FEATURE

Architecting an operating model

A platform for accelerating digital transformation
Anne Kwan, Maximilian Schroeck, and Jon Kawamura

PART OF A DELOITTE SERIES ON DIGITAL INDUSTRIAL TRANSFORMATION

Architecting an operating model to accelerate digital transformation

Many transformation efforts begin with reinventing the operating model.

How to keep such a big project on track? This article, fourth in a series,
explores how successful transformations align models with clear strategies.

Introduction change in their operating models within three

years.1
Across a broad spectrum of sectors, artificial intel-
ligence (AI), digital, the Internet of Things (IoT), But leaders see establishing those operating mod-
process automation, and other technologies are els as their top challenge in achieving digital
shifting value from manufacturers and distributors transformation.2 So how might they move forward?
to companies that operate end-to-end platforms Reviewing transformations across industries
and provide outcomes as-a-service. For many reveals a common theme: Successful transforma-
enterprises, that means constant change and dis- tions realign the organization to a singular vision;
ruption—and a growing threat of market failed endeavors typically do not. In short, an orga-
obsolescence. nization has a far better chance at succeeding when
an operating model—or how an organization cre-
Leaders, revising their five-year plans every quar- ates value—is aligned to the strategy. And this
ter, are seeking ways to constantly reinvent their means that, for transformations to succeed, leader-
companies to stay ahead of the pack, with competi- ship teams should examine and possibly revise
tors of varying capabilities and scale and customers their organizations’ operating models. (See fig-
who expect more for less. And for many companies, ure 1.)
the answer is large-scale global transformation.
Indeed, 80 percent of CEOs in one study claim to BALANCING GROWTH AND RISK
have transformations in place to make their busi- Given the pace of change—and the volatility in the
nesses more digital; 87 percent expect to see a impact of potential disruptors—executives may

FIGURE 1

What makes a strategic transformation succeed—or fail?

Characteristics of UNSUCCESSFUL Characteristics of SUCCESSFUL
TRANSFORMATIONS TRANSFORMATIONS
Gap between strategy and execution; 64 percent build their budgets around
culprit is usually an obsolete/misaligned and allocate specific company resources
operating model to their strategies

60 percent do not link budgets to 77 percent translate their strategy into

strategies, meaning resources and operational mechanisms, monitor
capabilities are not aligned to goals progress, and make changes

Executives leave old organization designs Companies with top-quartile operating

in place, inhibiting change in responsibili- model indicators have five-year CAGRs
ties and processes 120 basis points higher than those in
the bottom quartile

Sources: Marcia Blenko, James Root, and Nader Elkhweet, “When weak operating models happen to good strategy,” Bain
Insights, April 2, 2015; Ron Carucci, “Executives fail to execute strategy because they’re too internally focused,” Harvard
Business Review, November 13, 2017.
Deloitte Insights | deloitte.com/insights

2
 Architecting an operating model to accelerate digital transformation

struggle to determine where to place bets, how model can help companies balance growth with
much to invest, and when to do it. Wait too long risk and overcome organizational barriers.
and they risk seeing market value quickly erode;
invest inefficiently or ineffectively and they could At one global consumer technology company, exec-
face a cash crunch or investor backlash. utives set out to unify the organizational vision
Management teams must increasingly balance across AI and machine learning (ML) technology.
growth and risk. We consistently see executives try The company made a strategic decision to bolster
to solve for six questions—each of which can funda- its capabilities through acquisition of a startup and
mentally pull the organization in a different hiring new talent, combining teams dealing with
direction, all of which are critical in the effort to ML and voice-assistant technology. The changes
“win” in the digital economy. resulted in unified leadership and aligned incen-
tives across development functions and product
Executives often ask themselves, How do we: lines; the company has since embedded its AI
offering into new products, extended the reach of
• Grow amid increasing market and
the operations performed, and launched new soft-
customer expectations
ware centered around AI and ML.
• Respond faster to market and
competitive disruptions
Target operating model
• Simplify organizational processes, both inter-
nal and external
Before addressing the value of an operating model,
• Maximize returns on limited financial and we must first acknowledge the potential for wide-
human capital spread confusion and disagreement: Poll any
number of executives, and you’ll likely find yourself
• Incubate and test new products
with as many definitions of operating model. But
and technologies
most commonly, operating model transformations
• Pivot to competitive business models are associated with cost takeouts or organizational
redesigns—“box and wire diagrams.” While these
The good news for companies born before the digi- can be byproducts of an operating model shift, the
tal era is that they often quickly understand the common associations are myopic and discount the
value in transforming to agile, adaptive, and full value.
responsive enterprises because they already have
the other intangibles in place: strong brands, an
entrenched customer base, established sales meth-
Our definition of an
ods, and partners—suppliers, distributors, and operating model is simple
technology.
but comprehensive: An
Successfully driving these changes, though,
depends on executives addressing a range of orga-
operating model represents
nizational barriers and risks—particularly how value is created by
functional silos, incomplete enterprise data, and a
product-out (versus a market-in) philosophy of
an organization—and
value creation. In our experience, a well-designed by whom within the
and purposefully executed enterprise operating
organization.

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Architecting an operating model to accelerate digital transformation

FIGURE 2

Example operating model

Operating model example

CXO office: Strategy, corporate development, digital strategy

Sales strategy and marketing

Corporate marketing, customer experience, account management
Transformation office (activated as needed)

Consumer sales SMB sales Enterprise sales

New product incubator

Consumer SMB Enterprise

product/services product/services product/services

Managed services

Digital enablement center of excellence

Business ops: CPQ, billing, customer support

Robotics and AI
center of
Shared services: IT, real estate, HR, knowledge management, excellence
corporate finance, and accounting

Source: Deloitte analysis.

Deloitte Insights | deloitte.com/insights
• Close partnerships between product and sales
To better illustrate this, figure 2 depicts an example
teams using product-aligned sales teams, with
of an operating model; each box represents a some overlap
unique set of capabilities aligned to the enterprise’s
strategy, with skilled leadership teams, tailored • Separate product and business incubator with
metrics, unique investment profiles, and tight coor- end-to-end responsibility and direct access to
dination across the value chain. C-suite

• Managed services overlay for SMB and

This illustration lays out the characteristics of this enterprise customers
example’s operating model:
• Digital enablement center of excellence (CoE)
• Centralized strategic planning functions to set a to drive companywide adoption of tools
unified direction for the enterprise and technologies

• Emphasis on customer experience with consoli- • Centralized business ops teams—likely off-
dated marketing, account management, and shore—to drive economies of scale
customer experience functions
• Robotics and AI CoE to drive operational effi-
• Independent business lines (consumer, small/ ciencies in mid- and back-office operations
medium businesses, enterprise) responsible for
Most critically, an organization’s operating model
product, operations, etc.
must be inextricably linked to the corporate and

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 Architecting an operating model to accelerate digital transformation

FIGURE 3

Digital industrial transformation framework

Digital industrial transformation begins with strategy, which is carried through to redesigning talent,
transforming processes, and retooling technology. Leaders screen each decision to confirm that it
will contribute to agility, promote digital adoption, and deliver value to customers.

2. Where will we choose to 4. How should capabilities be

play, and how will we win in configured? Where should
these markets—e.g., which they be executed? Who has
customers and pricing? ownership and decision
rights?

DIGITAL
ADOPTION

Business Operating
model model

Strategy Capabilities People, process,

and technology

AGILE CUSTOMER
MINDSET SUCCESS

1. What are our winning 3. What capabilities are 5. What business

aspirations? (What do we needed? Which capabili- processes, technology, and
want our company to ties must be built, refined, management systems are
be?) or bought? required?

Source: Deloitte analysis.

Deloitte Insights | deloitte.com/insights

business-unit strategy and varying business mod- find the design to be ineffective and the implemen-
els. The operating model is the anchor for the tation lacking employee traction—or, worse,
enterprise and is critical to the strategy’s effective- dilutive to value.
ness and longevity. And understanding how your
organization maps onto the model is key to an A global entertainment company aimed to share
effective digital transformation. technology across its business units to improve
customer experience. In 2013, for the first time in
OPERATING MODEL DESIGN nine years, the company effected a large reorgani-
Leaders should develop a clear sense of their stra- zation: combining console and handheld divisions.
tegic ambitions—where to play and how to The change was driven by criticism about a “lack of
win—and the business models they wish to employ, a unified vision” related to previous launches.
including target customer segments, channels, Executives intended the new structure to promote
pricing, and delivery models, since both the strat- sharing of technology across groups, and thus far it
egy and business model directly influence the has worked, with the company launching its most
operating model design. Organizations that try to successful console to date.
short-cut their way to a new operating model may

5
Architecting an operating model to accelerate digital transformation

FIGURE 4

Operating model design

DIGITAL
ADOPTION

Business Operating
model model

Strategy Capabilities People, process,

and technology
AGILE CUSTOMER
MINDSET SUCCESS

The focus of
this article

1. What work needs to be done?

Operating
2. Where does the work get done?
model
3. Who does the work?
4. How do we drive better outcomes?

Source: Deloitte analysis.

Deloitte Insights | deloitte.com/insights

What work needs to be done? For example, product strategy is a capability that
creates product road maps to realize customer
In moving forward with a digital transformation, requirements; campaign management is a capabil-
the first step is to identify the holistic set of capa- ity that launches, measures, and reports on the
bilities required to meet the enterprise’s strategic success of marketing campaigns. When brought
ambitions. The capability set should include both together, capabilities comprise a capability map,
existing capabilities and new ones (as needed) and representing the collective set required to execute
against the strategy and busi-
ness model.
A capability represents a discrete set
of objectives, processes, technologies, A capability map provides a foun-
dation on which organizations can
and talent that collectively generate build their target operating model.

value for an organization.

Moreover, capabilities serve as
building blocks for the
organization—they can be used to
address front-, mid-, and back-office functions determine skill set requirements, hire talent, set
across all product lines. performance metrics, build teams, and identify
partnership opportunities.

6
 Architecting an operating model to accelerate digital transformation

FIGURE 5

A capability map represents where an organization generates value

Roles, decision Purpose, including value

rights, and it will deliver
policies anc
e Mi
ssio
ve rn n
Go

Decision-making,
Competencies,
information,

Insights
Talent
skills, talent,
and
and planning Capability analytics
Tec
hn s
olo ces
gy Pro
Software, hardware, Set of activities that
and other tools drive outcomes

Segmentation and
Consumer marketing
targeting
Customer strategy Advocacy and Marketing finance/
loyalty MRM & reporting
Campaign strategy Brand management
Social/immersive Campaign and Agency/ecosystem
marketing digital planning management
Product design Campaign manage-
and packaging ment and execution
Ecommerce/ PR and
Media strategy
mobile commerce Content creation, communications
Pricing and trade
management, and
promotion strategy Omnichannel
Omnichannel publishing
Channel strategy optimization and
consumer experience
SEO/search engine execution
Marketing planning
marketing

Marketing
Human resources
Product
...

Source: Deloitte analysis.

Deloitte Insights | deloitte.com/insights

Where does the work get can be resistant to change their existing ways of
working when instead they can leverage the oppor-
done?
tunity to untether themselves from legacy
Once leaders have established the capability map, processes and technologies.
the next step is sourcing capabilities. Several capa-
bilities will likely already exist—some mature or Enterprises typically have four sources for capabili-
fit-for-purpose, others recent arrivals. This step is ties: They can develop, transform, or mature them
often the most difficult to execute, as companies internally (use as is); they can acquire capabilities

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Architecting an operating model to accelerate digital transformation

FIGURE 6

How should an organization acquire its capabilities?

Objective Develop Acquire Partner Outsource

Speed

Control

Specificity

Competitive
advantage

Operational
leverage

Note: Empty ball = does not support objective; half ball = somewhat supports objective; full ball = fully supports objective.
Source: Deloitte analysis.

through targeted hires, or outright M&A; they can Each of the four sourcing options varies widely
partner to access them; or they can outsource across this spectrum and has different use cases
the capabilities and have them delivered as-a-ser- (see figure 6).
vice. The decision to develop, acquire, partner, or
outsource is a critical one, since each lever provides The choice is distinct for every organization. Take
organizations unique advantages. Executives the case of an industrial products company: The
should consider the following in making decisions: management team may decide to own manufactur-
ing capabilities because the company’s processes
• Speed. How urgently do we need and technologies give it a competitive advantage,
this capability? even though this means operating with a higher
base of fixed costs and regularly investing in talent
• Control. How important is it that we control and technology upgrades. On the other hand, a
the outcomes? technology company may choose to outsource
manufacturing—the same capability—given the
• Specificity. To what degree do we need to tai- variety of low-cost providers available in
lor this capability to our business? other countries.

• Competitive advantage. To what extent does While this may be painful in the short term, these
this capability provide us an edge decisions can accrue long-term value by freeing up
over competitors? cash and receiving best-in-class service. For exam-
ple, one company trying to establish a digital
• Operational leverage. How much do we gaming platform chose to partner with established
want to take on in fixed/on-balance- hardware providers rather than build its own con-
sheet commitments? trollers. Executives chose to control and focus on
their core value (customer experience) while part-
nering for scale (labels, platforms, devices).

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 Architecting an operating model to accelerate digital transformation

Who does the work? Similarly, the relationship to the business is two-
fold. Capabilities significantly tethered to the line
Simply said, this step involves allocating work to of business often rely on some expert ability such
the most efficient parts of the organization. as localization, R&D, product marketing, or techni-
cal sales. Those with limited relationship to the
Capabilities (see figure 7) typically provide one of business—for instance, M&A, e-commerce, and
two types of value: demand-side or supply-side. supply chain management—rely on generalist skill
Demand-side advantages drive increased attention sets and play across the enterprise.
toward a company’s offering, driving up pricing,
revenues, and margins. Typically, these include In our experience, each capability has a different
capabilities such as sales, product engineering, place within the operating model. For example,
recruiting, branding, and corporate strategy, where shared capabilities are often offshored, or even out-
processes and skill sets are less repeatable, and sourced. Steering capabilities are delivered close to
where talent is a significant driver of value. Supply- the headquarters (and executives) given decision-
side advantages allow a company to operate more making velocity, while specialist capabilities can be
effectively and get the most out of resources. These structured as centers of excellence.
usually include areas in which value is related to
scale, such as sales-quote capabilities, self-service, More importantly, companies can opt for different
accounting, and manufacturing. ways to deliver similar capabilities—and those

FIGURE 7

Based on the type of value generated and the relationship to the business,
capabilities can be configured in four ways
Significant

S hared capabi li ti es Steeri ng ca pa bi li ti es

Standardized, consolidated, and often Knowledge-intensive hubs with
globally centralized for scale and cost responsibility to set direction and
effectiveness. enable strategy.
scale across products, geographies,
To what extent can the capability

Often housed offshore or in a low-cost Often delivered by functions that sit

shared services facility with remote close to or with top executives to
and customer segments?

delivery and interaction. allow for quick and effective

decision-making.

S upport ing capa bi li ti es Speci a li st ca pa bi li ti es

Customized for each product, geography, Decision and critical thinking tasks,
-
and/or segment, but designed for cost which may require deep technical or
efficiency and operational excellence. functional skill sets.
Often housed close to the customer to Delivered using a split-location model
support high availability and specific with a core team close to the HQ and
business requirements. strategic hubs that solve for talent
Limited

availability and/or cost.

Supply-side What kind of value does Demand-side

this capability drive
(volume, standards, data) (brand, pricing, sales, margin)
within the organization?

Source: Deloitte analysis.

Deloitte Insights | deloitte.com/insights

9
Architecting an operating model to accelerate digital transformation

decisions should be closely linked to the strategy. When assets—people, processes, and technologies—
For example, a ride-hailing company with compar- cease to deliver value, leaders should consider
atively simple customer support requirements may taking steps to upgrade or replace them. We have
choose to automate most functions in a shared ser- observed that companies whose execution embod-
vice, offering specialized support or premium ies three evergreen principles are often successful
support only as a supporting capability. On the at getting the most out of their operating models.
other hand, a cutting-edge electric-car maker (See figure 8.)
might structure customer support as a specialist
capability, with highly trained and available staff-
ers who can solve a variety of problems, become Building a functioning model
product advisers, and potentially even upsell
customers. Given the challenges of effecting a digital transfor-
mation—particularly the intangible
HOW CAN ORGANIZATIONS DRIVE benefits—having in place an optimized and strat-
BETTER OUTCOMES? egy-aligned enterprise operating model can be a
Operating models are ever-evolving, driven by tremendous help. When executed well, an enter-
feedback from employees and customers, the effec- prise operating model can improve resource
tiveness of business processes, and evolving utilization and efficiency, reinforce an outcome-
competitive landscapes. Leading organizations based culture and mindset, and aid communication,
augment their capabilities through simple cross- collaboration, and knowledge-sharing. But the
functional processes, hyper-focused incentives, and potential challenges in designing and implement-
best-in-class tools to drive simplicity, clarity, and ing an operating model transformation are clear,
speed in execution.

FIGURE 8

Three principles to continually strengthen operating models

Principle Ways to execute

Democratize information • Leverage technology designed to drive community and support

across the organization communications
• Collect, index, and host information on a user-friendly and widely
accessible platform—a “digital library”
• Host digital town halls to socialize executive and functional priorities,
keep employees engaged, and solicit real feedback

Zero in on value- • Design effective processes that drive transparency and continuous
generating activities reprioritization
• Factor in the role of a coordinator, manager, and customer-focused
leader—a “product manager”—on all teams
• Have clear and singular ownership of tasks, outcomes, and deadlines

Empower individuals and • Clarify decision rights at every level

teams to own change • Celebrate wins to build on successes, build momentum, and lift
engagement
• Tie incentives to expected behaviors

Source: Deloitte analysis.

10
 Architecting an operating model to accelerate digital transformation

from organizational resistance and misaligned • Create complementary incentives and goals for
visions to poor execution and missing data. businesses and functions to reduce conflict and
optimize resource allocation
Our research points to at least six ways to poten-
tially increase your chances of building a model • Establish cross-functional debriefs to keep rel-
that can help guide a successful digital evant parties informed, and nominate an owner
transformation: to manage the process early

• Nominate and empower function and business • Institute a governance model with clear KPIs
leaders early on to drive the cultural change for each leadership team—one that supports
required across the organization quick, independent decision-making

• Define clear roles and responsibilities across • Standardize resource and knowledge exchange
businesses, regions, and functional to ensure that skill sets are cultivated
support groups and proliferated

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Architecting an operating model to accelerate digital transformation

Endnotes

1. Mark Raskino, “2019 CEO survey: The year of challenged growth,” Gartner, April 16, 2019.

2. Ragu Gurumurthy and David Schatsky, Pivoting to digital maturity, Deloitte Insights, March 13, 2019.

Acknowledgments
The authors would like to thank Rohan Gupta of Deloitte Consulting LLP for his research and dedica-
tion to bringing this article to life. The authors would like to recognize Cristina Stefanita, Deepak
Sharma, Julie Shen, Francis McManus, Rebecca Dauer, and Violette Zhu of Deloitte Consulting LLP
for their contributions to the Digital and Operating Model Transformation practices.

12
 Architecting an operating model to accelerate digital transformation

About the authors

Anne Kwan | [email protected]

Anne Kwan coleads the Business Transformation offering within Deloitte’s Technology, Media and
Telecommunications (TMT) practice. In this role, she oversees a community of business, technology,
and workforce architects advising clients on fundamental changes to strategy, business model, or
operating model, which impact talent, organization, and technology. Recent engagements include the
design and launch of new IoT businesses. Kwan has more than 18 years of technology industry and
management consulting experience. She is based in San Francisco. Connect with her on LinkedIn at
www.linkedin.com/in/annekwan/.

Maximilian Schroeck | [email protected]

Maximilian Schroeck is a principal in the Technology, Media, and Telecommunications practice of

Deloitte Consulting LLP. He has more than 25 years of experience leading organizations in private
equity, corporate development, and new business development. Focused on the high-technology sec-
tor, Schroeck advises clients on growth, portfolio optimization, and transformational strategies. He is
based in San Jose. Connect with him on LinkedIn at www.linkedin.com/in/maximilian-schroeck-08915
71/.

Jon Kawamura | [email protected]

Jon Kawamura is a managing director in Deloitte’s Technology Strategy and Architecture practice. He
has more than 20 years of experience leading IT and operational projects across multiple industries
with a recent focus on serving high-tech clients. Kawamura is based in San Francisco.
Connect with him on LinkedIn at www.linkedin.com/in/jonkawamura/.

13
Architecting an operating model to accelerate digital transformation

Contact us
Our insights can help you take advantage of change. If you’re looking for fresh ideas to address your
challenges, we should talk.

Practice leadership

Anne Kwan
Managing director | Deloitte Consulting LLP
+1 415 783 6379 | [email protected]

Anne Kwan is a leader in Deloitte’s Technology, Media, and Telecommunications practice. She has
more than 18 years of technology industry and management consulting experience.

Maximilian Schroeck
Principal | Deloitte Consulting LLP
+1 408 704 4158 | [email protected]

Maximilian Schroeck is a principal in the Technology, Media, and Telecommunications practice of

Deloitte Consulting LLP. He has more than 25 years of experience leading organizations in private
equity, corporate development, and new business development.

Jon Kawamura
Managing director | Deloitte Consulting LLP
+1 415 419 4735 | [email protected]

Jon Kawamura is a managing director in Deloitte’s Technology Strategy and Architecture practice. He
has more than 20 years of experience leading IT and operational projects across multiple industries.

Deloitte Consulting LLP’s Digital Transformation practice has advised clients in the technology
sector (e.g., hardware, software, and semiconductors) as well as those in the industrial sector
(e.g., manufacturing, construction, and energy) on how to enter and compete in new markets.
Our work includes defining customer-first strategies, building new business and operating
models, and launching the critical capabilities required to swiftly drive scale—all to achieve
optimal results from limited resource pools. Contact the authors for more information.

14
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