Presidents make 100 sales calls per year in order to stay “close to the customer” Staples • Uses information systems to anticipate customer needs and support consultative selling Hewlett-Packard • Encourages engineers to leave projects out on their desks so that others can “play” and contribute their ideas 3M • Ties individual compensation to the rate of new product development and commercialization • All divisions must generate 30% of sales from new products Kodak • Uses CAD to allow cross- functional employees to work on the same project simultaneously Low Cost Best Service Innovative Products
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  Organization Structure IsDesigned to Create the Skill Sets Required to Execute the Business Strategy Definition Key Components Summary Description Spans of Control  Structure designed to decrease corporate reaction times while fully serving the customer’s needs Reporting Structures  Examples include centralized vs. decentralized, functional vs. operationally focused, etc. Roles and Responsibilities  Direct accountability structure in order to measure component performance  Minimize number of functional layers Job Description and Requirements  Expand individual responsibilities to drive decision making authority to the lowest level possible  Heavy emphasis on teams and knowledge sharing/leverage
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  Ultimately an OrganizationalStructure Must Support the Business Structure and Processes Definition Key Components Summary Components Example Activities Reporting structures and decision making authority  Link back to business processes  Group related jobs / competencies under same reporting trees to improve operating synergies  Identify major decision points within processes  Develop RASCI model by identifying: – who is (R)esponsible to make these decisions – what level of (A)pproval is required to make decisions – who is required to (S)upport decision making – who is (C)onsulted during decision making – who is (I)nformed of decisions made Roles and responsibilities  Link back to jobs, skills and competencies  Create job descriptions that include activities, requirements and responsibilities  Utilize RASCI model to structure descriptions
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  Operating Model Summary DefinitionKey Components Summary New strategies are implemented through operating model changes Operating model has three main components 1. high-level business unit design 2. business system definition 3. organizational structure Operating model comparisons across companies are a powerful way to learn and highlight improvement opportunities