A well-designed operating model serves as a bridge between strategy and execution. The model not only guides a company's decision making and resource allocation, but it can also help the company reduce costs and stay focused, especially after a merger or a shift in strategy. Torsten Lichtenau, a partner in Bain's Organization practice, explains the importance of having a sound operating model in this short video.
Read the transcript below.
TORSTEN LICHTENAU: It's not enough to have a robust and well-defined strategy to drive execution and to drive results. What you need is a real bridge between the strategy and the execution. And this bridge is often an operating model.
So what is an operating model? In a nutshell, it's how you organize activities and resources and how you operate them in line with a strategic intent. Often people think it's only structure. But it goes far beyond structure. It's also about accountabilities, governance and ways of working. And all these four elements need to come together, in order for the operating model to work well, and be enabled by the right people, the right processes and the right technology.
There are many reasons why you might want to change an operating model. It could be that the strategy has evolved. It could be that you've just done M&A. But one of the reasons we see more and more often is complexity. And to make an analogy, complexity's like fat in the organization that is marbled in the muscle. And in order to address it, you really need to fundamentally rethink the way you organize activities to reduce wasteful activity. So it's about doing less, do it better, do it only once and do it in the right place.
Recently we worked with a client who really faced a lot of complexity. Costs were increasing far above inflation from year to year. Decision making was very slow. And the client decided to address complexities decisively and sustainably. One of the key enablers was really to redefine the operating model.
They [called] for accountabilities along the value chain. They reduced business units and functions by more than a third. And they really increased the speed of decision making tremendously. And the results are really showing up. What we can see is that costs are now below inflation, cost targets are being overachieved. But more importantly, executives make decisions much faster. They spend 50% less time on governance committees. And they are able to react very quickly to changing market environments.
So, as a summary, the operating model is really the bridge between strategy and execution. It goes far beyond structure. And if you do it really well, you are able to tackle wasteful activity, to do less, to do it better, to do it once and to do it in the right place.