Around a year ago, we began our journey to better understand:

  • Why organizations must constantly and quickly change
  • How organizations can successfully transform in a continuous manner

We quickly discovered that there are forerunner companies like Grundfos, the World’s leading pump manufacturer, that have transformed themselves many times over the years.

Read: Case Grundfos: No Separate Digital Strategy Needed

Marianne K. Knudsen, Senior Director and Head of Digital Commercial Offerings in Grundfos, reveals why it is necessary for the Grundfos organisation to transform itself from a conventional hardware giant into a company fully capable of delivering customised digital solutions alongside its world-renowned pumps.

While we were interviewing these successful companies, a striking fact surprised us in organizations which lagged behind.

There seemed to be a clear difference between the strategic goals of organisations that were being left behind and their organization’s capabilities. Although most of those organizations had developed targets such as customer focus or innovation in their strategy, their operating model didn’t support these new targets.

Similar results have been found in Accenture’s study. According to Accenture, 78% of executives think that their operating model is incapable of supporting their business strategy.

 

Operating Model and Strategy

Operating Model is a tricky term. It can mean both everything and nothing. Essentially:

An operating model is the bridge between strategy and day-to-day operations

In practise, an Operating Model is a high level presentation of how an organization can efficiently and effectively deliver its vision and strategy.

An operating model defines how People, Ways of Working, Data and Technology is used in daily operational situations.

bridge between strategy and daily operations

Vision and Strategy steers the organisation in the selected direction. Vision and strategy answers the question WHY?

Business Model and Operations are what the organization does everyday to create and deliver value. Business model and operations answer the question WHAT?

Operating Model exists between strategy and business operations. Operating model answers the question HOW?

Operating Model for Continuous Business Transformation

Market and industry barriers have declined, primarily because of rapid technology development. The pace of decline is increasing and the operating landscape is evolving faster than businesses can naturally adapt.

This is why organizations must create an internal machine that not only constantly looks for new opportunities, but also quickly seizes upon opportunities.

C-suite and a top management team can create bold visions and then reorganize people based on the new direction. The sad fact is that around 84% of these kind of transformations fail (IBM 2017).

84 percentage of transformations fail

On the other hand, people doesn’t like these top-down changes and they have a demotivating effect at all levels of an organization.

A new kind of operating model tackles both of these challenges. First of all, the operating Model for Continuous Business Transformation frees up top management’s time so that they can concetrate on strategic work.

In addition, no top-down organizational change is needed. The organization makes the necessary changes inside out, making the likelihood of success much greater.

UTH Operating Model for Continuous Business Transformation

At the top of the operating model is the organization’s vision & strategy. People today expect organizations to communicate Purpose, Values & Culture.

Purpose is the greatest reason why the organization exists and why people are motivated to work. Like purpose, an organization’s Values guide people in their daily activities and decisions. Culture encompasses behaviour of and within an organization.

At the bottom of the operating model is the organization’s Business Model and Operation. As the business landscape changes more and more quickly, Business Model and Operations must Adopt, Adapt & Scale, and also utilize Ecosystems.

Adopt means that a business model needs to embrace new opportunities, every day. Adapt modifies and rewrites business logic based on current understanding and knowledge. Scale is the final steps in spreading the new business model to the mass markets.

Ecosystems is the new normal for every organization’s business operations. All organizations need to think about their position in new value chains and decide what ecosystems mean to them.

Feedback loop ensures that tacit and explicit knowledge is spread across the organization.

Between strategy and day-to-day operations are four layers of the Operating Model for Continuous Business Transformation: People, Ways of Working, Data & Analytics and Technology. These layers ensure that the organization’s vision & strategy is delivered to the business model & operations and vise versa.

PEOPLE need still Leadership: even Millennials and generation Z have come to the workplace. Modern leaders Engage Employees and create Cross-Functional Teams to better serve Customer needs.

WAYS OF WORKING defines how people think and act. An organization’s agility comes from Self-organizing and Adaptable Development, which uses different kinds of development frameworks, like Scrum, Kanban and Waterfall, to speed up value creation.

Lean Budget & Strategy is the best practise to steer investments, in contrast to traditional fixed budget and strategy. Innovation & Insight ensure that innovation and exploration happens in an industrialized manner.

DATA & ANALYTICS consist of both Digital & Physical Assets, like software and hardware, and also Unstructured Data, like PDFs, video recordings, Instagram images, chat discussions or Facebook updates. The unavoidable rise of Artificial Intelligence (AI) in the coming years makes Cyber Security more and more important as AI takes over life and death decisions.

TECHNOLOGY is the last, but definitely not the least part of the operating model for continuous business transformation. Business Technology includes all the technology of an organization, from customer interfacing and product technology to business processes and operational technology.

Service and Product Portfolio ensure that technology is managed as a natural part of business development. Automation & APIs and Cloud & Platforms are important initiatives and primary drivers of a digital era that both increase productivity and also drive transformation, growth and revenue.

A new Strategy and Leadership Book including Operating Model for Continuous Business Transformation and much more will be published in 2019.  Stay tuned and subscibe to our newsletter for the latest insight!

This post is written by Timo Savolainen. You can contact him and follow: Linkedin or Twitter.

References:

Accenture, 2017, Four signs your operating model will fail, https://www.accenture.com/us-en/insight-outlook-four-signs-operating-model-will-fail

IBM, 2017, 84% of Companies Fail at Digital Transformation,
https://www.ibm.com/blogs/insights-on-business/oracle-consulting/84-of-companies-fail-at-digital-transformation/