Operating Model

1. Design principles for a robust operating model: The crucial first step in designing an appropriate operating model is to translate the strategy into a set of design principles—simple yet specific statements defining what the organization must do to execute the strategy. A carefully drafted set of design principles, typically between 7 and 15 statements, helps align the leadership team around objective criteria for designing the operating model. This approach can apply to an entire company, a business unit or an individual function. It is important to focus on a few success factors:

  • Define what matters most. Follow the money and make sure your design principles focus on where the organization creates the most value.
  • Call out the critical decisions. The right operating model should make it easier to make important decisions quickly and effectively.
  • Define scope and business boundaries appropriately, ensuring that the model reflects opportunities for customer, cost and capability sharing across the businesses.
  • Explain which capabilities are essential to fulfilling strategic goals, such as "support a repeatable product design process that balances customer requirements and technical feasibility" or "allow us to easily add and subtract businesses."
  • Articulate organizational strengths to preserve or weaknesses to address. Where firm culture plays a major role, aspects of the culture can be called out.
  • Clarify the role of the center in leveraging scale and expertise.

2. Insurgent teams and micro battles: The best CEOs focus maniacally on the teams that matter—the cross-functional teams winning with your most important customers. They also ensure that corporate leaders empower these teams and support them in the field, recognizing that employee advocacy is most often the key to creating loyal customers. To maintain a sense of insurgency, it often makes sense to focus teams on "micro battles"—discrete, customer-focused initiatives that can be pursued by a small team whose goals are to increase the company's sales (through share gain or category growth), deplete a specific competitor's sales and learn key lessons (including innovation ideas) that can be applied to other parts of the business. This helps teams focus on customers and promote speed and agility in all they do.

3. Conflict resolution: Many CEOs have lost sight of a key goal of good organizational design: creating conflict. The best recognize that organizations need conflict because customers benefit from businesses working through tough, day-to-day trade-offs. For a consumer goods company, for instance, there is a natural tension between difference and sameness. Customers benefit if the operation in Indonesia delivers spicier soup than the one in the Netherlands (difference). But consumers also want to know that the head of supply chain is trying to simplify the global spice portfolio to create a 10% cost savings (sameness). By embracing conflict, you make better decisions on behalf of customers. The danger is the organization loses the muscles necessary for fast conflict resolution. Good CEOs are obsessed with fast decision making and resolving those conflicts that are stalling the organization.