Operating Models: the theory and the

practice.
What is the Operating Model? With this post, I clarify the different existing frameworks for
this foundational element for the uniqueness of an organisation.

Posted on March 30, 2020

Edited on December 19, 2021
Comments 16
Reading Time: 25 minutes
This entry is part 8 of 12 in the series The Organisation Evolution Framework

The Organisation Evolution Framework

 [Video] Leaders for Humanity with Carol Sanford: The Regenerative

Paradigm- Creating A Better Future for All
 [Video] Leaders for Humanity with Alejo Sison: Happiness and Virtue
Ethics in Business
 [Video] Leaders for Humanity with Bruno Frey: Happiness and Economics
 [Video] Leaders for Humanity with Blaine Fowers: An Emergent Theory of
Natural Ethics
 [Video] Leaders for Humanity with Hari Tsoukas: Bridging Morality and
Management

With this post, I explore the third element of the Organisation Design Blocks
that we have mentioned, and that constitutes a foundational element of
the Organisation Evolution Framework. Conceptually, the Operating Model comes
after the definition of Strategy. Not a new idea. Business historian Alfred Chandler
laid this out in 1962 in his book Strategy & Structure (Chandler, 1969). But is this
entirely true also today? And how does the Operating Model relate to the other
building blocks we have seen already: Business Model, Strategy and Organisation
Model?

Note: Article updated after the original publishing date:

– April 22nd added Value-Driven Operating Models
– August 30th, typos and review of the post.

Table of Contents
1. Defining the Operating Model
1.1. Early Definitions
1.2. Representing an Operating Model
2. Theories on Operating Models
2.1. Ross Four Quadrant Model
2.2. CCPPOLDAT
2.3. Operations Strategy Matrix
2.4. The Open Group Business Reference Model
2.5. The Operating Model Canvas
2.6. The SOMS Model
2.7. Peter Murchland’s Model
2.8. Kotter’s Dual Operating Model
2.9. Value Driven Operating Models
3. Consulting Frameworks
3.1. Accenture
3.2. Bain & Company Model
3.3. BCG Agile Operating Framework
3.4. Deloitte’s Model
3.5. KPMG Target Operating Model
3.6. The McKinsey Model
3.7. PWC’s Operating Model Blueprint
3.8. FromHereOn Design Model
4. Operating Model and Enterprise Architecture
5. How to use Operating Models
6. Conclusion
6.1. Operating Model within the Business Evolution Framework
7. Reference List

Defining the Operating Model

Setting the Operating Model through literature is not easy. The word is widely
used, especially by consulting companies and in many corporate reports. There
seems to “an implicit understanding of the term Operating Model” (Bateman,
2017). However, often the term is referred to many different things, adding to
confusion on the concept which often is overlapping that of Operations
Management. One of the issues is that academic sources that have dealt with the
idea of the operating model have often approached the topic from an Information
Technology discipline point of view. 

Ngram of usage of the term “Operating Model” between 1960 and 2019
from Google Books.

Early Definitions
One of the first definitions came in a paper issued by Accenture in 2000, where the
term was used as Operating Business Model (Linder and Cantrell, 2000) and
defined as the organisation’s core logic for creating value. It also introduced a
Framework to check the different components of the Operating Model, who would
render the company unique. As you can see from the figure shown, this already
seems a pretty complete model, highlighting many of the elements that are
genuinely key into an Operating Model.

Fig.2: An Early Accenture Operating Model Framework (Linder and Cantrell,

2000)

In 2005 Jeanne Ross at MIT defined the Operating Model as the necessary level of
business process integration and standardisation for delivering goods and services
to customers (Ross, 2005). Her view is very much derived from an Information
Technology perspective, as confirmed by a subsequent book that she co-authored
with Peter Weil and David C. Robertson, where the concept of Operating Model is
brought near that of Enterprise Architecture (Ross, Weill and Robertson, 2006).
We will come back to Ross’s model as well as to the parallel with Enterprise
Architecture later in this post.

One of the most prominent experts on Operating Models is Andrew Campbell, who
defines the Operating Model as follows:

An operating model is a visualisation (i.e. model or collection of models, maps,

tables and charts) that explains how the organisation operates so as to deliver value
to its customers or beneficiaries.

Andrew Campbell (2016)

Bain suggests a different definition: how a company organises and manages its

resources to achieve its strategic ambitions (Garton, 2017). As such, it looks at
creating the bridge between Strategy and execution, in a model that we will be
detailing later. 

Representing an Operating Model

There is generally no consensus on how to document an Operating Model

(Hammond, 2014). Too often, many managers react by merely showing an
Organisation Chart, but this, of course, is not sufficient. Depending on the
definition we use and the model we apply, we might be forced to use different
documents jointly to ensure a full picture of the whole.

Theories on Operating Models

In this section, I will try to detail as much as possible the critical theories on
Operating Models. I will start with a somewhat chronological order for what
concerns the academic world, then leaving to a second section the models
developed by large consulting companies.

Ross Four Quadrant Model

One of the first appearance of the term Operating Model in academic literature
comes from an article by Jeanne W. Ross from MIT under the title Forget
strategy: Focus IT on your operating model (Ross, 2005). In this article, she
introduces a taxonomy of Operating Models based on a four quadrants matrix
organised on two axes: Business Process Integration and Business Process
Standardization. 
Fig.4: Characteristics of Four Operating Models by J. W. Ross. Source: Ross,
2005, page 3

Rather than presenting a methodology to define an Operating Model, Ross

provides a taxonomy of choices that existing companies had taken, and that would
allow for the definition of an Operating Model within an organisation. This work
has given the possibility to trace a classification of organisations depending on
their position on the matrix, as well as studies on which model is more suitable for
a specific market or situation.

Also, the model is derived explicitly from studies in Information Science and has
expressly built a strong tie with the concept of Enterprise Architecture that we’ll
examine later on.
CCPPOLDAT

CCPPOLDAT is an almost unintelligible acronym “for a cross-functional set of

views used to represent an enterprise without functional, structural bias”
(Winders, 2012). This model was developed and enhanced in Centrica Plc. (British
Gas) from the original POLDAT framework initially created by the Computer
Science Corporation CSC. 

Its elements are:

 Customer, 
 Channel, 
 Product,
 Process, 
 Organisation, 
 Location, 
 Data, 
 Application and 
 Technology. 

Mostly with a focus on customer-centricity. This model can be used to describe

Operating Models, although it can also be used for gap analysis and project or
change impacts and baselines.

It’s essential to notice the sequence of this method, where the part of the
Organisation is pretty late in the process. Ideally, this should allow for a lot more
engagement building within the organisation itself. (Campbell, 2016c). 

In the below video some more information on the approach.

Operations Strategy Matrix

Fig. 5: The Operations Strategy Matrix (Slack and Lewis, 2011). Source: Ashridge

The operations strategy matrix is a tool introduced by Slack and Lewis in their
book “Operations Strategy” (Slack and Lewis, 2011). The way I see the different
organisational elements, Operations Strategy seems almost an oxymoron.
However, the Matrix is a handy alternative tool in the definition and identification
of an Operating model. It looks at two
dimensions: Performance Objectives which through Quality, Speed,
Dependability, Flexibility and Cost, lead to Market Competitiveness. And a set
of Decision Areas, which through Capacity, Supply Network, process Technology
and Organisational Development define the Resource Usage. 

The format of the Operations Strategy Matrix allows for a fine-grained

presentation of the Value Proposition (Campbell, 2018) of an organisation (related
to Customer mainly as it focuses on the Market as a critical Stakeholder area). 

As such, it allows defining the critical components of what we can identify as an

Operating Model, giving a fair view of the reality of a business as well as its
choices. 

The Open Group Business Reference Model

In 2014 the Open Group presented a white paper detailing a framework of

reference for Enterprise Architecture work, as it tried to bring standard definitions
of the various items that compose an organisation. The model goes beyond the
traditionally IT-focused domains that often affect EA work and tries to bring back
a holistic approach. 

The resulting BRM is (Adams et al., 2014, page 7):

 Generic to the extent that it applies to organisations of all sizes within any
industry, from small and agile entrepreneurial set-ups to large corporate
enterprises with multiple lines of business 
 Extendable across organisational boundaries to include suppliers, partners,
and customers 
 Customizable to accurately represent the business functions within an
organisation 
Fig. 6: The Open Group Business Reference Model. (Adams et al., 2014)

As you can see from the graphic above, the Operating Model sits at the core of
the BRM and is defined as a description of “the resources at the disposal of the
organisation that will be deployed to generate the value proposition. [it] is
intended to describe how an organisation will be able to deliver on its value
proposition. Capabilities can be thought of as combinations of people, process,
information, and technology that can be internally or externally sourced“. (Adams
et al., 2014, page 8)

Although this model provides an advancement over the more specialised IT related
Architecture approaches, it raises some concerns:

 Value Chains are described as “the supply chain and channels to market”,

but feature within the operating model and not the more comprehensive
business model? 
 Capabilities are described as “modular units combining people, process,
technology, and information to execute particular functions of the
organisation”.
 Governance is described as a set of capabilities, but Risk and Compliance
feature outside of the operating model? 
 Partners & Ecosystem include descriptions of capabilities and the
establishment of “industry platforms”? 
 Finance refers specifically to the “flows of money through the organisation”
not the finance function or capability to finance the organisation? 
 Assets are described as “objects that are owned by the business and are
deployed to support business operations”, which potentially excludes several
asset classes that would typically feature on a balance sheet? (Gray, 2015)

The Operating Model Canvas

The Operating Model Canvas is derived from the work that Andrew Campbell
has done at Ashridge University and crystallised in the book Operating Model
Canvas (Campbell, Gutierrez and Lancelott, 2017). 

The Operating Model Canvas tool is about high-level operating models and not a
detailed one. The article defines the term operating model as being about six
components identified by the acronym POLISM:

1. Processes – the work that needs to be done to deliver the value proposition
or service proposition
2. Organisation – the people who will do the job and how they are organised
3. Locations – where the work is done and what buildings and assets are
needed in these locations
4. Information – the information systems that support the work
5. Suppliers – what organisations provide inputs to the work and what sort of
relationships exist with these organisations
6. Management systems – the planning, budgeting, performance
management, risk management, continuous improvement and people
management processes needed to run the organisation
The objective of the Canvas is to capture thoughts about how to design operations
and organisation that will deliver a value proposition to a target customer or
beneficiary. It helps translate Strategy into choices about activities and
organisation.

Fig.7: The Operating Model Canvas (Campbell, Gutierrez and Lancelott, 2017).

A core concept in the Operating Model Canvas is the concept of Value Delivery
Chain. This includes defining the one or more Value Propositions that the
organisation wants to offer, and the Value Chain for each of these. The author is
very open about preferring Value Chain maps vs Capabilities Maps (Campbell,
2016a), although probably also here there is a question of definitions.

The SOMS Model

 Fig.8: The SOMS model.
Source: Loughborough University

The SOMS model has been developed thanks to the work of Ian R.

Hodgkinson and Rosamund Chester Buxton from Loughborough University. 

SOMS uses the following definition of Operating Model:

The operating model is the operational design that makes it possible to deliver the
business strategy. It is the blueprint for how an organisation operates across a
range of domains to deliver its objectives (SOMS, 2017)

According to the SOMS Model, an operating model provides the architecture and
framework for business operations – giving core stability with flexibility in critical
areas. These are the operating model elements that need to be designed to provide
flexibility, dependability and quality of service within compliance and regulatory
requirements. Which is why the model is proposed as a “certification” for
practitioners, a sort of toolkit that can support in the design and definition of an
Operating Model itself.

The design of the operating model addresses where people and resources are
located, what skills and infrastructure are required, and how the organisation
monitors and improves performance. This is reflected in the seven elements
comprising SOMS: 

1. The customer experience, 

2. Delivery – including process design
3. Process context – organisational structure and infrastructure, 
 4. People capability, 
5. Demand and capacity management, 
6. Performance management and improvement 
7. Strategy, governance and leadership.

Peter Murchland’s Model

Peter Murchland has written an interesting article on Linkedin on Operating

Models, where he has brought up a relatively complete but straightforward
representation. He takes his view from an Enterprise Architecture perspective
(more on this later). Although the tool presented is straightforward, I have decided
to include it here as there are some exciting aspects to mention.

Murchland defines an Operating Model as a way “to express how an organisation:

 pursues its enterprise

 realises its goals and aspirations
 achieves and sustains viable operation (Murchland, 2016)

He illustrates the concept through a simple design with four significant

components. 

Fig.9: A simple
representation of an Operating Model. (Murchland, 2016)

He notes that “for many years, […] I have not addressed the development
management system, because I was usually part of this system“. And he is the first
to include Development as a vital element of an Operating Model (although others
do include “capabilities”, with varying definitions). An aspect that made me think,
as I genuinely believe that the Development System is also crucial in any
organisation, especially as it adds an essential directional effort (which makes me
think of the concept of Deliberaletly Development Organisations we have seen, as
that piece is part of the Operating Model of the organisation?) 

Kotter’s Dual Operating Model

In a famous article appeared in 2012 on HBR, Philip Kotter advocated for the
necessity for organisations to adopt what he defined as Dual Operating Strategy.

Fig. 10: Two Structures, One Organisation. Source: (Kotter, 2012)

Although not providing an entirely new concept of Operating Model, his article is
excellent in explaining the difference between Operating Model and Organisation
Model. Two types of structures coexist in the organisation he suggests establishing,
one focused on change and built as a network, the other built on a more traditional
hierarchy and concentrate on the execution. 

Kotter does not define the components of this model; rather he builds on what he
describes as eight essential attributes that the Network structure should have to
sustain accelerated change. Through the article, he, however, identifies a couple of
components that make it possible for good design:

1. Increase role for Leadership

2. Focus on Development and Learning across the entire organisation
3. “Good Enough” approach to implementation, making change faster and
effective
4. A new idea of “fit” and consistency across the organisation dimensions
(with a higher focus on Intentionality and Simplicity).

I think this goes well in hand with what I have recently written about consistency
in organisation design and the fact that, probably, too much flexibility is
counterproductive. 

Value Driven Operating Models

In their book, ‘The Discipline of Market Leaders‘ M. Treacy and F. Wiersema

(1995) argue that no company can succeed today by trying to be all things to all
people. It must instead find the unique value that it alone can deliver to a chosen
market. They have identified three value disciplines that a company need to assess
and define to build their unique positioning.

The particular value that you decide to offer has the effect of defining your way of
thinking about your business: it shapes the company’s operating model. Different
value disciplines demand different operating models in order to best capture
the value that is being pursued (De Bruin, 2018). In their definition, operating
models are made up of core processes, organizational structures, management
systems, information technologies and culture.
Value Driven Operating Model (Treacy and Wiersema, 1995) Source: B2U

All the elements have to be adapted and aligned with the value discipline that the
company decides to focus on. Therefore, each Value Discipline deserves a
different Operating Model, as illustrated in the above illustrations.

Consulting Frameworks
In this section, I will try to recap the approach of the largest Consulting
Companies. With one caveat, I noticed that many of these models are continually
evolving in the different articles and publications that the various companies
provide to their clients, showing a sort of “flexibility” in the approaches used. I list
the models in alphabetical order. A few methods from smaller consulting firms are
listed following the more prominent players. 
Accenture

Accenture portrays several different usages of the wording Operating Model on

their website. Despite being one of the first organisations in using the term (as seen
before), seems that today it applies multiple approaches, depending on the target
function.

In a 2017 report by AccentureStrategy, they provide a vision that is aligned in

terms of the critical components of an operating Model: we see again the Op. Mod.
sitting between Strategy and Execution. Accenture defines the Operating Models
as “how the company is structured to execute its strategy and business model”.
Fig.11: Alignment of Organisation Components. Source: Accenture Strategy
(Bayley et al., 2017)

What is interesting to notice is the role of culture seen as a component of the

Operating Model. Also, the paper focuses its attention on the idea of
creating Domains within the organisation. Their role is to better capture value
creation across the organisation through nimble teams that are more customer-
focused. The notion of Domains seems to recognise that many organisations do not
have an operating model that is aligned to its value drivers, and instead need to
create a transversal model to capture this value creation. 

In 2016 the same organisation had, however, given a much more detailed view
(Dudler, Theofi and Wright, 2016). Interesting to notice the existence of a Business
Case, and a Financial Frame.

Fig. 12: Key Components of the Operating Model (Dudler, Theofi and Wright,
2016)

In a more recent 2019 paper, Accenture Strategy identifies five characteristics that
should be embedded in “Intelligent” Operating Model Design (Bersohn et al.,
2019).
Fig.13: Fiver Characteristics of Intelligent Operating Model, and their Benefits.
(Bersohn et al., 2019)

All in all, it seems that the company focuses a lot on the people dimension in its set
up of the Operating Model work.

Bain & Company Model

Why so much discussion about Operating Models today? according to Bain

(Blenko, Garton and Mottura, 2014), there are four issues:

 Complexity: The pursuit of growth has led to organizational complexity as

companies extend to adjacent businesses and new customer segments,
products and geographies. These incremental changes have accumulated
over time, leading to complex organizational structures that create
ambiguity and slow decision making.
 Customer experience: In many industries, the customer experience
surrounding a company’s goods and services has become an important
source of differentiation. This shift puts a premium on deploying frontline
employees with the right autonomy, motivation and tools to delight
customers—and on ensuring that the entire organization supports them.
 Technology: Digital technology has changed every aspect of business
operations, including how and where companies interact with customers.
The rise of collaboration technologies alters how teams interact across
geographies and time zones. There’s more information flowing into and
around an organization every day, and those flows don’t always respect
 hierarchy. Although Big Data analysis can provide valuable new insights,
the growing volume of data can drown an unprepared enterprise. Relevant
data must get to the right people quickly to help them make good decisions.
 Dynamic business boundaries: The best location to perform an activity or
make a decision may change over time, as brands and supply chains become
global and tax-advantaged models such as inversions become more
prominent.

They define the operating model as an alignment of different elements. In essence,

high-performing companies have set up their operating models so that
organisational structure, accountabilities, governance and employee behaviours,
along with the right people, processes and technology, all work together to support
the strategic priorities. (Blenko, Garton and Mottura, 2014). They see the
Operating Model as the element that sits between Strategy and Execution.

redesigning the operating model may be one of the smartest investments that
executives can make to achieve profitable growth

Bain & Company (Blenko, Garton and Mottura, 2014)

The operating model serves as a blueprint for how resources are organised and
operated to get critical work done. It encompasses decisions around the shape and
size of the business, where to draw the boundaries for each line of business, how
people work together within and across these boundaries, how the corporate centre
will add value to the business units, and what norms and behaviours should be
encouraged.
Design of an operating model starts by describing the Strategy in sufficient detail
that one can articulate a set of design principles—simple yet specific statements
defining what the organisation must do to enable execution of the Strategy.

Based on the design principles, the operating model takes shape through choices in
five areas:

 Structure involves drawing appropriate boundaries for lines of business and

defining shared services, centres of expertise and other coordinating
mechanisms that allow a company to leverage scale and expertise. It also
specifies the size and shape of the organization with indicative resource
levels and locations. Think of this high-level org chart as the “hardware” of
the operating model, with the next four dimensions serving as the
“software” that makes the hardware run.
 Accountabilities describe the roles and responsibilities of the main
organizational entities, including ownership of P&Ls and a clear, value-
adding role for the corporate centre. There should be clear guidelines for the
roles each organizational unit will play in critical decisions. A rewards
framework linked to these accountabilities reinforces strong execution.
 Governance refers to executive forums and management processes that
yield high-quality decisions on strategic priorities, resource allocation and
business performance management. A management dashboard with the key
metrics keeps the focus on the company’s top priorities.
 Ways of working describe the expected cultural norms for how people
collaborate, especially across the boundaries between functions or teams.
This dimension goes beyond communicating values such as “trust” and
“respect” to being explicit about which behaviours make for effective
decisions and execution. Establishing an appropriate decision-making style
—whether through consensus, a single point of accountability or another
approach—provides an important context for behaviours.
 Capabilities refer to how the company combines people, process and
technology in a repeatable way to deliver desired outcomes. Where
capabilities lead the design, all other aspects of the operating model must
support them. In many other situations, the redesign looks first at structure
and accountabilities that can only operate with the appropriate talent,
processes and systems in place. In either situation, the elements are highly
interdependent.
Fig.14: Operating Models Components According to Bain. Source: Bain (Blenko,
Garton and Mottura, 2014)

Operating model transformations often involve changing an organisation’s profile

of skills and experience, which is why this intense focus on Capabilities.

The model presented is fascinating as it gives a strong focus on

the Governanceside also in terms of accountabilities. A detail that not many
models focus on. 

BCG Agile Operating Framework

BCG released in 2018 a new view on its Operating Model approach. In an

interesting article, that is focused on Public institutions and government
implementations; they bridge this new model with Agile implementation. 
Fig.15: BCG Agile Operating Framework (Carrasco, Geluk and Peters, 2018)

The model includes eight components:

 Purpose, Strategy, and Priorities. Agreement on these is essential before

an organization can allocate resources appropriately and start to build the
infrastructure that agile calls for. Ensuring that everyone is clear on purpose
and strategy and understands why and how the organization must change is
critical to enabling autonomy at all levels.
 Governance and Funding. Organizations should move to a more flexible,
capacity-based funding approach, with regular reevaluation of initiatives to
ensure that they are on track and merit continued funding.
 Structure. Flatter organizations with wider spans of control and clearer
accountability and ownership of programs empower the workforce to take
responsibility for decision making and problem-solving. Line managers then
become coaches and facilitators rather than bosses.
  Processes. Cross-agency coordination, cross-functional teams, and close
cooperation with citizens are essential to flexible, multidisciplinary ways of
working.
 Culture and Behavior. At the heart of an agile transformation is a change
in culture and behaviour. Agile prioritizes autonomy at all levels and
empowers teams to experiment with alternative solutions to problems. But
autonomy can descend into chaos unless teams at all levels are clear on
purpose and strategy. That depends on strong leadership and clear and
frequent internal and external communications.
 Leadership and Talent. Besides hiring and promoting top talent,
organizations must base rewards on outcomes and peer feedback, with a
focus on developing expertise and new career paths—practices that have yet
to be widely adopted in the public sector. Leaders need a comprehensive
understanding of the mission, purpose, and underlying principles of the
transformation in order to ensure that teams at all levels are clear on the
“why”—the organization’s strategy and purpose. Then they need to let go,
abandoning traditional command-and-control models and allowing teams to
figure out the “how.”
 Measurement Framework. To assess progress toward goals, data analytics
should be more widely deployed across the organization. Transparency in
measurement frameworks is essential and can be achieved by using digital
tools and analytics to empirically assess and track improvement. Critically,
data must be widely available throughout the organization.
 Technological Enablers. Agile requires a transition from heavy mainframe
to more modular systems that give teams greater ownership of their end-to-
end processes. Essential elements include the use of APIs (application
programming interfaces); shared tools to manage the flow of work from idea
through development and into customers’ hands; continuous delivery,
automated testing, and DevOps (which unifies software development and
operation); and defined technology architecture that identifies the data
important to the organization and the systems that create and manage it
(Carrasco, Geluk and Peters, 2018)

It’s interesting to notice the focus that BCG puts on Leadership, as well as
on Funding. This is usually an element that does not appear in most models. Still,
it should be taken into consideration as the cash flow that is necessary to sustain
activities is particularly relevant when we are designing an Operating Model for
one are of an organisation.

Deloitte’s Model

Deloitte makes the concept of defining a Target operating Model critical in most of

its change approaches. This is why it is interesting to see a lengthy article
published in 2019, specifically on Architecting Operating Models. I have already
cited this work in my post that clarifies the critical components of Organisation
Design, but we will now focus on the Operating Model dimension.

Operating Models are defined as a representation of “how value is created by an

organisation—and by whom within the organisation” (Kwan, Schroeck and
Kawamura, 2019). An example of an Operating Model is illustrated below. 

Fig.16: An Operating Model Example according to Deloitte. (Kwan, Schroeck and

Kawamura, 2019)
Leaders should develop a clear sense of their strategic ambitions—where to play
and how to win—and the business models they wish to employ, including target
customer segments, channels, pricing, and delivery models, since both the strategy
and business model directly influence the operating model design. Organizations
that try to short-cut their way to a new operating model may find the design to be
ineffective and the implementation lacking employee traction—or, worse, dilutive
to value.

Deloitte (Kwan, Schroeck and Kawamura, 2019).

The development of an Operating Model comes by answering four critical

questions:

 What work needs to be done? 

 Where does the work get done? 
 Who does the work?
 How do we drive better outcomes?

It is immediately apparent that the model focuses a lot on Capabilities as well as

on the resulting execution. It is interesting to notice that most of the questions
above would generally find an answer through a typical Strategic Workforce
Planning exercise. But it is the Capability Map exercise which, at its core, is what
we have so far defined as Operating Model. As you can see and recognise most of
the components. Also, the authors define Capability as something that Creates
Value for the organisation, thus bringing us back to the concept of Value Chain.
Fig.17: A capability map represents where an organization generates value.
Source: Deloitte (Kwan, Schroeck and Kawamura, 2019)

All in all, this model includes again all critical components we have seen so far and
yet supports the bridging of Strategy and Execution. It is interesting to focus the
role that work has in this model, in its more ample definition. Choosing how work
gets done (for example, is it automated?) is a critical formal element of the
Operating Model according to this approach, something interesting to consider. 

KPMG Target Operating Model

KPMG has the most limited and narrow view on the concept of Operating Model,
although it places it at the core of its Powered Enterprise concept. In this case, the
Target Operating Model is defined as a “toolkit” that “shapes how transformation
plays through every layer of your organisation” (KPMG, 2020)
 Fig.1
8: The Target Operating Model Layers. (KPMG, 2020)

The six layers that are provided as part of this toolkit reflect some of the standard
components we have already seen in other frameworks. Interesting to notice the
presence of a Service Delivery Model defined as “how things get done”. 

The McKinsey Model

In a ponderous volume published in 2017 and dedicated to the new digital

organisation, McKinsey takes a defined view on Target Operating Models as part
of a Digital Transformation trajectory (Dias et al., 2017). This is to be achieved
through a path that goes through the adoption of a Next-generation operating
model based on Customer Journeys, an interesting idea. 
Fig. 19: Three Steps to define the Target Operating Model.
Source: McKinsey (Dias et al., 2017)

A framework is not fully explained, but five approaches are identified in the design
process. 

 Digitisation is the process of using tools and technology to improve

journeys. Digital tools can transform customer-facing journeys in powerful
ways, often by creating the potential for self-service. Digital can also
reshape time-consuming transactional and manual tasks that are part of
internal journeys, especially when multiple systems are involved.1
 Advanced analytics is the autonomous processing of data using
sophisticated tools to discover insights and make recommendations. It
provides intelligence to improve decision making and can especially
enhance journeys where nonlinear thinking is required. For example,
 insurers with the right data and capabilities in place are massively
accelerating processes in areas such as smart claims triage, fraud
management, and pricing.
 Intelligent process automation (IPA) is an emerging set of new
technologies that combines fundamental process redesign with robotic
process automation and machine learning. IPA can replace human effort in
processes that involve aggregating data from multiple systems or taking a
piece of information from a written document and entering it as standardised
data input.
 Business process outsourcing (BPO) uses resources outside of the main
business to complete specific tasks or functions. It often uses labour
arbitrage to improve cost efficiency. This approach typically works best for
manual processes, are not primarily customer-facing, and do not influence or
reflect critical strategic choices or value propositions. The most common
example is the back-office processing of documents and correspondence.
 Lean process redesign helps companies streamline processes, eliminate
waste, and foster a culture of continuous improvement. This versatile
methodology applies well to short-cycle as well as long-cycle processes,
transactional as well as judgment-based processes, client-facing as well as
internal processes.

Although none of these items is new, it is interesting to see them in the context of
Operating Model Design. And again, another focus on the key concept of Work as
a component of the Operating Model. 

PWC’s Operating Model Blueprint

Also, PWC has its own framework for an Operating Model. “An operating model
bridges the gap between an organisation’s business strategy and its operational
resources” (PWC, 2012).
 Fig. 20: Business
Strategy and Operating Model. (PWC, 2012)

The paper makes a clear distinction between Business Strategy and Operating
Model. It defines a path to represent each of the five identified components through
a checklist of questions and actions. The goal of an Operating Model should be that
of promoting adaptability of the organisation, and flexibility in achieving value for
its customers.

More recently PWC has presented a new Operating Model Blueprint which

delivers a somewhat evolved view. Also here, we can notice the concept of
capabilities, and the definition of Tools and Technologies as Way to Play. 
Fig. 21: Operating Model Blueprint by PWC (PricewaterhouseCoopers, n.d.)

FromHereOn Design Model

FromHereOn is a consulting firm specialised in Business Design. As part of their

Business Design Method, they highlight a specific role and approach for Operating
Model Design. I am highlighting this model here because it introduces a few
interesting concepts.
 Fig.22:
Operating Model Framework by FromHereOn

The model highlights the Capabilities required by the organisation, as well as

its Deployment Model, which essentially identified which business capabilities
are available where.

Two components that are interesting to highlight, as we’ve not seen them before,
are the Service Portfolio and the Brand Identity. The latter is considered as
the personality of the business and is required for the delivery of value to the
customer. The first is instead the catalogue of Services that the organisation
provides.

An interesting and complete model that focuses intimately on the value delivery by
the organisation as it executes its Strategy.

Operating Model and Enterprise Architecture

We have already seen that a lot of the academic research around Operating Model
has been derived from Information technology, and often there is a somewhat
overlap between the concept of Operating Model and that of Enterprise
Architecture.

I don’t want to go too much in detail here, but it is interesting to point out that both
approaches wish to describe the “architecture” of the organisation. Both want
to enable execution; the sole difference is that Enterprise Architecture is focused
on Information Flows across the organisation (but not only…), whereas Operating
Model, as we have seen, looks at the entire Value Chain.

According to Murchland, Enterprise Architecture involves looking for:

1. the explicit models that the enterprise is using to describe itself or its
intended self
2. any gaps or inconsistencies that might be evident in these models
3. any gaps or differences between current capability and advanced capability
represented by these models
4. any gaps or inconsistencies that might be evident between the implicit
models that are evident in how leaders think, communicate, decide and act
and the explicit and then developing a more integrated set of models on
which to base an assessment of capability gap and a transformation plan to
address the priority gaps. (Murchland, 2015)

The logic of how Enterprise Architecture works is pretty similar to the definition of
an Operating Model. You usually try to map the As-Is model, plan a To-Be future
model aligned with the corporate strategy, and then through a Gap Analysis,
identify the steps that are necessary to achieve results. 

So if there is this overlap, why is it that in some companies we both have an

Operating Model and an Enterprise Architecture developed in isolation? 

In an interesting article co-written by Campbell and Murchland (2015), several

reasons are identified:

1. First, there is a language barrier. As EA is born from IT, there is a specific

usage of words. For example, the term capability is widely used in EA, to
simply highlight any activity that needs to be done by the organisation,
while business leaders would typically focus on distinctive capabilities.
2. Second, EA expert often “don’t speak the business language”. There is often
the idea that EA experts don’t understand the business or the Strategy of the
company, and get lost in what seems technical jargon. On the other side of
the spectrum, many Organisation Design experts miss the technical skills to
understand the technical aspects that underpin an organisation technology.
We see the creation of siloes again.
3. Third, the attention to detail: paying tribute to their technology origins, EA
experts often go a long way to detail (and document) all the minuscule
 aspects of each architecture element. They are resulting in the production of
enormous materials, challenging to maintain.

Many of the models of Enterprise Architecture, and the standards that underpin
these, would be beneficial to be also applied to Operating Model design, as they
share the ultimate intention, as well as some tools. I think it would be great to work
more on aligning these two aspects, in another effort to align HR and IT as much
more continuous domains that it seems. Fusing Organisation Design and Enterprise
Architecture can deliver genuine added value, as illustrated from the graphic
below.

Fig.23: An integrated Model of Design Thinking and Enterprise Architecture.

Source: FromHereOn

How to use Operating Models

We have now read much content on the different conceptual frameworks that exist
around Operating Models. But how do we use them? Despite differences in
content, I believe that most models can work, if applied in the correct context. 

I see three main usages for an Operating Model.

1. Understand your Organisation: too often, organisations never sit and

reflect on their Operating Model. This just gets formed as a result of the
organisation operations and performance. The typical document you can
find is an org chart, but as we have seen, this only tells a part of the story. So
it is essential to look at how real the organisation exists. Value Chains are
probably the best tool to map an existing organisation, also because they
don’t need enormous efforts in terms of documentation, and have high value
in identifying low-value activities performed by the organisation. 
2. Test Your Organisation Design: once you understand your Operating
Model, you can test if it is suitable for your organisation strategy. Way too
often the OrgChart might seem aligned with what your organisation wants to
achieve, but it is abysmal in the information. There are multiple tests that
you can drive to check the effectiveness of your business and see if this is
well designed (Goold and Campbell, 2002). 
3. Drive Change if you plan to design a Target Operating Model, you can use
the typical approach of identifying the To-Be, run a Gap Analysis and define
the best path to achieve. This will also provide a future vision, useful to then
truly drive change.
4. Architecting for Innovation stemming from the mentioned idea of Kotter,
this is about intentionally designing your Operating Model so that it caters
for innovation and not just execution. This can help balance the need for
consistency as well as the demand for that energy creating friction that can
profit your organisation and deliver more creativity. 

Conclusion
After having written about Business Models and Organisation Model in detail, this
article has taken a lot more time in its writing. Probably it is around the concept of
Operating Model that there is more “confusion” on what it means. Strange,
especially considering that any organisation has an Operating Model, it just often is
not written down.

Part of the problem is linked, in my experience, to the equation Operations =

Operating. In many companies that have adopted the role of a COO running all
Operations, as opposed to the Business Functions, creating a cleavage in concepts
that have created a distance in the understanding of this vital component.

As an HR professional that navigates organisation Design, I spend hours in letting

managers understand the importance of defining an Operating Model ina change
process. And I always end up having to discuss that no, it is not an organisation
chart.

If the Business Model represents the unique way in which you conduct your
business, the Operating Model represents the organisational DNA. Few essential
components (Processes, People, Technology, Governance) that can be assembled
and reassembled in multiple shapes and forms, each originating a truly unique
organisation.

Operating Model within the Business Evolution Framework

I’ve recently introduced a Visual Framework that allows visualising all essential
building blocks of Organisation Design. Here below the representation
of Operating Model with its definition and the Critical Element that derives from
it: Value Delivery Chain.