Operating model design, like organisation design, is primarily about designing those activities that are under the control of the organisation: the inside.  But organisations are increasingly reliant on a range of external relationships to succeed.   The implication is that operating model design should include the design of these external inputs.

Both the operating model canvas (still under development) and the PILOS model include “suppliers” as one of the main elements in the design challenge.  PILOS stands for Processes, Information, Location/Buildings, Organisation/People and Suppliers.   Interestingly, there does not appear to be much literature or guidance on how to design the external inputs.

At Ashridge Business School we recently discussed this issue in the context of organisation design.   It was raised by Richard Rawling of the Nous Group (an Australian consultancy) on the four day Advanced Organisation Design course.  We discussed ways of testing whether the external relationships are well designed, and we discussed the levers of design that are available.  Our main conclusion was that more work needs to be done in this area.

Tests include questions like

– are we doing only those things that we are good at?

– are our business partners competent to do what we want them to do?

– do our business partners have conflicts of interest, and if so, how are these kept under control?

– do rewards and penalties encourage our business partners do their best to help us succeed?

– do we “own” those things that will give us sufficient bargaining power in the relationship?

Levers include things like

– the choice of who to work with (like people selection in org design)

– the specification of what we want them to do and what we will do

– the specification of what we will “own” and what they will “own”

– the division of powers and decision making rights between us and our business partners

– the rewards and penalties for good or bad work

– the information systems and processes between us

– the mission and values and cultural norms that are established for this relationship

Since good operating model design is about identifying the significant pieces of the organisation, what their contribution is and how they should work together, then these same questions are just as relevant for the larger network or ecosystem.

My colleague Felix Barber has been working on these questions through the lens of how organisations can collaborate effectively with third parties.  His book will be out this Fall.