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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