“Eat your own dog food”

It has been an interesting six months to say the least. In late April we decided to move all our courses online. We didn’t expect this to go on so long but it has and to be honest this is going to be the mode well into 2021.

Face to face teaching in training rooms to groups isn’t’ popular, even if allowed, this is both in terms of our trainers and the HR departments of client companies. Many “blue chip” service organisations, a sector that forms most of our customer base, have their staff working from home and have curtailed physical interaction. Traditional classroom training courses are “on ice”.

With continued restrictions  with major urban zones moving back into tier two and three lockdowns( Uk)  it is very difficult to plan ahead and arrange public courses.

So, how does that leave continual professional development in the realm of business architecture and operating model consulting?

Many businesses have had to adapt their business models and modes of service delivery; as this no longer a short term situation this is going to be around for some time.

On reflection, this change creates opportunities to overcome some of the shortcomings of traditional classroom training.It creates opportunities for teaching that allows for shorter sessions, with period of personal reinforcement and reflection in between.

Sessions are one to one making the content relevant for each individual at their own pace aligned to their own learning needs and objectives.

Traditional group training over two or three days was intense and although the benefits of team building and networking were great the actual embedding of learning was often weak. Delegates moved from one topic to the next at pace without sometimes the time to contextualise the material and think things through.

Often the group was dominated by individuals whose personalities dictated the pace maybe leaving behind the more junior and less confident behind. It was difficult for the course leader to  create “differentiation”, as it is called in educational circles, to ensure that the course was adapted to all delegates of all abilities with variety of exercises and material to fit.

These sorts of issue occurs in both corporate course where people from the same firm come together for a training event, but even more problematically in public courses where delegates can be from varying backgrounds, levels of experience and  prior knowledge. In public courses the situation is more extreme because the delegate cohort can be so diverse; in reality a one size fits all is the only approach, Having run several master classes for “professional associations” you often get the extremes of: the experts who attend to impress colleagues  or reinforce what they know already, or at the other end of the spectrum complete novices. Keeping such classes relevant for all is not easy.

In conclusion the move to one to one online delivery, where we run sessions once or twice a week. specifically with one attendee, has proved quite successful in providing a more effective more focussed learning plan.This coupled with Dever Learning our learning portal that hosts the material, allows the client to: review topics, investigate things deeper and formulate questions for the next session.

The downside is we spend more time delivering for less income, but let us face it it is better to deliver and achieve  some revenue than none. On the up side costs are lower, no trips to London and hotel bills and no COVID risk. The flexibility works both ways as trainers can have a better work life balance so it is not all bad. The economy needs to re structure, we as a training company need to restructure and as we train in business models we need as the phrase goes “Need to eat our own dog food” !

https://en.wikipedia.org/wiki/Eating_your_own_dog_food

Strategy in the context of Operating Model design

Strategy in the context of Operating Model design

By David Winders and KIrill Derevenski November 2018

We started this series with an article on the Operating Model Canvas.  We then did deep dives into each of the canvas domains. We now want to address the work that is done before developing an operating model: the strategy.”

Any work on operating model design is necessarily preceded by reflection with clear identification and explanation of what one actually wants to achieve. In the context of operating model design, strategy means reflection and clear identification of the desired outcomes required; with these outcomes being clearly communicated to those tasked with operating model development.

Strategy Today

There is much talk about strategy, it sounds exciting, senior, important, and executive. An investment prospectus or an annual report would be full of “strategy”. These glossy booklets talk about “turnaround”, “back to profitable growth” and “shareholder return” , the presented strategies sounding authoritative and in charge; but do these types of statement help us build the business?

Unfortunately the reality is that the majority of published strategies often fail in their effectiveness. People have high hopes for strategies with subsequently high expectations of them. More often a published strategy leads to disappointment, with the clearness and substance falling short of what people really hoped it would tell them.

Many individuals involved in day-to-day activity cry out for the clarity of a good strategy:

  • “Where are we going?”
  • “How does it all fit together?”
  • “We seem to drift from one crisis to another – where is the strategy?”

These comments, or others like it, are commonly heard in offices and factories across the world. This is because, while teams may understand the overall strategy direction, they lack clarity on what they actually need to do to achieve it. Another way to describe this would be to say there is “a disconnect” between the strategy and the day-to- day operation. After all, very few team members feel that they are responsible for strategy, but each individual is responsible for their part of the operating model.

Whilst most understand their own role in the operation few are clear of how what they do fits in with what everyone else does. This is one of the aims of an operating model in showing how all of the pieces of the puzzle fit together.

Connecting strategy with operating model

In a nutshell, connecting strategy with operating model means translating organisational rationale and goals into concrete objectives for operating model design. These objectives, or design imperatives, need to express the strategy in clear terms. They describe outcomes that practical people can use to start thinking about “what” and “how” to build or transform the operation from where it is today to where it needs to be tomorrow.

Prioritising rationale and goals is the key part of this initial step. In business design, same or similar outcomes may be achieved in a number of ways by making choices; but ‘if you do not know where you are going, any road will take you there’.

The main steps involved in strategic reflection for operating model design are demonstrated in the graphic below. It focuses on delivery within clear boundaries such as regulation, operational constraints and the anticipated costs for an operating model. It undertakes this reflection through identification and positioning of value creation offers to achieve desired rationale and goals.

 

We shall explore each of the areas in subsequent articles; in the meantime the main ideas are as follows (please note that they apply in equal measure to commercial and not-for-profit organisations).

Rationale and goals are answering the question of what we actually want to achieve. This may concern the whole organisation or a part of it. For example, commercialising a new idea may require a different operating model and so the goal is clear-cut. On the other hand, the goal of ‘entering a new market’ will require precision as to what geographic area and (possibly) with what product to go. When ‘increasing shareholder value’ is a goal, we should keep in mind that there are sales and costs facets to that equation and thus need to be clear to which we are targeting (or both). Non-commercial organisations too will have their rationale and goals like assisting others through charity, spreading knowledge or running countries.

Once rationale and goals are captured, we must define which value stakeholders will help us achieve our goals in the most effective way – who do we target. Clearly, any organisation will have many stakeholders, but for the purposes of operating model design we place focus on those that generate value for the organisation and those that consume value in exchange… For example, although shareholders are an important stakeholder group for an organisation, shareholders are not value creating ones.

Customers, on the other hand, are creating value for the organisation by providing revenue. In the case of non-commercial organisations the beneficiaries of the activity: charity. Mutual, club or public body, create value that is perhaps measured in something else other than money.

Suppliers or partners often are considered as value stakeholders as they create value through their innovation or expertise which contributes to the value of the organisation.

Many value stakeholders exchange value, both providing value and consuming it; this is where the idea of value propositions, or value offers, come in to play in the field of marketing and product design. Organisations create value for stakeholders in their products and services; the stakeholders then give that organisation back value in a different form in return for the benefits they see in the offer.

Once value stakeholders are identified some models suggest that we can move straight to creating value offers. While it is possible to do so for a “clean slate” organisation, the picture for an existing unit would not be complete without both assessing the outside world and its own resources and know how (internal capabilities) to deliver value. External factors involve analysing the business environment within which it operates and its competitors. Internal analysis means examining its infrastructure, assets, knowledge and core competencies. So, external and internal factors come together in the mix when considering of designing value offers.

In many instances, we will find that this value stakeholder analysis will frame tighter groups. This will make our value creating offer to specific groups so much more targeted and concrete. For example, a value offer (say, a car) for people earning over $100K may look different from a value offer (a car, again) for urban males aged 35-55 earning over $100K. Clearly, the latter offer has more chances to succeed provided the markets are economically viable.

We may need several iterations of value stakeholder analysis to define the value offer precisely. The key is to do it in a pragmatic and timely way to move along at a brisk pace. Two to three iterations will be sufficient for most purposes.

In most instances, the pathway for iterations would be going “clockwise in the graphic above”:

  1. intended beneficiaries
  2. external environment
  3. competition
  4. internal capabilities

It is important to note that there is no strict order and indeed it is also possible to start with internal capabilities and follow the route the other way (anticlockwise as drawn below).

  1. internal capabilities
  2. competition
  3. external environment
  4. intended beneficiaries

The only concern with this alternative flow using internal capabilities as the starting point is that care must be taken here to avoid internally centric analysis.

Keep in mind that each value offer is aimed at a discrete stakeholder group and it follows that if there is more than one value stakeholder group identified, the analysis and value offer identification must be performed for each separately identified group. For example in elderly care, seniors themselves and their families are two separate value stakeholder groups with separate needs and wants.

Once our value creation offers are defined, we can distil them into imperatives and objectives for operating model design. These are a set of up to 10 statements of what the proposed model will address and perhaps what it will not address. Out of scope statements might note that it may target only part of the organisation, or exclude certain units, geographies, products or beneficiaries. These imperatives will frame the operating model design by creating hard boundaries and constraints for the proposed solution, and will be referred to often to validate design choices down the road.

What is next?

This article makes clear the connection between strategy and operating model design. It also shows why Value Delivery Chains form the cornerstone of the Operating Model Canvas. In subsequent articles we will explore each of the strategy analysis tools in more detail – stay tuned!

 

The Transformation Journey from an Idea to its Ongoing Operational Success

The Transformation Journey from an Idea to its Ongoing Operational Success

The last ten years have shown great promise in operational change with new and different ways of communicating how a business should be structured to deliver value to its stakeholders. Materials have moved away from stuffy journals and methods, often kept under lock and key by transformation consultancies, to bright simple and vibrant books and materials.

However the main themes stay in place – the concept of a strategy to execution journey that follows a series of interlinked phases:

  • Strategy Formulation
  • Operating Model Development
  • Implementation
  • Operational Control and Feedback

Historically the above steps were presented in a rigid way. One developed a strategy – a set of goals for a journey, then designed a delivery model and then implanted it in a very sequential “waterfall” approach. This often  took a long time and no longer reflected market conditions by the time the transformation was completed.

The final phase of control is frequently overlooked; the basic requirement here is ensuring that your operating model stays on course within business as usual activity delivering the strategy.

There has in recent times been a strong recognition that, although described as phases or stages, there is fluidity between the phases with some overlap, repetition or iteration; both back and forth across the phases, and up and down in the levels of detail where, as is well known, “that the devil is in the detail”).

A key improvement we have seen are the development of tools and techniques that are readily accessible and simply explained; one approach in particular is the use of “canvasses”.
Business Model Generation

In 2010 Alex Osterwalder published his now well-known book Business Model Generation using the idea of a canvas, a pre-set template to stimulate structured thinking. The book, published in a colourful landscape format was highly visual, low on text and gave numerous examples of how to apply its ideas. The business model canvas became a new “strategy statement” to accompany the more traditional statements of vision, mission and goals. It gave focus to the creation and grounding of a business model as a way of showing how value was created and delivered to stakeholders. It is one way of expressing how value generates revenue and how costs are created by serving that value creation – a business model.

The Business Model Canvas of course has its limitations and isn’t perfect, but one has to say it has been really successful in getting executives to think about how their business “ticks or could tick”.

One point coming out of this was that the left side of the canvas – the cost creating part – was the operating model. Costs constrain the way value is delivered and the two sides have to be in balance. One informs the other and vice versa, therefore presenting a circular repeated piece of thinking that gets more confirmed as different ideas are tried out and tested.

The canvas helps us by suggested “links” and connections. All this prompts thinking which is really helpful for people starting out in this type of skill set. Others have added arrows and action words on lines between boxes on the BMC canvas providing a more explicit and better understanding of the mechanism of delivering value.

Since 2010 the BMC has been modified and added to and has been applied to organisations beyond its original target of the profit centred firm.

For all its advantages, the Business Model Canvas lacks the crucial ‘how to actually do it’ element. The BMC is only at the high level – too high level some critics say – only having the two zones of key activities and key resources to address the operating model; these are not nearly enough from an operational perspective. One does really need more detail to inform whether the operational practicalities fit in to deliver the business case, the cost element,  for the proposed business model.


Enter the Operating Model Canvas

The brevity of the two zones and the need for greater focus in the operation led to the Andrew Campbell et al (2016)   of the same name. A similar style of book, again in landscape, colourful and text light, it uses six themes: Process, Organisation, Location, Information, Suppliers and Management Systems to structure operating model design. The emphasis presented in the book was the flow of value and how each category assisted that flow. It leaves the value to be defined elsewhere; it simply gives focus to how the operation serves that value. The book describes an eclectic mix of thirteen supporting tools without going into details of how to do this work at a practical and ground level.

Just to point out, splitting the operating model into themes or zones is not new. CCPPOLDAT (Customer, Channel, Product/Proposition, Process Organisation, Location, Data Application and Technology) served us well since the early 2000’s and still does as a structure for operating model work. In fact, one could argue that CCPPOLDAT does the job of both the BMC and the operating model canvas. It is an alternative approach and has its merits too.

As contributing authors to Andrew’s book, Kirill and David have published six companion articles each taking an Operating Model Canvas Zone and looking at how each aspect affects both the cost and value models. These assist the practitioner to “drop down a level” beneath the high level conceptual ideas of how to operate, starting to flesh out the practicalities rather than staying in the “consultancy plane”.

In tying back to our original statement that rework and iteration are essential in this sort of work, only once you explore the practicalities and detail of the operation can you be certain that the costs fit with the original business case. Indeed, in many cases the transformation team has to revisit and modify its high level ideas once the real outcomes are understood to some depth.

Although Andrew Campbell presents the Operating Model canvas as “plug in” to replace the Key Activities and Key Resources in the Business Model Canvas, it is not really necessary to have a BMC as a precursor. In fact, just knowing ‘what one wants to achieve’ is often enough to start working on operating model design!

Regarding Implementation and Control & Feedback themes of a transformation journey several models exist, too. But herein lies a problem, in most instances, these too are discreet and stand-alone ‘modules’ not directly connected to phases before or after them. The absence of a clear, logical and easy to understand A to Z approach to transformational activities from strategy to ongoing operational improvement complicates decision making and reduces the chances of success. Importantly for organisations and decision makers, the absence of clear transformation project A to Z roadmap hides the costs, diminishes employee engagement and risks client attrition; it makes fluid ‘agile’ approach to transformation effort impossible.

Both Business Model and Operating Model Canvases are just “jigsaw puzzles” in the overall transformation activity. To succeed, they must have a head (Strategy) and a tail (Implementation), all seamlessly connected into one narrative. Over the course of next months, this is what Kirill and David will be working on to make things real and practical for our clients and the operating model space in general – so stay tuned!

 

A,Osterwalder,2010,”Business Model Generation” Wiley, London.

A Campbell, 2016, Operating Model Canvas, Van Haren, Amsterdam and London.

On Importance of Information and Technology in the Operating Model Design

by Kirill Deverenski and David Winders September 2018

This article concludes the series in which we have explored the six domains presented in the 2016 book Operating Model Canvas. The purpose was to expand on each area and give some advice on how to populate each one with particular emphasis on linkage to value.

Information represents how the operating model considers the management of technology, information and data. In most cases this equates to information technology; it is interesting to note that in the past some organisations used to refer to their IT as IS (Information Systems) or even IS&T (Information Systems & Technology) so this Information domain clearly makes sense.

IT as a subject in operating model design has some issues that we need to explore; one of which is that often that transformation is led by technology, or that transformation equals some change in technology. Thus the transformation becomes the implementation of a system. The nascent ‘digital revolution’ is one perfect example.  Many established companies jumped on various e-platforms simply because ‘they are there’. The goal for many became to implement the technology, and in doing this the principles of identifying client value and then tracking that back to what is needed to deliver that value, have been lost in the process.

Careful operating model design thinking steps back from the excitement of technological innovation – out there – and asks itself “what does one actually want to achieve through IT”. In most instances, it will be necessary to consider the intended impact of IT in the overall value delivery chain and the financial results. Several options of IT deployment are available and each will produce different impacts on value delivery and financial metrics.

There are three main traditional options on implementing one’s I.T. :

  • Build
  • Adapt and Configure
  • Purchase and Use

These options vary in cost and time to deploy them and have their constraints and issues. In building your own you can follow the idea that we present in these series of articles – of enabling value chains to maximise value; this is of course costly and requires volume and substantial activity to justify.

The opposite is purchase and use, whereby you do business according to how the software developer determines. In this process, you frequently lose control of the creativity of the operating model – you get given a set model to implement. The end result is a lack of differentiation and a commoditised Porter’s cost leadership approach – making money by being more efficient than others through scale.

The half-way house is buying a solution and then getting certain things changed to fit what you want to do – adapt and configure. This enables a compromise between differentiation of value provision and high costs. Although this sounds a good idea on the surface, it itself has the issue that bespoken additional development cost money – lots of money, emphasised by the fact that the skills required are in the minds of solution integrators on high day rates. Additionally, many have found that problems occur when the vendor upgrades a version with older versions falling out of support; then you have to upgrade your bespoke content all over again – more cost.

More recently, a fourth option has appeared due to technological advancement with the development of cloud, web services and API Application programme interfacesstitch and integrate.  You buy software services and then “stitch” them together. This is effectively a cheaper version of build as described above with some constraints of having to use what is provided also, but at least you have some choice in terms of functionality and process organisation. There are risks of continuity of service, security and data integrity with this option that need to be mentioned but can be read about elsewhere.

To be sure, this appears a bit of a weighing up exercise with issues pulling us in different directions. Little surprise then that, unfortunately, many non-IT executives see IT as part of a problem, not a solution.

In operating model design I.T. can be a constraint, a negative force, or an enabler, a positive force. A new technology can create new ways of doing things or a shift in an operating model but conversely it can be restricting with legacy systems hold a company back.

Like all of the other sections in the canvas, we should start with value and work back through value chains. Yet in the case of IT, we need to challenge the way technology gives those value chains new ways of delivering value. Technology always should have a value check – just because we can do something clever doesn’t necessarily mean we should do it.

This ‘value check’ process should be circular, linking value creation back to IT to see what functionality creates that value and assessing whether it is still required and whether it can be done better through new enablers.

Even though we live today in a world of so called digital transformation and disruption (to use a couple of well-worn buzz words of 2018), I.T. should still be seen as a means to an end or a means to deliver or add value, not a reason to transform. Start with end-user value and challenge technology – then map out how IT solutions can implement that value within constraints of cost, or risk the danger of creating an operating model that becomes ‘unfit for its purpose’.

Form That Follows Function – Physical Organisation and the Operating Model.

In this series of articles we have explored each zone or theme of the Operating Model Canvas in order to provide better guidance on how to use the themes to describe the operating model.

The main message that has been presented in this series is that the operating model should be based on maximising the value provided to the client of the firm. In other words “we need to design the operation to deliver the most value in the most efficient way”. In many cases, it is a balance between providing the most value against the financial impact of doing so (whether in costs or revenues) where compromises have to be made; this has been seen in several of the preceding articles.

The organisational structure presents us with often the biggest challenge and is the theme that causes the most problems. There are several reasons for this that need to be recognised and understood if we are going to do justice to aligning the organisational structure to deliver maximised value.

Often the transformation of an operating model starts with an organisational chart, and the objective, even if not explicitly stated, is often to move to a new chart. This over focus on structure is because it is about the people who populate the structure, not necessarily the need to support the delivery of value.

Organisation means people and people means politics and ego. The needs of individuals in advancing their career or maintaining power are not always in line with the best interests of good organisational design.

This is why the importance of the organisational chart as a design tool is overstated and should not be brought to the front of discussion far too early in the design process. The right message here is simply “leave it to last and create the structure that is best to support the delivery of value”.

So, how do we create an organisational structure that delivers this desired balance?

Traditionally, organisations were structured in a hierarchy within areas of expertise such as Sales & Marketing, Operations, HR, and Finance being typical vertical silos. Organisations were, and are, frequently designed for the convenience of those operating them top down; they take an internal perspective looking in rather than out.

Functional structures are technically efficient leveraging quality and economies of scale but they have their downsides. They are poor at delivering cross functional delivery and poor at communication, the ability to respond to change and adapt is slow as the cross-function cooperation occurs at the higher levels of the organisation, not at operational levels. Information and instructions pass up and down the silos of control, instead of flowing horizontally.

So, if traditional structures give efficiency and perhaps give greater hierarchical control, they hinder agility and end to end customer value of what do we do. By contrast, so called ‘organic’ organisations are interconnected through project teams and distinct centres of excellence, but are perceived as more difficult to organise and run efficiently due to relationship complexity within them.

The three factors need to be balanced and the need for each analysed before deciding n a final organisational structure. The three axes are:

  • Financial impact for the organisation (e.g. costs, revenues etc)
  • Management control
  • Impact on organisational value delivery chain to final beneficiaries

Each strategy and its resulting business model will have addressed value, cost and control. This tells us what is important and what degree, so we can plot where we are today and where we want to be.

If the choice is high on the value delivery and often this is what the analysis requires, then the structure need to mirror the value chains. If the requirement is control, perhaps because the sector is highly regulated, then the structure needs to reflect that in its division of duties and division of accountability. If it’s high on cost reduction and not high on differentiated value provision, then a traditional functional approach maybe more appropriate.

Some themes or principles help us here.

  1. Value is defined by the customer, not the organisation providing it. For example, the customer journey (the value delivery chain) defines what structure is required.
  2. Delivery of value should be made accountable for by individual responsibility.
  3. Avoid hand offs and mixed accountabilities along the process lines or value delivery chains.
  4. Delivery of end to end value should be measures and rewarded.
  5. Structures should mirror value chains unless control or efficiency drives the business model and therefore the operating model.
  6. Communication between people of different skills need to happen transversally at all levels of the structure with focus on delivering value.

In adopting these principles how do we recommend carrying out organisational design to optimise the operating model?

Steps:

  1. Ignore the existing organisational chart for now.
  2. Map the value chains to capabilities and their prerequisites and identify tasks to be undertaken to differentiate what is needed. Mapping out logical processes end to end will be helpful.
  3. Identify the volumes of these activities and the service levels within which to deliver them.
  4. Calculate frequency and intensity of activities in the operation to see what resources are needed.
  5. Identify the culture, skills and behaviours required to deliver the processes successfully.
  6. Design roles to deliver the tasks and benchmark their level and cost.
  7. Apply organisational spans of control applicable to the level of employees.
  8. Define team size and supervision in line with controls and cost based decisions.
  9. Create a logical organisational chart.
  10. Map existing personnel to the new logical organisational chart
  11. Identify gaps and new hirers or people not suitable for the new world.
  12. Consult with workforce hire and or restructure.
  13. Develop and implement a comprehensive Change Management programme to sell and manage change.
  14. Transform into new structure in line with technology and process changes.

In conclusion, organisation as an operating model theme is not just a reconfigured organisational chart – in fact, this should be avoided as an approach. Organisational structure choice should be an answer to an analysis of the three axes of value, control and financial efficiency, with default objective of seeking to align to maximum delivered value by mirroring organisational structure with value chains wherever possible.

Our final observation is to leave physical names in boxes to the last since a “true” value-aligned structure that fits with what the firm seeks to deliver to its stakeholders is the main driver for organisational improvement, not the politics of those running the organisation.

 

 

 

 

 

 

 

 

 

Location in Operating Model Design

Importance of Location in Operating Model Design by:

KIrill Derevenski and David Winders June 2018

Despite the recent profound changes in globalisation reach, management science and cultural awareness, location is perhaps one of the very few business issues where common sense may be far from common practice in effective and efficient operating model design and implementation. In many instances, location is driven by personal views and preferences, as opposed to business logic – where directors live or prefer to live, for example. For these businesses location is a so-called “given” and this results in description of where functions operate and no more.

The location quadrant of the Operating Model Canvas is there to challenge the status quo and check the reasons why particular business locations exist and ask if they still make sense. It poses one important question – Are the original drivers that placed the operation here still valid or has this now become outdated and threatens strategic survival?

There are many things to consider when reviewing existing or potential locations:

  • Are we here because the directors live here?
  • Is our location iconic with our brand and marketing?
  • Are our historic inputs no longer required has our technology and processing changed?
  • Are we here because our customers are here?
  • Are we here because the skills we need are part of the local employment culture pool?
  • Has supply and demand of labour changed the underlying reason we came here in the first place?

Once clarity emerges around what should stay where it is and what can and should be relocated elsewhere, four essential options become available. The well-established industrial economic location theory gives us two of those by stating that the operation ought to be located either close to its resources/inputs (supply side) or to its markets (demand side), depending on the nature of those resources or markets. A classic example is aluminium production, a process that uses large amounts of electricity meaning plants are sited near to hydro-electric sources and to ports for the import of bauxite. In the industrial revolution, where coal as an energy source was required in bulk being heavy to transport, the smelting of metals like copper, iron and steel tended to be located on coal field and near sea/river ports: Swansea in South Wales and the Ruhr in Germany being good examples. Later theories added two more location options – knowledge availability (e.g. industry clusters such as Silicon Valley in California or Science and Technology Parks near Cambridge in the United Kingdom) and structural optimisation (e.g. for tax or legal reasons). All these options are well-known and should require little additional explanation. Experience also tells us that these four options are as valid for service companies as for manufacturing firms.

What is crucial in contemporary Operating Model Design, however, is the potential impact of choosing any of the above options on the value delivery chains to intended beneficiaries and on finances of the organisation. In other words, there will be a trade-off between these options – sometimes considerable – which needs to be well understood and modelled for impact. The graphic below illustrates likely impacts for each location option.

Unsurprisingly, the two original economic theory options of market and resource proximity are likely to have most impact (positive or negative) on company financials. However, whereas market proximity is likely to produce more impact on the delivery of the value proposition to its intended beneficiaries, resource proximity being less visible to final consumers is likely to have a less decisive effect. In fact, excessive focus on resource proximity for service companies can have a pronounced detrimental effect on successful value delivery, as the UK’s Financial Services industry discovered (see the callout box).

Is location important to service organisations?  Where the operations serve the customer directly like in hospitality then obviously yes, but where the service is provided at arm’s length via voice or data communication what then?

The location question in these environments is a balance between staff costs and service quality. In the nineties a drive towards cost leadership in many financial services volume driven organisations led to extensive off shoring of customer service and back office functions. The arbitrage of cheap labour costs, in places like Chennai and Bangalore, resulted in major operating model changes and subsequent job losses in developed western economies. The strategic choices made by organisations to leverage the cost leadership model resulted in mergers and acquisitions to seek scale supported by this location dominant operating model. “Big and bland” became the norm and as time progressed labour costs increased in these locations minimising savings and the customers rebelled against cultural misalignment between their needs and the providers cost focused approach.

Today we see a reversal in this approach, with many organisations bringing these operations back home close to their markets and their customers.

The other two location options – knowledge proximity and structure optimisation are likely to have lesser overall financial impact.

Of the two, knowledge proximity is able to ensure greater value delivery advantage because of the latest thinking and creative sparks being available earlier due to cross-pollination. This is especially true in the case of digital businesses, where, despite common perception of their virtuality, there are still real people involved in making things happen. In most cases, HR resource cost is not a consideration here simply because they are rapidly equalising across the globe; it is access to centres of excellence and associated clusters that matters, thus prompting companies to centralise knowledge in a few chosen locations.

Structure optimisation is usually more important from the internal overhead and/or taxation reduction standpoints and, while increasingly relevant at a certain stage in corporate development, contributes little – if anything – to value delivery process.

Although this article is limited to selection of geographic locations in Operating Model design, the principles discussed here would apply equally well to team or department placing and even workshop floor organisation. For example, where to place Sales, Finance or HR teams is often a matter of heated debate in many organisations, with the loudest or more influential getting their picks. In reality, placing these teams with due consideration to their role in the overall value delivery chains will better contribute to the overall effectiveness and efficiency of the live operating model.

To conclude, many companies today are located where they are for ‘historic’, rather than business logic reasons. While there exist several location options, and optimising corporate locations based solely on standard management theories would be a step in the right direction, doing so would be less effective without also considering their role in firm’s value delivery chains. As a leading operational design methodology, the Operating Model Canvas toolbox ensures that this issue is given due attention and analysis.

Finally, one other rationale for changing locations beyond hard financial or value delivery logic must be mentioned. Many companies are increasingly asking themselves: “Is our culture and history holding us back? Would a fresh start with new open-minded workers allow us to rebuild a reinvigorated operation?” and choose to shed their ‘old skin’ by moving away and starting afresh. This is perhaps extreme but must be acknowledged.

In any case, redrawing organisation lines when properly executed is instrumental in successful operating model design and implementation. We shall attempt to investigate opportunities that such a step provides in a subsequent article.

 

 

 

Charting supplier relationships in the operating model design.

Charting supplier relationships in the operating model design. by David Winders and Kirill Derevenski April 2018.

In our earlier articles we have looked at the Value delivery chains and how to identify and heatmap the necessary prerequisites for its successful delivery. Here we are focusing on the all-important supplier relationships that any organisation will need to put in place to succeed.

It goes without saying that a great deal of activities are usually involved in the final value delivery. The days when everything could be produced and fashioned in-house (if there were ever such days) are long gone. This is why when using the Operating Model Canvas methodology, we suggest you tackle supplier relationships straight after the Value Delivery Chain identification.

There are fundamentally two decisions to be made regarding supplier interactions: first is to decide which of your value delivery activities should be conducted in-house, or those that can be outsourced. Second is to put the right form of supplier relationship in place to get most value out of it.

To do or not to do?

While it is tempting to keep as much as possible in-house, there is often little value of doing so. Usual business arguments of ‘better control over the deliverable’ and ‘spreading the overheads’ mostly do not apply in today’s rapidly moving markets where agility is key. The Operating Model Canvas methodology suggests a better way to look at outsourcing needs through asking ‘Is this activity key in delivering value?’ and ‘How good are we at it comparing to others?’

Once put this way, much fog and confusion over suppliers will dissipate. Clearly, if there is a critical activity at which we excel and provides key value it must be kept in-house and nourished further.  Something that is not critical to value creation and we are not good at anyway, can be safely outsourced.

There are two other options available but these are a bit trickier. Something that is critical to value but that we do not do as well as others will either have to be brought in and improved, or a special contractor relationship forged. Also, if there is something that we do really well, but it adds little to our own value delivery chain, we should either “park” or better still treat it as value propositions to outsource to someone who needs it for their value delivery chains instead.

A tool we can use to zero in on sources of competitive advantage in value delivery activities is the VRIO model [1]. It is at its best when used to identify competitive status of your activities as an indicator what to focus on prior to deciding how to go about what you discover.

 

 

VRIO technique

V Which value adding capabilities are significant in delivering customer needs and can they be developed further?
R Which capabilities does an organisation have that are rare compared to its competitors?
I How easy is it for a competitor to imitate or copy this capability? Intellectual Property/ Patents.
O What parts of the value chain support this capability, does it rely on organisation support beyond the capability itself.

 

1.Valuable? 2. Rare? 3. Inimitable (impossible to copy) 4. Supported by the Organisation Competitive Implication
NO Competitive Disadvantage
YES NO Competitive Parity
YES YES NO Temporary Competitive advantage
YES YES YES YES Sustained competitive advantage

 

Naturally, the activities of sustained competitive advantage are the ones to focus upon, however tempting other options may be!

Importantly, an organisational ability to change itself rapidly and with minimal internal/external disruption can be a major source of competitive advantage in today’s markets.

Having identified which value delivery activities are to be kept in-house or outsourced, the second question – how to go about it – can be tackled.

How deep is your love?

Experience tells us that it is quite impossible to have a deep and meaningful relationship with each and every supplier, nor is it necessary to do so. Of course, every supplier must be treated with utmost respect and consideration, yet as with friends in life, the basis of relationship with each of them will be different.

To simplify this approach, the following map charts 4 generic supplier relationship models based on their contribution to your Value Delivery Chain and Financial impacts that those relationships will have.

Note that Value Delivery Chain impact can be both tangible and intangible, while Financial impact covers both revenues and costs. Much like the balanced scorecard, this is to ensure that all facets of ‘value’ are taken into account.

You will notice that in the Supplier Matrix some of the areas are visually larger than others. This demonstrates the Pareto concept at work: 80% of the impacts will come from 20% of supplier relationship. It is of the essence to choose suppliers and build relationships carefully as a few key relationships will have a very large impact

Transactional Relationships

Placed on a continuum, supplier relationships will range from ‘arm’s length’ to extremely involved. It can be seen from the diagram that when examined one by one, the majority of supplier relationships fall into category of adding low value Delivery impact and low Financial impact. Industrial commodities sourcing, office support activities etc. are important on their own but are usually transactional and short term in nature as a consequence. These “traditional buyer-seller relationships” are better engaged with strict SLA parameters and managed for costs and effectiveness with frequent review and tendering.

Leverage Relationships

Leverage Relationships describe activities that have considerable financial impact for an organisation but do not necessarily impact value delivery. In contact manufacturing for example, the place where a “brand offering” was manufactured is often of secondary importance to the brand offered. Plenty of goods from smartphones, to bicycles, to clothing are manufactured close to where cheaper labour or manufacturing facilities are to take advantage of available economies of scale on the contract manufacturer side with limited impact on their brand appeal and image. Such a supplier relationship is often long term, mutually inclusive and both parties tend to leverage it to their advantage.

Co-marketing Relationship

Co-marketing Relationship is a relationship type when value delivery impact is somewhat higher relative to financial impact that its provides (and is often actually a financial burden). Charity endorsements, Certification & Standardisation associations and similar relationships will be important to support the delivery of the value to the intended beneficiaries and build their trust. These relationships tend to be medium term (due to shifting perceptions and trends), require prioritisation to maintain focus and are best for co-marketing.

Critical Partnership Relationships

The last on the supplier relationship continuum are the critical partnerships of strategic importance. There are likely to be very few of them and commitment to their success will be crucial for both parties. The present arrangement between Apple and Intel looks like one of those business marriages, when Apple made a commitment to Intel in all its PC systems while Intel guarantees to Apple priority and availability of its chips.

To summarise, it will be highly unlikely and unusual today to build a fully self-contained operating model where a firm does everything itself. Many activities will be – or must be – outsourced to maintain the firm’s focus on its main delivery of value and therefore its competitive edge. This means the decisions on what to outsource and to whom will be potentially the “cornerstone question” on the way to developing a responsive operating model and organisational success through it.

The “Operating Model Canvas” is a well-developed methodology that has a set of dedicated tools to get outsourcing requirements and supplier relationships right.

 

 

VIRO: J. Barney  (1991) ‘Firm Resources and Sustained Competitive Advantage’,

Operating Model Canvas – The Management System.

In previous articles we have given attention to parts of the operating model that describe how value is created and delivered to customers. Most of the tools we propose have given focus to tracking value creation though breaking down value delivery chains into their components and rationale in order to challenge how we do things and ensure everything is exploited in the best way to delivery customer experience.

A strategy is a product of assessing and responding to the external business environment with its identified opportunities and constraining forces created by legal implementation of controls that a society places on business. The so called “PESTLE” [1]elements influence the strategy and therefore appear in the value propositions that drive the value delivery chains that we use to get to grips with designing our operating model. Compliance to legislation is inherent in the strategic choices made and we see it in the value delivery stages as the activities conform to various sets of regulation.

Whilst customer value focus is laudable in any organisation it has to be delivered within a controlled environment to avoid financial chaos, or brand failure within the wider society. Organisations need direction in terms of managing strategy, its deployment and its effectiveness. Value delivery chains [2]are what most people identify as day to day operations but keeping those “business as usual” flows of value running in a well-co-ordinated managed way is also required.  This is what the management system is all about; it is the glue that keeps the firm together in serving its goals, stakeholders and vision. One could argue that this is about forces that constrain the day to operation.  The external forces manifest in two ways in the operating model: firstly in the strategy itself and secondly in those specific activities for implementing specific responses to external forces.

In the Operating Model Canvas [3]we see PESTLE emerging through propositions in the central arrow and to specific responses in management system bar. To illustrate the difference we might see a value activity in the central arrow being – undertake money laundering checks – whilst we might see – manage money laundering risk – in the management system bar. The first is a day to day process in the “value delivery activity”, the second a specific “management activity” to ensure it happens and consequences of non-adherence are managed via risk management.

Constraining or moderating forces heavily influence the management system; one could even argue that these constraints are really what the management system section is all about. The management system balances the operating model allowing the firm to be correctly controlled and behave within its business environment and within greater society.

Depending on the organisation type and size the impact on the operating model may be significant both in cost and effort.

Constraining Forces:

  • Corporate Governance
  • Regulation
    • General
    • Sector Specific
  • Corporate Social Responsibility.

Corporate Governance

Corporate governance is the system of business rules, practices controls and processes by which a company is directed and controlled. Corporate governance involves balancing the interests of a company’s many stakeholders, such as: shareholders, management, employees, customers, suppliers, financiers, government and the community.

Corporate Governance has a greater or lesser impact on an organisation depending on its size and its legal status. A small company can manage itself quite well with informal management systems and common sense, but beyond a few employees the overhead of good governance gets proportionately bigger. Keeping the firm well managed has a significant impact on operating model activities, creating work that potentially detracts from our earlier goal of creating customer value.

People in “Lean” call this type of work essential non-value-added activity [4]i.e. it adds no value in the eyes of the customer, but has to be done. The management system bar in our operating model is full of “essential non value adding” activity and we have to be careful that in the zest for the elimination of waste we don’t jeopardise good corporate governance.

Size is not the only dictating factor on the impact of corporate governance. A small proprietor led company has limited requirements beyond basic company law requirements; decisions are made and carried out quickly and relatively effortlessly; the more public the organisation becomes the more challenging the management overhead becomes.

A Public Limited Company has to adhere to Corporate Governance requirements to protect the public, investors who buy shares in the market. Structures are in place to control the behaviour of management to create balance between the goals of management and the goals of other stakeholders. Here we see non-executive directors and committee structures to enforce the balance that being “public” requires.

Public bodies have to provide transparency to tax payers and ensure that everything is done correctly step-by-step to clearly state processes and controls. There is little room for pragmatic decision making and entrepreneurial risk taking. Their governance structure may well include boards of trustees and political stakeholders – often the structures are complex and the processes slow.

Regulation

Regulation forms the basic minimum of management system requirements on the basis that you have to comply or get fined or closed down.

In the last twenty years or so regulation has increased substantially as society seeks to enforce ethical behaviours in line with developing social norms.

There are two categories of regulation: firstly general regulatory requirements that all firms have to obey and specific sector regulation designed to control specific sector risks to society; the sector choice impacts on the level of constraint and by definition reduces the flexibility of how you trade and operate.

It may well limit your ability to differentiate value for clients affecting the value delivery chains and the operating model that supports them. In some cases is may well force a firm to take a “cost leadership strategy” giving focus to efficiency rather than offering different things to clients because regulation forces players to trade in a  similar or identical way.

Some argue that industries like financial services are defined by regulation and this opinion is held up by the fact that in recent years the majority of change initiatives in the sector are regulatory driven projects.

Corporate Social Responsibility

All organisations are part of a wider world – society. What the organisation does and how it affects the wider world in its activities has become increasingly important.

The changing face of (CSR) and business ethics, with the growth in social media with an increasingly “sensation” hungry journalistic environment has, in recent times, created social pariah status for some iconic brands.

“The bigger the organisation is and the bigger its scale of social impacts on society as a whole, the more scrutiny it faces”.

These CSR stances taken by firms are often above and in advance of regulation in pre-emptive defence; as regulation frequently follows behind proceedings fixing problems after the event.

So, the bigger you are and the more public facing you are, the heavier the overhead of management processes within your operating model becomes. The choices made within this aspect of the operating model are a firm’s appetite for strategic risk and its social conscience.

The ethical stance and corporate social responsibility approach that the firm decides to implement in protection of its position in the greater society adds to the activities in its management systems.

Conclusion

The operating model canvas has a separate block for the management systems and this provides adequate balance with activities that provide value to customers.

It places management activities like: strategy making, constraints, risks, controls and measurement in a specific visible area to ensure the operating model serves all stakeholders and demonstrates how the operation conforms to the norms of behaviour expected within a modern society.

By splitting out the value delivery activities from management activities it ensures that the right proportion in focus is given to activities that create value for clients and warrants that the management overhead are understood. Customer centricity and good governance are clearly seen and identified and not mixed together in a muddle.

In a further article we will explore how to populate the management system section and what some of the views and outputs will be to describe this key section of the operating model canvas.

Authored by David Winders and Kiill Derevenski

[1] Political Economic Social Legal Environmental PESTLE

[2] Value Delivery Chains A composite term combining Value Chains and Value Streams see previous articles.

[3] A. Cambell et al 2017, The Operating Model Canvas, vanHaren, Netherlands.

[4] Synonyms: Sustainable Non Value Added Activity (SNVA) Business Non Value Added (BNVA)

Heat Mapping Value: identifying where to invest effort for Operating Model Design

Heat Mapping Value: identifying where to invest effort for Operating Model Design:

Kirill Derevenski and David Winders March 2018 operatingmodelpartners.com

In an earlier article we spoke about placing value delivery chains at the heart of a Target Operating Model.  We continue in this post with clear identification of necessary prerequisites for subsequent detailed operating model design using the Operating Model Canvas methodology.

What creates value?

For teams working on operating model design, identification of value delivery chains looks to be one of the easier tasks. From our experience, a much bigger thinking piece then becomes the understanding of what makes those chains actually deliver that value, and then what needs to be tweaked to ensure a delighted beneficiary. In other words, we need to build up a set of prerequisites that, once put in place, will assist the process of ensuring that the value is delivered efficiently and effectively.

The dry language of economics calls these prerequisites ‘inputs’. Contemporary business language is good at dressing things up in plethora of terms, but in the end we all know that the process of value creation works through a conversion of inputs into outputs. The inputs may be tangible as well as intangible, financial as well as non-financial, and conceptual as well as practical.

Value delivery chains used in Operating Model design contain six prerequisite groups or categories of inputs.  They cover the traditional economic factors of production whilst including new emergent value creation drivers. The six groups are (not in any prescribed order as this may well be different from organisation to an organisation):

  • People… This input group covers the: headcount, skills, experience, motivation, behaviours and job families available within organisational; human capital to help deliver value to the beneficiaries, as well as the organisation itself.
  • Physical assets… This input group includes material things such as: buildings, machines and resources that the organisation needs to create value.
  • Knowledge… This is one of the newer groups that emerged over the last few years, especially with the nascent shift to “Big Data Analytics” and the better management of dispersed knowledge inside organisations. This input group also includes intellectual property, research & development expertise as well as special differentiating abilities such as innovation or speed to market.
  • Technology… Another newer group has been made more important by the continuing focus on digital transformation. This input group covers a full spectrum of technologies from the back of the office applications such as ERP and accounting tools, to customer-facing apps and websites; with Cloud and the Internet in between.
  • Capital… This input group is for money. This input group may appear overly important for “bootstrapped” startups as opposed to established organisations. Whatever its apparent importance is, it is nevertheless paramount to keep an eye on capital prerequisites during operating model design in order to avoid negative impact on financial stability. An additional focus is that of cash flow because an operating model change can drastically affect working capital requirements and in turn financial survival.
  • Management/Processes… This is the most recent prerequisite group identified in contemporary management thinking. It stems from the fact that there may exist (or be needed) within an organisation a unique management process that would create a sustainable advantage when servicing customers. For example, if there is an organisation that after much effort managed to instigate a truly integrated CRM process across all of its business units, the place to boast about it is here. In recent years the recognition of the importance of corporate governance, transparency and a focus on the social responsibilities of business through heightened Corporate Social Responsibility (CSR) has led to a greater emphasis in management processes.

Let us have a look at a real life example of how understanding these prerequisites can be harnessed to drive value for beneficiaries (and organisations themselves). We will use the example of a premium bicycle shop called “Mes Ten Speeds”.

Mes Ten Speeds.

The shop is dealing in expensive machines priced over $1,000 to demanding customers, who are not always bicycle pros and so often need help when choosing a suitable bike.

The shop’s value delivery chain to new customers is straightforward. They sell bicycles in person through the showroom, or through their online shop. Some bicycles are held in stock, others need to be ordered. All bikes need preparation through tuning and accessories added prior to final delivery to the customer.

On the picture below, we map out the complete shop’s Value Delivery Chain covering all prerequisites for successful client engagement.

The value map for Mes Ten Speeds has four value stages in its value delivery chain. Each value stage is examined to see what things are needed to make the value happen using the pre-requisite group headings:  People, Physical Assets, Knowledge, Technology, Capital and Management. Taking each value stage step by step we can start to appreciate how value is created in this small business.

Sell

As the firm has both a web channel and a shop the people skills are varied needing both face to face selling attributes as well as roles with focus to procedures and logic for web offering design.

In the shop people who have an affinity with cycling and have people orientated personalities to engage with customer’s needs are really important. Open questioning and the ability to establish needs and match those to the products are essential in order to sell the right package to the customer. Often this results in up selling to ensure the customer’s real expectations are fulfilled and also the selling of accessories – cross selling- to ensure a fulfilled client experience.

Coupled with the correct personality traits is the product and sector knowledge that sales staff needs to be effective.

To undertake face to face selling and to present the bikes in a pleasant environment the physical asset of a spacious and well fitted showroom is required. The showroom has to have appropriate POS equipment technology and access to cycling databases to assist customers with making their choices. In the e-channel an appropriate e-commerce website has to be made available and maintained with payment facilities and customer service interfaces.

These physical assets need capital investment to put in place as well as working capital to pay sales staff, maintain stock levels   and income in cash to serve the interest on the investment capital.

Behind the scenes the management of stock, the purchasing of product and compliance with the usual regulatory constraints around data, finance, and health and safety of the showroom is needed. Integrating sales with ordering, preparing and delivering requires an integrated approach to make the customer experience successful.

Order

This value stage is about administering the sales and making it happen. The people in the store need attention to detail and focus, which forms part of the employee profile the firm seeks to recruit. In the web team their people need to understand process design and how to operate e-commerce functionality. In the latter case we need to have access to I.T. hardware for the web-server and underlying data bases whether this is in house or outsourced is a decision for later.

The business has built well defined processes to support ordering and these form part of their knowledge in the form of process maps and documentation and automated workflow for the e-channel. Stock management and knowing what we have in stock is essential to an effective ordering process. Keeping the appropriate inventory, whilst managing down working capital requirements, is a constant challenge for this business and through combining knowledge with capital management is a principle integrated management monitoring and control process.

Prepare

Preparing bikes correctly post sale is about setting up bikes for individual customers. In a specialist shop like this correct set up is what makes the reputation and is perceived by customers as a differentiating value item.

In order to prepare bike correctly we need staff with deep cycling knowledge to ensure saddle heights etc. are correctly set up for each and every client. Mes Ten have to have people who have the patience, duty of care, to ensure clients leave the shop with bikes are well prepared. The staff members that undertake this task have to have the training and knowledge to prepare bikes in a “best practice” fashion supported by manuals online guides and quality control processes.

The preparation team has to have measurement devices and test equipment to fulfill the quality required and his requires investment and the cost of paying good people to do this role correctly. To ensure cost effective use of these key staff the firm needs to plan its preparation and this is supported by knowing when customers are due to collect bikes and how much activity is needed through a well measured integrated: sales, stock and ordering management regime.

Deliver

The final value stage in the chain is the delivery or collection of the bike by the customer. Here the firm has to have the client success with the product in mind all the time requiring core skills of: patience, calmness, attention to detail with a philosophy of interest and care to ensure the client is well prepared for the road. The “training” mentality is a core trait identified in delivering this value stage.

Mes Ten have a test track so that the customer can try out the product and “iron out” any minor issues before leaving the store.

The employees who carry out this aspect of the business have to have the knowledge of how to operate the various gear changing technologies and how to advise customers on maintenance of new technologies such as hydraulic brakes and suspension systems.

This value stage also requires the measuring technology to finally ensure the bike is set up and fitted correctly.

This level of customer care has capital costs in acquiring the test track measuring equipment and the running costs of employing skilled staff. The quality control processes and scheduling of deliveries allowing quality time to be spent with clients is provided by an integrated sales, stock and order system. The success of deliver is underpinned by the organisational wide quality assurance   management programme and compliance with health and safety legislation to protect both clients and staff.

Heat-mapping value

Once the prerequisites are identified, heat-mapping is a useful technique to identify areas of improvement. It is important is to single out those prerequisites that are imperative to effective and efficient operating model and those that will really “move the needle” on the value generating scale.

This bike shop identified that they needed to optimise their operating model to further delight new customers whilst making sure that their financial stability is not negatively impacted.

By mapping their value delivery chain to the prerequisite input groups, using the experience and customer feedback, the shop owners quickly realised that significant value for customers (and themselves) was being lost.

On the graph above, key prerequisites per value delivery block have been identified and heat-mapped based on their severity, with those in orange and red needing corrective work.

  • In the Sell block, a major up-/cross-sell skill deficiency was observed with shop’s Sales Assistants. Rather than discussing intelligently customer needs and expectations and pointing out readily available options from the existing inventory first (perhaps of a different brand or component setup), they would simply turn potential ready-to-buy-now customers away.  The clients did not feel they were taken care of by someone who actually could “talk bikes” (this is a very passionate subject and a key customer value perception).
  • In the Order block, the absence of integrated stock management between the website catalogue and physical inventory in the shop meant that some items marked ‘immediately available’ online were not in fact there. In some cases the site recommended some models in lieu of waiting for delivery on others, thus creating disappointment and dissatisfaction. Again a similar issue of unhappy customers and unsold inventory.
  • In the Deliver block, too many customers kept coming back in the first two weeks complaining about their bikes with unfulfilled expectations. This was either because ‘they were not what they expected performance-wise’ or because something was ‘defective’; gears being a classic example with ‘the gear change being broken after just three clicks’ was heard on many an occasion.

On questioning customers to explore quality issues it was found that many riders were unhappy because the bikes were poorly fitted (i.e. rider height, reach and pedal cleat alignment not being properly setup). Due to insufficient joint delivery testing with the client, the shop had no way of knowing whether the mechanical fault was a genuine manufacturing defect or was a result of mis-use by the client. On reflection, the inappropriate use was perhaps because there was no facility for riders to practically learn how to change gears under shop supervision. What are needed are good pre-delivery checks coupled with product training to ensure all is well before the consumer takes the bicycle away.

Now that the bicycle shop knows what the value prerequisites are from new customers, what can it do to its operating model to make it better?

We will explore how Operating Model Canvas makes it easy in subsequent articles.

 

 

 

 

 

 

Business Architecture Financial Services Capability Frameworks: “Architecting the Obvious or Adding Value”?

Earlier today I read with interest a post on LinkedIn promoting a standard capability framework for the financial services industry. It comes from IRIS business architect, a company that has its thinking very much in line with the Business Architecture Guild. The capability framework it promotes looks to be seemingly a comprehensive well-thought through output.  Job well done no doubt.

I have seen this sort of thing before, but mostly in process model terms from people like APQC and Leading Practice.

At first glance a standard model seems sensible; why invent your own when someone else has done the graft?

On reflection I started to question the value of this approach based on the underlying message that it was giving out; that message being “A sector has a standard model”. A standard model of capabilities therefore means standard outcomes

If you are all the same then why do you create a capability model in the first place?

In essence this type of work it is to identify how your value chains add value to the customer linking capabilities, via value stages back to customer value delivery. This informs where to invest and concentrate ones effort in what adds value to the customer – highly sensible.

However if the sector has the same model in what it delivers where is the differentiation? Conforming to the same model forces you into commoditisation and “rail roads” you into economies of scale and cost leadership. It all becomes price and cost based.

If the role of capabilities is to provide a central “Rosetta Stone” or lingua franca to pull together the business architecture then I suspect there is some value had in doing that and a pre-defined standard framework saves a fair bit of work but that as a primary purpose seems quite limiting.

The standard is maybe forcing your thinking into a preconceived mould, inhibiting innovation and creativity. Even if you do it yourself and come out with something similar to the standard model the process you went through to get there is telling you something – that “differentiation is difficult around here” – but having gone through the process you can at least say that “you explored the possibilities”. It has validity because you went through the pain. In many cases the process of doing the capability modelling delivers more value in terms of: learning, reflection and analysis that the final model or product. Just using a standard loses all that experiential learning benefit and I worry that it just ends up with lazy analysis and lazy architecture.

One of the issues justifying a standard model may well be that being “different” in certain sectors, like financial services, is a challenge due to the constraining regulation and external forces. The regulation potentially dictates the operating model to an extent where the whole sector becomes homogenous. Is this the case here and is this why we can have a standard financial services model?

I have argued for some time that many larger financial businesses differentiate themselves only by their brand, reputation and size. One only has to read the strategies of these organisations in their annual reports to realise there is a “cookie cutter” approach going on here. This is often sustained by internal myths and beliefs of being different when in reality each is as boring as the next. It is a bit like convergent evolution in that the same environment causes species to evolve from different physiological origins towards a common form.

By accepting that this standard model may represent the reality, in that differentiation is just not to be had, then why go about this type of value analysis at all?

In accepting this “template” possibility, there would be value in having this framework as a benchmark for some kind of maturity pegging. You could measure the effectiveness in terms of efficiency and quality. This as a baselining exercise provides a reference-point for improvement with measurement against those identified Key Performance indicators.

Just focus on doing the same as everyone else but with less cost. Cut some costs, do some lean process improvement or zero based costing exercises and “heh presto”   the new operating model appears. So in this case I can see benefit of a standard model but really a standard process model would do the job just as well as outcomes are pretty much homogeneous so why bother. This leads to a debate that high level process models look pretty much like capability models with the verb and noun switched round – especially in services – a topic for another day perhaps?

These standard models perhaps provide a check list, but apart from “architecting the obvious” I am not convinced there is enormous value to be had here. Some value, yes in the right circumstances, but if any model is too generic, and applies to anything or everything, then its value is not that great.

You can make the same types of comments for “Value chains”. There are plenty of cases of high level encompassing value chains  that are applied the same wherever you look – what is necessary is for them to be: specific, or low enough in focus  to a lower enough resolution to identify differences and opportunities.

I am sure these frameworks are not cheap either, but that is fair enough, you have to pay for the time someone spent doing your work for you – right? We must compliment the vendor for the effort applied – and yes this is a good piece of work.

From the perspective of a business architect practitioner if the business can adopt these standard frameworks as their business architecture then do they really need a business architect or the discipline at all? This could be a bit of an “own goal” for the profession; or perhaps it just means in certain sectors where it’s all standard and generic the value that business architecture can add is limited. I suspect that actually this isn’t the case and it is the striving towards templates and standards that is obscuring the potential value – but you would expect me to say that – wouldn’t you.