What it is and why it is important
The operating model determines how an organization’s people and resources are configured. It is a vital link between strategy and the delivery of products and services. It enables key organizational outcomes like efficiency, effectiveness, employee engagement and flexibility.
The operating model informs how work is broken down into activities, how it is assigned, how it is governed, and how these activities are re-integrated into a useful product or service. It also informs employees' skills and qualifications, and how their ongoing commitment, growth and motivation is secured.
Operating model dimensions
At HMC, our framework for operating models considers four key dimensions:
Structure: With its description of functions, business units, hierarchy and span-of-control, this is the most visible aspect of the operating model. Beyond the boxes and wires of the organization chart, the structure determines what types of specializations the work should be divided into and what function (or business unit) will do what work. Just as importantly, it determines how the work will be integrated into a product or service that is useful to customers.
Operations: Comprising the processes, systems and data that underpin the work, operations determine how work is carried out within the given structure. Key decisions include the extent of standardization, formalization and automation of work processes; and the extent of de-centralization of decision making processes.
People: This dimension reflects the skills and other attributes required by the organization. It also reflects the mechanisms for ongoing engagement, motivation and growth of the team members. Both formal (rewards and incentives) and informal (internal and external networks and communities) mechanisms are included.
Culture: Values, norms and code of behavior are the basic constituents of culture. These may include the degree of customer focus, attitude to risk and experimentation, and other such attributes. Culture is often part of the basic fabric of the organization and can be very hard to change.
Congruence and alignment
The four dimensions of the operating model influence each other and must be mutually congruent for the organization to function smoothly. At the same time the operating model as a whole should be aligned with the strategic imperatives of the organization. And, as strategic imperatives change over time, so must the operating model. A congruent and aligned model simplifies execution and greatly enables the fulfillment of strategic objectives.
As an example of what we mean by alignment and congruence, consider the operating model of the commercial operations of one of our large pharmaceutical clients. For them, efficiency and resource utilization were important strategic imperatives. The operating model was configured accordingly. The structure was very specialized, with a clear hierarchy and a single point of supervision at each level. At the same time the processes were highly standardized and formalized with clearly defined SOPs. On the people front, specialist teams performed much of the work, while the culture was one where compliance was prioritized over experimentation. Each dimension of the operating model contributed to the overall goal of efficiency.
The model was very different in the medical affairs organization of another client. This client valued flexibility; its processes were less formal and decision-making was pushed down to lower levels within the organization. Likewise many of the team members were generalists who could take on different tasks when needed. The organizational culture played its part by valuing and rewarding careful experimentation.
Deployment of important strategic initiatives within an organization may also require deliberate changes to the operating model. While a strategic initiative might directly impact only one or two dimensions, it often requires changes in all four because it moves the existing model out of congruence. This is the reason that large technology initiatives, for example, often require changes in organization structure and processes to be effective. They also inevitably affect how people are rewarded and sometime even impact the culture of an organization.