You know enhancing organizational effectiveness to meet and beat operational goals relies on three factors:
- Strategy: Clarity and leader consensus around the strategic business vision and operational goals.
- Operating Model: Aligned frameworks for people, process, technology, and culture.
- Organizational Design and Performance Management: Meaningful organizational structure and robust talent management.
But which of these should you tackle first?
This is a common quandary. Most mid- to large-size organizations run functional- or enterprise-wide programs to improve organizational effectiveness: to rectify performance issues, integrate resources during a merger or acquisition, or become or remain a market leader, for instance. And most organizations find it daunting to reinvent their business strategy, operating model, and organizational design all at once.
So leaders must select an approach: take the instant gratification route of restructuring to reduce headcount and achieve immediate cost lift? Or invest more time to fully assess the business strategy, reinvent the operating model, and then follow with organizational redesign? We recommend beginning your organization effectiveness improvement journey by fully evaluating and improving the operating model.
An operating model shows how an organization’s people, processes, technology, and culture work together to support its strategy
Simply stated, an operating model is a framework or blueprint that communicates how an organization executes its operations to fulfill its strategy and pursue its vision. An operating model can describe how the business operates today (current state) or it can provide a vision for how the organization will operate in the future (target state).
An operating model includes frameworks for:
- Process: Priority workflows, interdependencies, governance, measurement
- People: Structure, roles, decision-making rights, interactions
- Technology: Systems, software, data sources and data/information flow
- Culture: Values, behaviors
Thought Logic recommends to our clients that they first develop a strong operating model, and then use the model to inform a supporting organizational design. This path is significantly more likely to deliver higher quality and more enduring organizational effectiveness. Here’s why:
The risks of restructuring without a solid operating model
Instant gratification is alluring. Leaders often skip the operating model and jump right into organizational restructuring to reduce implementation time and see immediate cost savings. And it is a far quicker exercise to shuffle boxes and lines and then connect names to the boxes.
Think about how many organizations seem to reorg every single year – or even more than once a year. Do you ever wonder what’s going wrong, why they’re always uprooting and shuffling their people around?! It’s because chasing short-term benefits is inherently coupled with a disregard for long-term goals. Restructuring an organization without first aligning on an operating model can lead to disruption and decreased productivity across the business. Rapid, radical headcount slashes, without due consideration of operational roles and processes, achieve short term cost savings but create delivery challenges. Organizations pursuing this path are often forced to pursue expensive and unstable stop-gaps: rehiring, bringing in contractors, or reorganizing again.
In other words, organization structure change that is not informed by an operating model is like changing drivers in a race car with an engine problem: the picture has changed, but the car won’t perform any better. Organizational structure relies on a solid operating model…not apart from it.
[epq-quote align=”align-center”]Restructuring without a foundational operating model exacerbates performance issues and can lead to missed financial targets, misaligned talent, and decreased engagement.[/epq-quote]
Organizations that restructure without first rectifying the operating model also frequently fail to align talent to support critical organizational capabilities – because they’re basing organization structure on the old (failing) operations. Or they’re guessing what critical organizational capabilities need to be. Or they fail to identify critical capabilities altogether. Either way, they’ve cut off their ability to meet market and customer objectives.
To exacerbate the issue, organizational disruption that isn’t backed by a rational operating model and a thorough change management plan leaves remaining employees feeling anxious and uncertain. Insecure employees are not productive employees. Recruiting new talent becomes difficult. And the company’s employment brand plummets.
[epq-quote align=”align-center”]“Someone’s sitting in the shade because someone planted a tree a long time ago.” – Warren Buffet[/epq-quote]
The benefits of allowing a strategic operating model to inform organizational structure design
Now think about the converse strategy. An underperforming organization initiating its turnaround by investing in organizational effectiveness – i.e. by designing an improved and even innovative operating model – has the necessary information to align its talent with its desired capabilities. With each part of the operating blueprint defined, the detailed organization design can follow. This informed approach naturally creates alignment between the organizational structure and the execution to drive its strategic objectives.
To begin, invest time in articulating and ensuring leader alignment around business needs and future goals. This is one of the most critical foundations to an effective operating model. Then allow the organization to fill it out with the people, process, technology, and culture frameworks that we discussed earlier.
[epq-quote align=”align-center”]A fundamental change in the business requires a fundamental change in its operations.[/epq-quote]
Experienced organizational effectiveness professionals can help leaders understand the business reasons and rationale that will drive the creation of the operating model and the organizational structure that will support it. Thought Logic’s People and Change team helps you build an effective operating model that maximizes the strengths of your organization and talent resources. We also offer the expertise of leading industry practices to further bolster your organization’s existing strengths. We apply time-honed processes and proven frameworks that dig deep to understand organizational culture. And we guide businesses to create clear goals for performance. This creates a logical, straightforward path forward for the organization to improve performance and achieve its goals.
A simple vision framework for your company’s operating model
If you are assessing your company’s OPerating MODel, try using these concepts to guide your journey:
Where organizational effectiveness is concerned, investing in strengthening the operating model before addressing organization restructuring will lay the foundation of both short- and long-term success.