At the heart of every successful business lies its operating model—the strategic composition of resources that together create a competitive force in the marketplace. This model isn’t static; it’s a progressive maturation of a company’s core resources into strategic assets, refined and enhanced over time by its capabilities.
Defining the Operating Model
An operating model provides a framework that translates strategy into practice. It is an intricate solution comprising:
- Strategic Resources: The foundational needs an organization has to fulfill its purpose. It needs products, services.market intelligence, a distribution channel, loyal clients, data, skills, platforms and more.
- Developed Assets: A strategic resource becomes an asset when it gives the organization a competitive advantage or it becomes a major contributor to the organization’s success. For example, to have a product is not good enough it needs to have quality, it must fulfill a client’s need, it must be innovative, and it must be profitable.
- Capabilities: The business processes, systems, and knowledge that enable the transformation of resources into refined assets.
Maturing Resources into Assets
The journey from resource to asset is one of development and refinement:
- Resource Acquisition: Identifying and developing strategic resources that will enable the organization to deliver on its purpose.
- Capability Development: Establishing the processes and systems necessary to enhance the inherent value of these resources.
- Asset Maturation: Through strategic management and investment, resources evolve into mature assets that provide distinct competitive advantages.
The Lifecycle of an Operating Model
As strategic resources are developed into assets, the operating model must evolve, reflecting the maturation and shifting landscape of the business’s capabilities. It’s a life cycle that includes:
- Horizon 1: Consolidation and Optimization: Where the focus shifts to maximizing the efficiency and performance of established assets.
- Horison 2 : Introduction and Growth: Where emerging resources are nurtured into assets that drive new business growth.
- Horizon 3: Innovation and Renewal: Where the search for new resources and the development of future-facing capabilities prepare the business for the next wave of strategic evolution.
Let’s deepdive a bit into the lifecycle of an operating model and understand the maturation of an operating model. In today’s business world, operating within a digital context is not a future consideration but a present reality. Companies across sectors are deeply entrenched in digital operations, leveraging technology for everything from basic processes to complex strategic initiatives. As we dissect the lifecycle of an operating model across three strategic horizons, it’s crucial to understand that we are not transitioning into a digital context; we are already there. Instead, our focus, especially in Horizon 3, is on advanced digital transformation and innovation. This phase is about anticipating and leading the next wave of digital evolution, transcending current practices to set new benchmarks in a digitally mature business environment.
Navigating the Transition
Horizon 1: Consolidation and Optimization
In this initial phase, the operating model is centered around leveraging existing assets, both digital or not to maximize current results.
Marketing Assets: Digital marketing strategies are critical, utilizing tools like SEO, social media, and email marketing to establish brand presence and customer reach.
Product Assets: Products are increasingly digital or digitally augmented, meeting current market demands with a focus on user experience and digital integration.
Customer Data: Leveraging data analytics to gain insights into customer behaviors and preferences, guiding marketing strategies and product development.
Teams & Skills: Emphasis on digital literacy and skills across the workforce, ensuring that teams are equipped to handle current technologies and digital business processes.
Horizon 2: Adapting and Evolving the Model
In this middle stage, the operating model evolves to include emerging digital trends and technologies, adapting assets to meet future demands.
Emerging Markets and Segments: Identifying new digital market opportunities and niches, such as online services or digital-only product lines.
Technology: Integration of advanced technologies like cloud computing and IoT to streamline operations and offer new customer experiences.
Client Journeys: Creating more personalized and seamless digital customer journeys, utilizing advanced CRM systems and digital touchpoints.
New Platforms: Adopting or developing new digital platforms that can offer more efficient service delivery or open up new channels for customer engagement.
Horizon 3: Envisioning a New Operating Model
In the final horizon, the operating model undergoes significant transformation, driven by digital innovation and future market anticipation.
Innovation: Focusing on digital innovation, potentially exploring areas like AI, blockchain, or VR/AR to create new product offerings or to transform operational processes.
Client Data: Advanced use of AI and machine learning for predictive analytics, offering deep personalization and anticipatory service models.
New Partnerships: Forming alliances with technology providers, startups, or digital service companies to enhance capabilities and reach new markets.
New Platforms: Leveraging or creating cutting-edge platforms that utilize emergent technologies, setting a foundation for future business models and interactions.
By understanding the digital maturation process across these three horizons, businesses can strategically plan their transformation journey, ensuring that their operating model remains agile, relevant, and competitive in a rapidly evolving digital landscape.
Throughout these horizons, businesses must navigate the transition of their operating models thoughtfully:
Continuous Reassessment: Regularly reevaluate which assets are valuable and how they interconnect within the evolving model.
Strategic Forecasting: Anticipate which current assets will grow in strategic importance and which may diminish as the business landscape changes.
Flexibility and Adaptation: Maintain agility in the operating model to accommodate shifts in the market and internal business changes.
Strategic Choices in Shaping a Digital Operating Model
In the context of a digital operating model, businesses face critical choices that determine their strategic direction and effectiveness. These choices are categorized into three distinct but interconnected decisions.
First Choice: Identifying Target Clients and Their Needs
The primary strategic decision involves identifying which clients the business will serve and understanding their specific needs in a digital context.
This choice sets the foundation for the business’s purpose and strategic focus, with client centricity as a key driver.
The aim is to pinpoint the market segments where the business can create the most value and align its digital strategy to meet these identified needs.
Second Choice: Determining the Fulfillment of Client Needs
Once the target clients and their needs are defined, the next strategic choice is about how the business will fulfill these needs.
This involves deciding the framework of the operating model – what kind of strategic resources/ assets we should focus on: brands, products, digital infrastructure, online services, and customer engagement strategies will be employed to meet the client requirements effectively.
The focus here is on the alignment of digital capabilities and initiatives with the client-centric strategy outlined in the first choice.
Third Choice: Composition of the Asset Portfolio
The third strategic decision is about determining what constitutes the business’s asset portfolio. This is a critical choice that defines the tools, resources, and assets the business will invest in and leverage.
In the case of a brand asset portfolio, it involves deciding which brands should be part of the portfolio, considering factors like market fit, brand synergy, and strategic relevance.
For a customer data portfolio, it means selecting the specific types of data (or ‘data bricks’) that are most valuable for understanding and serving the client base, such as demographic information, purchasing behavior, or online interaction patterns.
These strategic choices are fundamental in shaping a business’s operating model in the digital era. Each choice builds upon the previous one, creating a cohesive strategy that aligns client needs with the business’s capabilities and assets. By carefully navigating these decisions, businesses can craft a digital operating model that is robust, responsive, and geared for long-term success in a dynamic digital landscape.
A Future-Focused Approach
A business’s operating model provides the strategic framework within which it operates, but it’s not immune to change. As a business moves through its horizons, its operating model must be capable of shifting—phasing out some assets, enhancing others, and always integrating new ones. By planning for this evolution, businesses can stay ahead of the curve, ensuring they remain relevant, competitive, and poised for growth no matter what the future holds.