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It’s hard to sustain profitable growth. CEOs are under pressure to deliver more. They in turn demand better performance from their businesses. If a business can be compared to a car then the Operating Model is its engine. We ask five questions to judge the effectiveness of these engines.
Every organisation has an Operating Model. Some are more straightforward to follow than others. They are never static and need to be flexible to meet demands of the market. However incremental change often results in unintended consequences that can erode performance. An example is “lean” stock practices that does wonders for working capital but slows delivery to clients. It’s tricky.
How do we know whether our Business and our Operating Models are operating at the right level of equilibrium between profits and performance?
It is inevitable that during the life of a business there will be changes arising from corporate transactions, regulatory changes, launch of new services or overhaul of the back-office and IT Functions. Each change causes uncertainty – this is inevitable and can be planned for and managed. A lack of clarity in the strategy of the organisation and how the business is aligned to support the strategic aims, can be a significant drag on growth.
It is a simple matter of cause and effect. If we are clear where we are going, then our performance can be effectively measured and monitored and actionable plans for change can be established. We can direct the energy and focus of our teams to the right tasks and we can make more effective decisions based on metric-driven insights.
It is a natural phenomenon of growth that organisations look to implement increasingly complex commercial and operating models. As leaders we need to control this. We need a process to decide the activities that create most value and whether it is best to centralise these activities or be ‘close to the market’. The talent pool, scale of change and stage in the value chain are factors to consider as well as the culture, process, systems and technology environment in which we operate.
We also need to adjust the decision making accountabilities to ensure that we achieve alignment with the intended outcomes. This might be a minor tweak to role descriptions and delegations of authority or this may result in a root and branch review throughout the whole organisation.
Having clear decision making structures to start with makes this process relatively straightforward. It is important that the changes are made right first time and are stress tested. Our teams have no patience and don’t want to make constant changes to roles and responsibilities. And most organisations are not capable of growing profitably (or at least in a controlled way) when they are in a state of flux. Remember that THE key risk in any change is the buy in of our busy teams.
Advances in digital technology are enabling us to collate data: big data. However, if we are not equipped to manage this data the potential value will be lost. So the challenge is how to manage data and how to structure ourselves so that our response is consistent and not ad-hoc.
The dependency on data and information to support critical decisions is universal. Recognising that data has value, and the need to manage it as such, is not so widely accepted. Our analysis has shown that there is a direct correlation between performance (profitability) and maturity in data management.
In reality, those responsible for data management often struggle to articulate the value of what they do to executive management. Yet, there is a means of valuing data and presenting a strong business case for managing it as an asset.
Our teams need to understand data’s value in the decision making process and sponsor a value-driven approach to managing it with clear accountabilities assigned for its upkeep and control. Think of data as a building. Manage it, look after it, get value from it and when you don’t need it get rid of it. Above all, as leaders, we should value it. If we don’t then our businesses won’t.
Effective Performance Management aligns our organisations to our strategies. It provides direction, supports the prevention and mitigation of risk and results in tangible outcomes that have a measureable impact on the business. It is about getting the right people together at the right time, with the right information to make well informed decisions. This is obvious – but often does not happen.
As performance management becomes more sophisticated, the behavioural factors become more important. For an organisation to act on a truly global basis, behaviours around Performance Management have to be consistent. This will lead to a greater degree of autonomy for our local leaders as we can trust them to operate well within a defined set of boundaries. Organisations that trust each other are the most efficient. That is a subject that requires a separate blog.
A consistent framework of processes, underpinned by a robust data and decision rights model, is essential. The consequences of ineffective decisions, data and processes can be severe and include:
We need to be systematic about managing change.
We have delivered Operating Model projects for the world’s most progressive and successful companies in the Industrial and Consumer markets. We have a robust methodology that we own which we developed with one of the world’s leading companies. It has been stress tested by all the leading consultancies and is a standard.
Our team has a proven track record of helping organisations improve operating models – all the way from a tune up to an overhaul. This work results in revenue growth and EBITDA returns that surprises and delights our clients. Industry statistics on the benefits of efficient operating model suggest that operational efficiencies can increase by up to 31%, improvements in customer satisfaction can be as high as 33%. Our work bears this out.