Reinventing Operating Model for Product Companies
Operating Model Transformation Story
The case for Netflix is a well-known one. What started out as a DVD rental company, is one of the largest online video streaming company today with more than 100 million subscribers worldwide. The Netflix story is not a story of chance, but that of proactive choices for survival and winning in a world that was rapidly moving away from the traditional. In a rapidly digitizing and interconnected world, incumbents are known to lose out to Daredevil Challengers. However, Netflix decided to break the mold by consciously moving away from a business model they were familiar with. They did a complete transformation of their operating model framework to support their new digital business model.
How they did it?
Running on decades-old traditional systems, Netflix was not geared to undertake this digital transformation. Their waterfall development cycle, processes, and technology architecture were too archaic to support their digital business strategy. They went about aggressively transforming their processes as well as the archaic architecture to bring about transformation in their operating model framework. Their monolithic architecture was re architected to numerous microservices, migrated to cloud and adopted DevOps practices and tools to automate their CI/CD pipeline.
This move not only reduced their cost overheads but also allowed for cross-functional teams that enhanced productivity. However, their agile operating model framework was not due to technology transformation alone. They also undertook a substantial overhaul of their organizational structure, governance, people and process transformation and above all, they adopted a customer-centric agile culture.
As per Bain & Company’s research, organizations that invest in developing/transforming their operating model into a robust one, have consistently shown faster revenue growth and higher operating margins.
Takeaways from the Operating Model Framework Transformation Story
Reinventing Operating Model is a smart strategy for organizations embarking on a digital transformation journey. Next-generation operating models provide much-needed agility and flexibility that breaks through the limitations of legacy systems. Next generation operating models are a smart combination of digital technologies and process-improvement initiatives to streamline internal processes which can have a major impact on customer experience. More and more organizations are going lean and recognizing the value of syncing processes, capabilities and tools to improve business operations.
Given the competitive scenario across industries, transforming operating model has become one of the top 3 organizational priorities. Companies cannot function with an out of sync operating model anymore.
Some of the reasons that spurred transformation of operating model-
- Organizational Complexity– As organizations grow, new business lines open up, and they extend across geographies, markets, and customer segments. This contributes to the complexity of the organization, which with time takes the shape of legacy structures whose response time reduces drastically
- CX-Customer experience has become a key differentiator
- Disruptive Technology– The last decade witnessed a tremendous shift in enterprise operations as ubiquitous mobile and connected devices showed up. Employees today are opting for BYOD (bring your own device to work) which gives them the flexibility to work from anywhere, anytime. Interaction point with customers has also seen a massive overhaul as online has overtaken brick and mortar settings. Collaborative technologies have made it possible for teams to interact across time zones.
Approaching a shift in Operating Model
The journey to a new age operating model is unique for every organization. However, the basic elements remain the same as they constitute the hygiene factors. Having a well-structured agile operating model works as a means to an end towards achieving organizational objectives. Hence it is essential to continuously synchronize/ensure mapping of an organizational objective with internal activities and functioning to ensure positive reflection on performance and health.
Here’s some recommended first-steps to take
- Clarify organizational strategy and assess sustainable value creation from new digital products
- Make it an enterprise priority across top management, board, and departments
- Comprehensive assessment of organizational structure and functioning to pinpoint roadblocks and strongholds using benchmarks
- Dedicate time and resources to capability building. Introduce digitization, agility principles, analytics and design thinking across the enterprise
- Objectively assess the need for change and the timeline for the transformation
How to close the gap between strategy and execution
Operating Models work as a blueprint that shows how organizational resources are structured to operate at an optimum level. Operating Models act as the bridge between strategy and results. Out of sync Operating models act as road blocks. It encompasses organizational structure, business units, functional teams and departments, culture, et al. And, Operating Model transformation is far from an overnight journey. After the preliminary assessments, organizations need to-
- Focus on defining key elements of the operating model
- Devise strategy to make the operating model productively functional
Key Elements of Operating Models for Supporting Organizational Priorities
1. Technology Infrastructure
Technology has become a center piece in the operating model of any organization. More often than not, legacy infrastructure contributes to piling up of technical debt that majorly impacts output and delivery. Sometimes, organizations initiating infrastructure modernization find it difficult to implement new technology alongside their legacy systems.
In order to overcome these challenges, CIOs and CTOs need to architect their technology requirements across the organization. A complete end-to-end assessment of needs and requirements is a must. For instance, systems that directly affect consumer deliverables can be moved to the cloud to increase build speed, decrease maintenance costs and minimize downtime instances. Organizations can approach Cloud Managed Service Providers for infrastructure migration. Also, building a modular architecture that uses technologies which can be shared across processes is a good idea.
Many organizations are increasingly adopting DevOps practices and principles to automate their delivery pipeline and implementing agile methodologies.
Organizational CIOs and CTOs are increasingly adopting DevOps along with Cloud as it brings about a faster pace of development and business agility. Automated software testing, security testing and overall people and process changes are complementing technology infrastructural changes to streamline operations.
2. Accountability and KPI
A top down approach towards inculcating transparency and accountability is of prime importance in any operating model. Business objectives and end goals should be clearly communicated to employees with a feedback loop to drive continuous improvement. Organizations that have successfully transformed their operating models incorporated accountability and performance management in their DNA. They map organizational goals and priorities into employee KPIs across levels.
Organizations trying to transform their operating model need to have best practices in place to guide employee behavior and clearly outline skill sets and processes that are a must-have to achieve their goals.
The role of performance management is not only to ensure accountability, but also to enhance the decision-making process regarding work allocation as well as delivery within timelines. A robust feedback mechanism across departments helps to prevent information leakage, miscommunication, and delayed communication. Management Dashboards with metrics helps to keep priorities in check.
3. Organizational Culture
Imbibing the culture of agility is a must for establishing a successful next generation operating model. Adopting agile methodologies in software development cycle is one way to ensure faster delivery of products and services to the customers. However, agility is not restricted to IT but spills beyond that and across departments. Flexibility in working styles and structure is another key element to incorporating agility into daily functioning. A culture that is willing to take risks learns from mistakes and continuously improve processes wins hands down.
Culture change has to be a top down approach. Sometimes culture change can be a difficult and daunting task to implement across the organization as employees can be resistant to change. It is important to aggressively pursue this change management and reinforce the culture shift positively.
4. Perpetuate Cross-Functional Teams
Collaboration across teams and departments can bring down time-to-market by as much as 90%. Organizations that have successfully transformed their operating model do not have fixed and rigid team structures. Fluid structures with inter-team collaboration can cut down redundant, iterative tasks, and track issues early in the process. The trend is towards building smaller team structures that transcend business lines and market segments, are lithe, and promotes ownership and capability building.
Overhaul of Operating Model does not necessitate changes in all of the above elements. It can be a combination of elements or all of it. For instance, organizations may achieve profitability simply by redrawing/redefining the business units, such as instead of product groups choose categories or value chain as a business unit that can make them leaner and provide cost advantage as well.
Are you looking to transform your Operating Model?
Organizations undertaking digital transformation needs to take a re look at their operating model. Digital Transformation Consulting companies can guide them on the right technology strategy to go ahead with their operating model approach.
If you have any queries on how to transform IT Operating Model, feel free to comment in the section below.
