The Challenge: Adjusting the business to fast changing conditionsIn times of rapid change, businesses and their stakeholders expect flexibility.
Climate change, digitalisation and the effects of a linear take-make-waste economy are changing the fundamentals of doing business already today. Beyond management commitments and inclusion in the business strategy, it is essential to define the right operating model to stay in the game.
Let’s define an operating model: An operating model is an operational design that facilitates owners and employees to deliver all aspects of the business model (Rashed 2016). It puts your idea into gear and helps to break down roles, milestones, KPIs and deliverables for each and every day.
The Operating Model objective is to drive operational excellence across the operation and the supply chain eco-Systems of the enterprise. Using state of the art and industry-specific operating models covering business processes, systems, organization and people, as well as data and metrics.
What are Operations: all core functions of an enterprise from product development, Omni-channel selling activities, distribution, logistics, production, sourcing to procurement and finance. The functions are supported by business processes which are the first layer of a description of the Operating Model and the entry point into all other dimensions.
For established companies the operating model needs to adjust with the scope and speed of customer requirements and competition. Failure to do so, will render the business irrelevant.
For start-ups the operating model is especially important. Your idea, pitch deck and great team mean nothing if you have not defined a clear operating model. Some serial entrepreneurs and start-up founders even believe that an operating model is more important than your business model, as it fundamentally connects all the dots to execute your business model.
Steps to define a future-proof operating modelEvery enterprise, even when operating in the same industry, functions in different ways to make it unique.
Competitive advantage is not achieved through just copying others. The operating model must reflect those specific ways an enterprise chose to operate in its markets, with its trading partners and competitors.
The steps to define an operating model:
1. Describe in detail how you want the operate the business day to day and specifically how different phases of scaling will be supported.
2. Define the interfaces between functions and how to enable cross-functional governance.
3. Define clear business rules, roles. responsibilities and metrics for each aspect of your business. This will enable clear reference points for everyone.
4. Processes, describing the business processes an enterprise is using to manage its business. Based on those business processes all other 3 dimensions are superimposed to describe all supporting elements such as ERP systems and what business processes are covered.
Organization, describing the organizational structure including roles and responsibilities
Technology, describing the system landscape supporting the enterprise
Data, describing the master and operational data elements an enterprise requires in the digital world
4. Be straight to the point while describing the operating model to allow that you can get all employees on the same page to enable a common spirit.
5. Run the Sales and Business Development Teams through the Operating Model step-by-step, so that the organisations’ capabilities are clearly understood
The BenefitsCreating and updating the operating model has many benefits:
It helps you to stay current and viable.
It helps you to scale.
It helps to fix issues on the spot and hence prevents operational hiccups that lead to the well known ‘firefighting’ in organisations.
It helps to guide customer service teams in helping clients in the right way.
It defines what capabilities you need to build now, to stay in the game tomorrow.
It helps to stay real when delivering promises to customers, eventually leading to customer satisfaction.
A shining example: Danaher CorporationOne of the shining examples of great operating model management is Danaher Corporations.
The company has completed over 400 acquisitions in the last 30 years. Not necessarily shiny brand-name companies, rapidly growing companies or companies that need turning around. Simply companies in growing markets, without large competitors, where they can use their operating model to provide a competitive advantage.
Danaher’s operating model is where the real magic happens and is the core of their value proposition to its customers and investors. Created after seeing and experiencing the success of bits and pieces of the Toyota Production System in the 1980s, the Danaher Business System has become one of the most effective operating systems around.
It continually drives the companies businesses through a never-ending cycle of continuous improvement and change, always looking to be better than yesterday. Starting with lean manufacturing, and spreading to improving growth and even leadership, the Danaher Business System is an attempt to research, document, and replicate how to do almost anything, from locating printers in your office, to managing inventory in your warehouse, and filtering leads in a sales funnel.
You must be thinking, “With all of these acquisitions, how many businesses have they sold?” The answer is one! It is simply more profitable for them to continue operating, and continue improving their businesses rather than sell them.
The business model continually feeds the operation new business, ripe for DBS implementation. This not only allows the operation to capitalize on synergies between often times similar businesses but also gives the manufacturing teams fresh meat to begin improving.
These improvements, in all operating metrics, especially free cash flows, provide the model will billions of dollars each year to acquire more business. Not only does the operation side provide cash, but they oftentimes provide an edge which allows Danaher to outbid other interested parties in new business.
The Danaher acquisitions team is able to analyze targets not as they are now, but what they will become after DBS implementation. Simply put, some businesses are simply worth more in the hands of Danaher than anyone else.
The long and the short of it is that Danaher is never satisfied with how well its companies are running, or the stable of businesses it has acquired. They are always looking for more. More value to be created and captured.
Their former CEO and HBS Alum Lawrence Culp were once quoted saying, “There are a lot of companies where if you win 10-9, nobody wants to talk about the nine runs they just gave up. We’ll celebrate the win, but we’ll talk about ‘How did we give up nine runs? Why didn’t we score 12?’”
How is your company tackling complexity and what are your learnings from business simplification?
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1. Climate change, digitalisation and the effects of a linear 'take make waste' economy are changing the fundamentals of doing business at unprecedented rates.
2. Leading companies differentiate themselves through a well designed and even better implemented operating model, to secure the heartbeat of the business.
3. Without a clearly defined and flexible operating model, a company will become irrelevant in the near future. The time to rethink, redesign and implement your operating model is now.