Understanding Operating Models: Aligning Vision, Strategy, and Execution

15 min readMay 10, 2023

Operating Models provide the blueprint for how resources should be organised and managed to achieve the organisation’s vision and strategy.

The business operating model is a critical component to succeed in today’s competitive, regulated environment. Operating Models provide the blueprint for how resources should be organised and managed to achieve the organisation’s vision and strategy.

We will explore the key aspects of operating model’s, their relationship with an organisation’s vision and strategy, different frameworks, and factors that influence its design. We will also discuss examples of successful operating models across various industries.

Defining an Operating Model

An operating model refers to the way an organisation structures its resources, processes, governance, and culture to deliver value to its customers and stakeholders. It encompasses the operating principles, structures, and practices that underpin how an organisation creates, delivers, and captures value (1). By designing and implementing a robust operating model, organisations can enhance their strategic focus, streamline their operations, and drive innovation and growth.

Aligning an Operating Model with Organisational Vision and Strategy

An effective operating model aligns with an organisation’s vision and strategy by translating strategic objectives into actionable components. The vision sets the long-term direction, while the strategy outlines the path and key initiatives to reach that destination.

An operating model serves as the blueprint for how an organisation structures its resources, processes, and technology to execute its strategy and achieve its vision. Aligning the operating model with organisational vision and strategy is crucial for ensuring long-term success, as it enables the organisation to optimise operations and create value effectively.

To achieve alignment, the Operating Model design process is begin by clearly defining vision and strategy. A well-articulated vision provides direction and purpose, while a robust strategy outlines the steps required to achieve the desired future state. This clarity allows organisations to design an operating model that supports their strategic objectives and helps them stay on course.

Next, we focus on identifying and mapping core capabilities. These are the key competencies required to execute the strategy and deliver value to customers. By understanding the organisation’s capabilities, the design process can allocate resources more effectively, prioritise initiatives, and build a foundation for competitive advantage.

Process optimisation is an essential aspect of alignment. The design process analyses the end-to-end processes to identify inefficiencies, redundancies, and opportunities for improvement. Streamlining these processes can enhance customer experiences, reduce costs, and support the organisation’s strategic goals.

Organisational structure also plays a critical role in alignment. Designing an organisation with clearly defined roles, responsibilities, and reporting lines can promote collaboration, accountability, and efficiency, enabling the organisation to execute its strategy more effectively.

Lastly, the design process looks to leverage technology (efficiency, knowledge management, decision support etc) and foster a data-driven culture to help align the operating model with vision and strategy. By adopting advanced tools and systems, organisations can improve efficiency, gain insights, and make informed decisions that drive growth and success.

By focusing on capabilities, processes, organisational structure, and technology, organisations can create an operating model that supports strategic objectives and drives transformation towards the desired future state.

Key Components of an Operating Model

The summary of design components typically pulled together for a Operating Model design process, include :-

Organisational Structure: This includes the design of the organisation’s hierarchy, roles, and reporting lines. It defines the way responsibilities and account-abilities are distributed across the organisation.
Processes: These are the end-to-end activities and workflows that an organisation follows to create value, such as product development, sales, or customer support.
Governance: This entails the mechanisms, policies, and guidelines that guide decision-making and ensure compliance with internal and external regulations.
Culture: This includes the shared values, beliefs, and behaviours that define how people within the organisation interact and work together.
Capabilities: These are the skills, knowledge, and competencies required to execute the organisation’s strategy effectively.
Infrastructure: This encompasses the physical, digital, and technological assets that support the organisation’s operations, such as facilities, IT systems, and equipment.

Operating Model Frameworks

There are several operating model frameworks that have been developed and used by organisations to support a consistent approach with structured outputs and deliverables. These frameworks can provide confidence in not only the effort and investment, but also the quality of the outputs and recommendations. By adopting a recognised approach or frameworks, transformation teams can build confidence into senior stakeholders and business owners that the process is delivering the right focus, the right value and the right outcomes.

The follow section looks at some of the most popular existing frameworks, providing a simple comparison on their different attributes and strengths in various scenario’s. While these approaches provide a structured methodology, it should also be considered that each and every scenario is different, with different objectives and constraints. To that end, all transformation exercises should look to adapt one or more of these frameworks to get the best approach for the situation.

1. The Operating Model Canvas

The Operating Model Canvas (OMC) is a powerful tool designed to help organisations create a robust and effective operating model that aligns with their strategic objectives. Developed by Andrew Campbell and Mikel Gutierrez, the OMC is based on six key elements: value proposition, processes, organisation, information, location, and suppliers. (Campbell, A., & Gutierrez, M. (2017). Operating Model Canvas)

Value Proposition: The value proposition defines the unique combination of products, services, and experiences that an organisation offers to its customers. The OMC emphasises the importance of understanding the customer’s needs and designing a value proposition that addresses those needs while differentiating from competitors.
Processes: Processes are the end-to-end activities and workflows that an organisation follows to create, deliver, and capture value. The OMC focuses on mapping the key processes and identifying opportunities for improvement, automation, and innovation.
Organisation: The organisation component addresses the roles, responsibilities, and reporting lines within the organisation. The OMC encourages designing an organisational structure that supports the strategic objectives, fosters collaboration, and promotes accountability.
Information: Information refers to the data, systems, and tools that support decision-making and enable the organisation to operate effectively. The OMC highlights the need to ensure that the right information is available to the right people at the right time.
Location: Location encompasses the physical and virtual spaces where the organisation operates, including offices, factories, and digital platforms. The OMC stresses the importance of choosing locations that support the organisation’s strategy, processes, and cost structure.
Suppliers: Suppliers are the external partners that provide goods, services, or expertise to the organisation. The OMC emphasises the need to manage supplier relationships strategically, ensuring that they contribute to the organisation’s value proposition and operational efficiency.

The OMC is appropriate across a wide range of scenarios, including organisational redesign, business model transformation, and process improvement initiatives. It can be used by organisations of all sizes, across different industries, and at various stages of maturity.

What sets the OMC apart from other operating model frameworks is its comprehensiveness and customer-centric approach. By focusing on the value proposition and aligning the other five elements to support it, the OMC ensures that the operating model is designed to deliver maximum value to customers. Furthermore, the OMC’s emphasis on visual representation and simplicity makes it easy to understand and communicate across the organisation, facilitating collaboration and buy-in from all stakeholders.

2. The Business Model Canvas

The Business Model Canvas (BMC) is a strategic management tool designed to help organisations visualise, design, and test their business models. Created by Alexander Osterwalder and Yves Pigneur, the BMC is based on nine building blocks that capture the essential elements of a business model. ( Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers)

Customer Segments: The BMC starts with identifying the organisation’s target customers or users. It emphasises understanding the needs, preferences, and characteristics of different customer segments to tailor value propositions and offerings accordingly.
Value Propositions: This building block defines the unique combination of products, services, and experiences that an organisation offers to its customer segments. The BMC highlights the importance of creating a compelling value proposition that differentiates from competitors and addresses customer needs.
Channels: Channels refer to the various ways an organisation delivers its value propositions to customers. The BMC emphasises selecting the most effective channels to reach and engage with customer segments while considering cost, convenience, and accessibility.
Customer Relationships: This building block focuses on the types of relationships an organisation establishes and maintains with its customer segments. The BMC stresses the importance of cultivating strong customer relationships that drive loyalty, satisfaction, and recurring revenue.
Revenue Streams: Revenue streams represent the various ways an organisation generates income from its customer segments. The BMC encourages identifying and optimising revenue streams to ensure financial sustainability and growth.
Key Resources: Key resources are the essential assets, such as human, financial, physical, or intellectual resources, required to operate the business model effectively. The BMC highlights the importance of managing and allocating resources efficiently.
Key Activities: These are the critical tasks and processes that an organisation must perform to create and deliver value, maintain customer relationships, and generate revenue streams. The BMC emphasises streamlining key activities to improve efficiency and reduce costs.
Key Partnerships: Key partnerships are the strategic relationships with external entities that support the business model. The BMC underscores the need to collaborate with partners to access resources, reduce risk, and enhance the value proposition.
Cost Structure: The cost structure captures the major expenses incurred by the organisation to operate its business model. The BMC focuses on understanding and optimising costs to ensure profitability and competitiveness.

The BMC supports scenarios, including new venture creation, business model innovation, and strategic planning, applicable to organisations of all sizes, across different industries, and at different stages of growth (Blank, S. (2013). Why the Lean Start-Up Changes Everything. Harvard Business Review).

What sets the BMC apart from other operating model frameworks is its focus on the overall business model, rather than just the operational aspects. By providing a holistic view of how an organisation creates, delivers, and captures value, the BMC encourages innovation and strategic thinking. Its visual and modular nature facilitates collaboration, experimentation, and iteration, making it an ideal tool for agile and customer-centric organisations (Ries, E. (2011). The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses).

3. The McKinsey 7S Framework

The McKinsey 7S Framework is a management model developed by Tom Peters and Robert Waterman during their tenure at McKinsey & Company in the late 1970s .(Peters, T. J., & Waterman, R. H. (1982). In Search of Excellence: Lessons from America’s Best-Run Companies. Harper & Row.)

The framework is based on seven interrelated elements — strategy, structure, systems, shared values, skills, style, and staff — that determine organisational effectiveness.

Strategy: The framework emphasises the importance of a clear and coherent strategy that outlines the organisation’s objectives, priorities, and competitive advantage.
Structure: The structure component addresses the organisation’s hierarchy, division of labor, and reporting lines, and how they support the overall strategy.
Systems: Systems refer to the procedures, processes, and technologies that enable the organisation to function effectively and achieve its strategic objectives.
Shared Values: Shared values, also known as the organisational culture, encompass the guiding principles, beliefs, and norms that shape the organisation’s behavior and decision-making.
Skills: Skills represent the organisation’s core competencies, expertise, and capabilities that enable it to execute its strategy and create a competitive advantage.
Style: Style refers to the leadership and management approach, including communication, decision-making, and motivation practices, that influence the organisation’s culture and performance.
Staff: Staff addresses the organisation’s human resources, including talent management, recruitment, development, and retention strategies, that support the execution of the strategy.

The McKinsey 7S Framework is considered appropriate for many scenarios, including organisational redesign, strategy implementation, change management, and performance improvement initiatives (Waterman, R. H., Peters, T. J., & Phillips, J. R. (1980). Structure is Not organisation.)

Its focuses on the interrelatedness of the seven elements and their impact on organisational effectiveness, and emphasises that all elements must be aligned and mutually reinforcing to achieve optimal performance . This holistic and systemic approach enables organisations to identify gaps, inconsistencies, and opportunities for improvement across all elements.

4. The House of Business Architecture (HOBA) Approach

The House of Business Architecture (HOBA) is a holistic approach to organising and structuring an organisation’s business architecture efforts. It serves as a comprehensive blueprint for designing and managing the various components of business architecture, ensuring alignment with strategic objectives and enabling informed decision-making (Ulrich, W., & McWhorter, N. (2010). A Foundation for Business Architecture, HOBA).

Key elements of the HOBA Approach:

Foundation — Strategy and Business Model: The foundation of the HOBA approach is built upon a clear understanding of an organisation’s strategy and business model. This ensures that all subsequent components of the business architecture are aligned with the organisation’s strategic objectives and value proposition.
Capabilities: Capabilities represent the core abilities and competencies that an organisation requires to execute its strategy and create value. HOBA emphasises the importance of identifying and mapping these capabilities to understand their relationships and dependencies, enabling organisations to optimise resource allocation and investment decisions.
Value Streams: Value streams represent the end-to-end processes through which an organisation creates, delivers, and captures value for its customers. HOBA encourages organisations to map and analyze these value streams to identify opportunities for improvement, streamline operations, and enhance customer experience.
organisation: The organisation component of the HOBA approach addresses the roles, responsibilities, and reporting lines within an organisation. It aims to design an organisational structure that supports the execution of the strategy and promotes collaboration, accountability, and efficiency.
Information: Information encompasses the data, analytics, and insights that support decision-making and enable the organisation to operate effectively. HOBA stresses the importance of ensuring that the right information is available to the right people at the right time, fostering a data-driven culture and enhancing decision-making capabilities.

The HOBA approach has been adopted in many scenarios, including organisational redesign, strategy implementation, business transformation, and performance improvement initiatives. It emphasises on the interdependencies between the various components of business architecture. By providing a clear understanding of these relationships, HOBA supports organisations to identify areas for improvement, prioritise initiatives, and drive business transformation more effectively (Ross, J. W., Weill, P., & Robertson, D. C. (2006). Enterprise Architecture as Strategy).

5. Target Operating Model with TOGAF

The Open Group Architecture Framework (TOGAF) is a proven methodology for designing and developing an efficient Target Operating Model (TOM) for businesses. It helps organisations align their IT infrastructure with business objectives, streamline processes, and optimise resource utilisation. (The Open Group. (2018). TOGAF® Version 9.2.)

Key Elements of the TOGAF Approach

Architecture Development Method (ADM): The ADM is the core process of TOGAF, providing a step-by-step approach to developing a comprehensive architecture for an organisation. The ADM consists of nine phases, ranging from preliminary planning to implementation and governance, ensuring a systematic and structured approach to designing a TOM (The Open Group, 2018).
Architecture Content Framework: This component defines the structure and organisation of the various artefacts, such as models, patterns, and principles that support the ADM process. It ensures a consistent representation and communication of the architecture across the organisation.
Architecture Capability Framework: This element provides guidance on the skills, processes, and tools needed to support the successful execution of the ADM. It helps organisations develop and maintain the necessary capabilities to create and manage their architecture effectively.

TOGAF is considered relevant and appropriate for scenarios such as:

Business Transformation: When organisations need to adapt to changing market conditions, regulatory requirements, or technological advancements, TOGAF can guide the design and implementation of new business models and capabilities.
IT Modernisation: TOGAF can help organisations transition from legacy systems to modern, scale-able, and efficient IT architectures that align with business objectives.
Mergers and Acquisitions: TOGAF provides a structured approach for integrating the IT and business operations of merging organisations, minimising disruptions, and maximising synergies.

TOGAF differentiates itself from other frameworks through its:

Flexibility: Unlike other prescriptive frameworks, TOGAF is adaptable to an organisation’s unique needs and can be customised to suit specific industry requirements.
Holistic Approach: TOGAF addresses all aspects of an organisation’s architecture, including business, data, application, and technology domains, providing a comprehensive view of the enterprise.
Continuous Improvement: TOGAF emphasises ongoing architecture governance, ensuring that the TOM remains relevant and effective as the organisation evolves.

Factors Influencing Operating Model Design

Operating model design is a critical aspect of organisational success, as it helps align business operations with strategic objectives. Various frameworks and approaches exist (as outlined above) to guide the design process, each with its unique perspectives and focus areas. While each approach as a specific focus, a number of common factors exist across all these approaches that influence your design(s). This list provides a overview of the scope and scale of the analysis for typical Operating Model design and delivery.

Strategic Alignment: A fundamental factor in operating model design is ensuring alignment with the organisation’s strategy and business model. The operating model should support the execution of the organisation’s strategic objectives and enable it to create, deliver, and capture value effectively.
Customer-Centricity: Understanding customer needs, preferences, and expectations is essential in designing an operating model that delivers exceptional customer experiences. Focusing on customer-centricity helps organisations to innovate and differentiate their product and service offerings, leading to long-term value creation.
organisational Structure: The design of an organisation’s structure, including roles, responsibilities, and reporting lines, is a vital aspect of operating model design. An effective organisational structure should promote collaboration, accountability, and efficiency, enabling the organisation to execute its strategy more effectively.
Process Efficiency: The operating model should include end-to-end processes that are streamlined, efficient, and adaptable. Identifying and optimising key processes can help organisations improve performance, reduce costs, and enhance customer experiences.
Technology Enablement: Leveraging technology strategically is crucial in today’s digital age. An effective operating model should incorporate the tools, systems, and infrastructure that support the organisation’s processes, information management, and decision-making capabilities, enabling process efficiency and data-driven insights.
Data and Information Management: Ensuring that the right information is available to the right people at the right time is a critical factor in operating model design. A data-driven culture and effective information management practices can enhance decision-making capabilities and support overall organisational effectiveness.
Talent Development: Recognising the importance of attracting, retaining, and developing top talent is essential in operating model design. A culture of continuous learning, skill development, and employee empowerment can help organisations maintain a competitive edge and drive long-term success.

Examples of Operating Models in Practice

There are many examples of where adaption and adoption of these frameworks have been used. To highlight the wide range of scenarios and business focus, we have listed here 3 examples providing a simple overview on the underlying business objective, and goals for the operating model.

Apple: Apple’s operating model is characterised by a highly focused product portfolio, centralised decision-making, and a culture of innovation. This operating model has enabled Apple to create a differentiated value proposition, streamline its operations, and foster a strong brand identity. (Lashinsky, A. (2012). Inside Apple: How America’s Most Admired — and Secretive — Company Really Works)
Amazon: Amazon’s operating model revolves around customer-centricity, continuous innovation, and a strong emphasis on operational efficiency. This model has allowed Amazon to scale rapidly, deliver exceptional customer experiences, and diversify its business across multiple sectors. (Stone, B. (2013). The Everything Store: Jeff Bezos and the Age of Amazon)
Toyota: Toyota’s operating model, known as the Toyota Production System (TPS), focuses on lean manufacturing principles, continuous improvement, and employee empowerment. This operating model has contributed to Toyota’s long-standing reputation for quality, efficiency, and innovation. (Liker, J. K. (2004). The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer)

Conclusion

Operating models serve as the foundation for executing an organisation’s vision and strategy. By understanding the key components of an operating model and selecting an appropriate framework, organisations can align their resources, processes, governance, and culture to create value for their customers and stakeholders. Factors such as industry dynamics, business strategy, culture, technology, and workforce skills influence the design of an operating model.

References

There are many useful publications and materials on this subject. We include a number below, some of which we have referenced and used to provide examples and conclusions. We encourage you to explore this material as it can help set context or provide additional information. All rights reserved, All Trademarks Acknowledged, and all original content referenced is owned by the third parties identified.

Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2–3), 172–194.
Galbraith, J. R. (2002). Designing organisations: An Executive Guide to Strategy, Structure, and Process Revised. San Francisco: Jossey-Bass.
Campbell, A., & Gutierrez, M. (2017). Operating Model Canvas. Van Haren Publishing.
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley & Sons.
Blank, S. (2013). Why the Lean Start-Up Changes Everything. Harvard Business Review, 91(5), 63–72.
Teece, D. J. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2–3), 172–194.
Ries, E. (2011). The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Crown Business.
Peters, T. J., & Waterman, R. H. (1982). In Search of Excellence: Lessons from America’s Best-Run Companies. New York: Harper & Row.
Waterman, R. H., Peters, T. J., & Phillips, J. R. (1980). Structure is Not organisation. Business Horizons, 23(3), 14–26.
Pascale, R. T., & Athos, A. G. (1981). The Art of Japanese Management: Applications for American Executives. Simon and Schuster.
PwC. (n.d.). The Four Dimensions of an Operating Model. Retrieved from https://www.pwc.com/gx/en/operations-consulting-services/assets/pdf/the-four-dimensions-of-an-operating-model.pdf
Lashinsky, A. (2012). Inside Apple: How America’s Most Admired — and Secretive — Company Really Works. New York: Business Plus.
Stone, B. (2013). The Everything Store: Jeff Bezos and the Age of Amazon. New York: Little, Brown and Company.
Liker, J. K. (2004). The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer. New York: McGraw-Hill.
Ulrich, W., & McWhorter, N. (2010). A Foundation for Business Architecture. Cutter IT Journal, 23(1), 31–36.
Ross, J. W., Weill, P., & Robertson, D. C. (2006). Enterprise Architecture as Strategy: Creating a Foundation for Business Execution. Harvard Business Review Press.
Pine, B. J., & Gilmore, J. H. (1998). Welcome to the Experience Economy. Harvard Business Review, 76(4), 97–105.
Hammer, M., & Champy, J. (1993). Reengineering the Corporation: A Manifesto for Business Revolution. Harper Business.
Westerman, G., Bonnet, D., & McAfee, A. (2014). Leading Digital: Turning Technology into Business Transformation. Harvard Business Review Press.
Davenport, T. H. (2006). Competing on Analytics: The New Science of Winning. Harvard Business School Press.
Ulrich, D., & Brockbank, W. (2005). The HR Value Proposition. Harvard Business School Press.
The Open Group. (2018). TOGAF® Version 9.2. https://pubs.opengroup.org/architecture/togaf92-doc/arch

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