If you have been reading this blog you will know that my definition of an operation model is PILOS – processes needed to execute the strategy, information systems needed to support the processes, locations and buildings to house the processes, organisation and people to do the work of the processes (I include goverance and culture under organisation) and suppliers and business partners needed to support the processes.
So I was interested to come across a similar definition from Wilson Perumal (apologies for edits). Not sure about the visual!
“An operating model is the coordinated collection of assets & capabilities, governance, vendors & partners, organization structures, processes and technology enablers a company uses to deliver its strategy. Each of the 6 Operating Model Design Elements cover unique areas of a company’s operations, but must be considered together when designing an operating model.
Assets & Capabilities
Company facilities (offices, factories/plants, warehouses, research labs, distribution centers, etc) that are owned/leased; patents and intellectual property used to generate revenue or manage operations; core, end-to-end capabilities required to succeed
Where & how operating decisions are made and who has the authority to make them; central v. local ownership; corporate policies establishing expectations for conduct and behaviors; audit & assessment functions ensuring compliance; performance reporting
Vendors & Partners
Skills, abilities and capabilities the company relies on outsiders to provide; insourcing v. outsourcing; supply chain partners used to provide raw materials and distribute finished goods
Operating & reporting structures needed to deliver the strategy; assignments of roles, responsibilities and expectations to each employee; skills & abilities for employees required for each role; relationships between departments/functions/subsidiaries
Business and production processes used to manage the company and generate revenue; process design principles; metrics to monitor and ensure process control & performance
Internal technology capabilities needed to manage the business or generate revenue
Taken as a group, the 6 Operating Model Design Elements cover all aspects of a firm’s internal strategy and providing a robust means of linking its market strategy and its ability to execute. We have found that our clearer operating model definition not only helps companies design better operating models, but working through the 6 Operating Model Design Elements is also a useful tool in diagnosing operating model misalignment contributing to poor performance.”
Some quick comments:
1. Brand does not appear – but probably a part of “assets”. It does not appear in PILOS either, and this is something I have been thinking about.
2. Capabilities as separate from processes or people seems odd to me. I prefer to integrate the concept of capability and process. For example if a step in the process is “buy ingredients” then you need a capability “buy appropriate ingredients at good prices”. I don’t see the benefit of separating these ideas.
3. My SPACI model under organisation includes Structure, People, Accoutabilities and governance, Culture and Incentives. The above model does not give much emphasis to Culture and Incentives. The latter is definitely something you can design … I am never sure whether Culture is an input or an output.
4. Capabilities appears again under the last item “Technology enablers” which is a little confusing. Why are Assets not Asset Enablers?
But, like all these frameworks, a useful contribution.
Processes and capabilities
From my perspective, capabilities have emerged as a component agnostic term. My understanding is the C=PILOS. The reason to identify capability is that an improvement may be achieved by changing any of PILOS to achieve the desired outcome. Too many times, I have seen organisations invest in improving P or improving I, when in fact they could have achieved the improvement more effectively through improving O. Taking a “C” perspective keeps the investigation and proposed change open, rather than driven by assumptions that a particular component needs to be improved in order to deliver the overall improvement.
I agree that C is used quite widely, and is easily misused and abused – but it can be used quite powerfully (in the hands of an experienced and knowledgeable professional).
Useful comment Peter. Capability = the PILOS that delivers a specified output. The awkward part of this is that by using “capability” you may lose site of the “output” that the capability is trying to generate. So I prefer to think of customer or beneficiary or stakeholder, then the offer or value that is being delivered to the customer, and then the PILOS or operating model that enables the organisation to deliver the offer or value. In this context, the word capability is just another word for PILOS or operating model and hence is redundant. Of course, if you use the term operating model only for the bigger picture, then you could argue that an operating model is made up from a collection of sub operating models or “capabilities”. There is a language tangle here that it would be nice to untangle!