Operating Model Design
Managing Complexity in your Operating Model
Operating models are the link between strategy and
execution they define how a strategy is realized
Market Strategy
Defining where to play
and how to win
understanding your
competitive advantage
and how to apply
Operating Model
Assets & Capabilities
Governance
Vendors & Partners
Align
with
Strategy
Organizational Structure
Enable
Execution
Execution
Process Design
Technology Enablers
The execution of the
business strategy more
consistently and
reliably than the
competition
An operating model is the coordinated collection of business & production
capabilities, organization structure, assets, people, technology, partnerships,
and governance a company uses to deliver its strategy
Wilson Perumal & Company, Inc.
As companies have evolved to compete, operating
models that worked in the past become misaligned
Internal Factors:
Organic & Inorganic Growth
Organic Growth
New products, segments, channels, line
extensions, etc. are introduced
Operating model does not evolve with
the business needs
Inorganic Growth through Acquisition
Unique cultures, processes, technology,
systems of governance, etc. are merged
Incomplete integration results in
inconsistency and misalignment
Operating model has evolved over
time without an overarching plan,
creating execution gaps and overlap
External Factors:
Industry & Competitive Landscape
Changing Customers / Markets
Increasing diversity of customers,
markets, geographies, and the offering
to serve
New Ways to Deliver Value
New channels, product flow alternatives,
and technologies to deliver value
Evolving Supply Chains
Increasing scope of suppliers, products
& components to source and plan
Operating model has failed to keep
up with the changing marketplace
and is no longer fit for purpose
Wilson Perumal & Company, Inc.
As a result, many firms struggle through the challenges
of misaligned or inconsistent operating model
Market
Strategy
Operating
Model
Execution
Inconsistent performance between
business units
Lots of work being done, but no progress
or improvement made
Business results are routinely lagging
despite good execution
Market Strategy not being executed as
intended
Competition is pulling ahead in market
share, efficiency, and profitability
Confusion and lack of communication
Underutilized assets
Frequent deviations from standard
processes; consistent rework
Inability to quickly & effectively react to
changing market conditions
Unclear and/or overlap of accountabilities
within organization; too many org. layers
Lack of visibility to company performance
Ineffective/inefficient operating &
management processes
Reliance on contractors/suppliers for
core capabilities
Out-of-control IT spending; systems create
more complexity & work than benefit
Wilson Perumal & Company, Inc.
Misaligned operating models drive complexity, higher
costs, lower performance, and the inability to grow
Complexity, already growing in your
business, is compounded by a
misaligned operating model
increasing costs and risks
$ $
Any additional, unmanaged
complexity impedes performance and
amplifies the continuing impact of
the Vicious Complexity Cycle
Cost (and Risk)
An increasing number
of companies
Returns
Complexity
Complexity
increases
More people
and
processes
Poor
business
results
Shortages
Breakdowns
Missed deliveries
Accidents
Poor
execution
Loss of
process
control
Level
of complexity
Increasing
or misaligned
SKUs, facilities, processes
you can support
Complexity is the most important issue facing most companies and
poor/misaligned operating models only increase non-value-add complexity
Wilson Perumal & Company, Inc.
An organizations aligned, best fit operating model
depends on both internal and external factors
CURRENT CAPABILITIES
The current-state operating
model and existing staff, assets,
facilities, and resources
TARGET PERFORMANCE
Your companys desired
resultsprofitability, growth,
safety, efficiency, quality, etc
BUSINESS STRATEGY
Strategic decisions on where to
play and how to winthe value
you offer your customers
INDUSTRY DYNAMIC
The nature of the industry and
competitive landscape in which
your company operates
ABILITY TO CHANGE & SUSTAIN
The organizational tools, culture, and
discipline to get from the current to the
desired model
Wilson Perumal & Company, Inc.
Current capabilities and performance objectives
will drive operating model design choices
Your best fit operating model will be optimized specifically around
strategic imperatives and the capabilities required to deliver them
Convert strategy to capabilities
Example
Financial Targets
5% Annual Revenue Growth
Strategic Initiatives
New products
Required Capabilities
Effective product development
Core End-to-End Processes
Concept-to-Launch
Operational metrics
Time to Market / % Rev. new products
Expected targets
Six months / 20%
Clear definitions of success
Wilson Perumal & Company, Inc.
Your best fit operating model is specific to
your industry and chosen strategy to compete
along with your companys strategic
orientation
Industry Characterization
Strategic Orientation
Regulation
Regulated
Shrinking
Overall Market
Expanding
Low Barriers
Entry
High Barriers
Stable Technology
Innovation
Innovation-driven
Labor Intensive
Assets
Capital Intensive
Few Customers &
Channels
Product Homogeny
Markets
Variety
Many Customers &
Channels
Product Heterogeneity
Low-cost Provider
Providing customers products at the
lowest costfocus on high-volume,
efficiency & repeatable processes
Technology Leader
Providing customers cutting edge,
advanced productsfocus on research &
customer-driven product updates
External
Unregulated
Internal
By taking into consideration the
industry in which you compete and the
competitive landscape
Customer Service Focus
Providing customers personalized service
focus on meeting the individual needs of
your customers
we can help you develop your organizations unique, best fit operating model.
Wilson Perumal & Company, Inc.
Choices made across design elements will
determine ultimate operating model effectiveness
Operating Model Evaluation Criteria
Criteria:
Assets &
Capabilities
Elements:
Facilities
Intellectual Property
Core Capabilities
Corporate Governance
Governance
Business Unit Governance
Value-Stream Governance
Vendors &
Partners
External Capabilities
Supply Chain Partners
Contractor Usage
Criteria:
Elements:
Organization
Structure
Organization Size
Organization Structure
Roles & Responsibilities
Skillsets
Process
Design
Process Design
Accountability
Process Execution
Measurement & Control
Technology
Enablers
Capability
Reliability
Sustainability
Scalability
A baseline assessment across design elements provides context for the range of
potential changes to develop your best fit operating model
Wilson Perumal & Company, Inc.
Best fit design is only realistic if there are
resources, capabilities, and willingness to execute
Operating Model Transformation Success Considerations
Leadership
Advocacy
Does leadership believe a change is needed? Are
they engaged and acting as champions for change?
Company
Culture
Is the workforce focused on continuous
improvement and open to change?
Magnitude
of Change
How much change is needed across the 6-Facets of
Operating Model Design?
Available
Resources
How much capital, effort, and energy can be
dedicated to developing & implementing change?
Required
Timing
Are there any external timing requirements (govt,
investor/creditor, market) on the change?
Wilson Perumal & Company, Inc.
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Done correctly, operating model redesign can be
transformational for a business
Common Operating Model Alignment Benefits
Frequent Operational Benefits
Frequent Growth Benefits
Clarity of roles and responsibilities,
with accountability measures
Scalable operations to allow for
new, profitable growth initiatives
Streamlined communication and
handoffs across functional units
Improved visibility between voice
of the customer and value delivery
Significant reduction in rework and
non-value-added effort
Increased capacity for value-adding
capabilities, such as innovation
Prioritized strategic capabilities and
roadmap to target performance
Improve pricing and lifecycle
management
Our clients typically realize >25% EBITDA improvement
Wilson Perumal & Company, Inc.
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WP&C leverages a 3 step process to diagnose and
attack operating model issues
Phase 1
Define baseline &
future state
requirements
Phase 2
Assess the gaps and
opportunity
Phase 3
Design target
operating model and
delivery plan
What are the key capabilities needed to deliver differentiated value over
strategic horizon?
What are the consumer and business-related operational performance
targets we need to achieve?
What are the design principles against which we will assess alternatives?
Which areas of the current operating model can or cannot support
future state capabilities and targets?
Are identified gaps a result of structure, execution, and/or governance?
Are there opportunities for consolidation or shared services? For
customer design approach?
How does the what, who, and where need to change by
organization?
How do we evolve to the target operating model over time so that we
realize value and mitigate risk along the way?
What do we need to do to start and sustain the journey?
Wilson Perumal & Company, Inc.
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Case Example
Our methodology is proven
Functional Overlap Assessment
Operating model misalignment developed as
legacy structures endured, despite changing
marketplace needs
Understanding the baseline, including capability
gaps/overlaps, was first step to sizing opportunity
Fundamental design principles created with
leadership to establish operating requirements
New operating model elements developed to fit
with business strategy and core capabilities
Design Principle Creation
Operating Model Alignment
Project resulted in significant reduction in overlapping roles, a redesigned innovation
capability, and $15-20M in cost reduction opportunity
Source: Case example of operating model redesign at global satellite communications company
Wilson Perumal & Company, Inc.
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We offer multiple ways to engage
Workshop
Diagnostic
Optimization/Redesign
Interactive half or full day
workshop for executive
leadership to align on operating
model issues and paths forward
Focused diagnostic to specifically
diagnose operating model
misalignment, and quantify the
size of the prize to address
Full operating model assessment,
deep dive into key issues, and
redesign of target opportunities
with implementation plan
Approximate Scope
1 2 days
Approximate Scope
3 6 weeks
Approximate Scope
3 6 months
Summary report of the core
issues identified by leadership,
and prioritization of next steps
Detailed report on health of
operating model, and expected
benefit of prioritized redesign
Redesign, implementation plan,
and tracking metrics for agreed
operating model improvements
As leaders in operating model design and implementation, WP&C is uniquely equipped
to help your company develop an attainable operating model & improve performance
Wilson Perumal & Company, Inc.
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Operating Model Professionals
David Toth
Over 20 years of experience in Supply Chain and Logistics via consulting and industry operations roles
Specific experience in inventory management, distribution operations, transportation management
(incl. fleet), reverse logistics and logistics network planning & design across multiple industries
Specific retail experience from Lowes, Michaels, and Kmart with projects from enterprise
transformation programs to distribution center slotting improvements
Former director of global logistics with responsibility for NA and European transportation and
distribution including international ocean and air from Asia
BSIE and MSIE from Purdue University
Scott Stallbaum
Expertise in Operational Excellence Management System design & implementation, culture definition &
change, business simplification, and operating model design
Significant oil & gas, food & beverage, and financial services experience including projects in operationsstrategy alignment, operational efficiency & safety improvement, and growth strategy development
Former operations manager in the medical device & automotive industries
MBA from Harvard Business School; BS in Mechanical Engineering from Bucknell University
Wilson Perumal & Company, Inc.
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Contact Us:
North America
Europe
One Galleria Tower
13355 Noel Road, Suite 1100
Dallas, TX 75240
Longcroft House
2/8 Victoria Avenue
London, EC2M 4NS
+1 972-716-3930
+44 (0)203 206 1496
Business Simplification Leads
David Toth
+1 330-256-0175
[email protected]Scott Stallbaum
+1 734-652-0543
[email protected]www.wilsonperumal.com
Wilson Perumal & Company, Inc.
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