I had an insight as a result of a meeting with Angela Frith from Woolworths in Australia.  Angela was spending a couple of days with me to talk about operating models.   I was sharing my tools.   One tool, which I have blogged about, is a stakeholder map: an operating model is the operational engine that makes it possible to deliver value to and hence ensure engagement from stakeholders.   For a typical commercial business, the “active” stakeholders are customers, suppliers, investors and employees.  Being clear about who the stakeholders are and what “offer” is being made to each stakeholder is, in my view, an important starting point for an operating model.

I then explained that I normally start developing an operating model by drawing up a value chain map for each customer segment and or customer offer (for each product/market segment in marketing language).   Angela asked “but this is focusing mainly on the customer.  How do you think about the part of the operating model that delivers value to the other stakeholders?”   I waved my arms a bit and said some soothing words and we moved on.  But the seed had been planted.

Why does it seem to make sense to design the operating model with a focus on customers?  Why not design with a focus on shareholders or employees or suppliers?   Just asking this question helped because it seems self evident that one should start with customers: the people for whom the organisation exists.   Except that this is not really right.  Many organisations exist for the shareholders or for the senior employees … and farming cooperatives exist often to serve the suppliers.

Then Mark Lancelott (with whom I run the Designing Operating Model course) mentioned that Ives at Apple has said that when doing design work it is important to know which objective is the primary objective.

So my insight is this.  Yes do a stakeholder analysis.  Then decide which is the “primary” stakeholder for whom the work of the organisation is being done – normally the customer/beneficiary.  Then do a value chain/stream map of each segment of customer.  This forms the back bone of the operating model.   It is then important to add activities and even additional value chains to ensure that the organisation delivers value to each of its “supporting” stakeholders.  However, these additional design elements need to be aligned with the primary objective of the organisation rather than having a life of their own.

Let me give an example.  One of the value propositions to employees might be training.  It will be necessary to design an additional value chain around the delivery of training.  But this “supporting value chain” should reinforce not hinder the value chain aimed at customers.  So the content that is taught should be about how to deliver more value to customers, and the timing should be in a period when customer demand is low and ….

This might all seem rather obvious.  But let me assure you that being clear about the primacy of customers is helpful in the design process.

Moreover, it may also be helpful in distinguishing between strategy work and operating model work. Once one stakeholder has been chosen as the “primary” stakeholder, this stakeholder becomes the primary focus for strategy work (e.g. in a commercial business, which customer segments will we serve, what offer will we give to each and how will we gain advantage).  The organisation’s relationship and value delivered to the other stakeholders becomes something that is considered as part of operating model work rather than strategy work.  Of course if the relationship or value delivered is critical to competitive advantage it would be part of strategy work, but most categories of employees, suppliers and shareholders are not critical to competitive advantage and hence choices made in these areas are operating model choices rather than strategy choices.

You can probably see that I am struggling to distinguish between operating model choices and strategy choices … maybe a topic for a future blog.