A KPMG framework

As readers of this blog will know, I am always interested in other frameworks (other than the Operating Model Canvas) because it is often possible to learn something or to see the same issues from a new perspective.

So here is a KPMG framework that I extracted from a document on LNG operating models (liquid natural gas).  Unfortunately the resolution of the exhibit is poor, so I will explain.  In the coloured column the top dark blue box says “Financial ambition” and the bottom dark blue box says “Measures and incentives”.  The three slightly lighter shades of blue are bracketed as “Business Model” – Propositions, Markets, Customers and channels.  The four

even lighter blue boxes are bracketed as “Operating model” – Core business processes; Operational and technology infrastructure; Organizational structure, governance and risk controls; People and culture.  The other two columns are “Key questions” and “Accelerators”.

So what?   First there is nothing in this categorization of business model and operating model that is different from Operating Model Canvas.  But a couple of points are worth noting.  First, the term business model is used to refer only to the front end of the Business Model Canvas.  In other frameworks, such as PA Consulting’s framework, this is referred to as “customer model” or “value proposition model”.  Business model includes customer model and operating model. So readers should be aware of the different ways different consultants use the term business model.

Second, in the operating model categories there is one for “Operational and technology infrastructure”.  This combines digital and mechanical machines and applications, which seems odd for LNG companies who have drilling rigs and IT systems. It also makes me think that the Operating Model Canvas lacks a good place for thinking about things like drilling rigs.  When they come up, I typically think of them as part of the “core processes” and also think about them again when considering locations.  But this framework gives them a bit more status.

Third, the KPMG framework has a box for “Organisational structure, governance and risk controls” and a separate box for “Measures and incentives”.  This seems a very odd split.  The question in the next column against measures and incentives is “Do you have the right metrics to incentivize the organization for end-to-end business optimization?” which is a pretty odd question, but makes me feel that this should be part of the organization box.

In the Operating Model Canvas the split is between the design of the organization – structure, people, incentive systems, culture, decision rights, etc – and the management system needed to run the organization – planning, budgeting, targeting, performance management, risk management and continuous improvement – and the scorecard that tells leaders whether they are on track. I think this is a cleaner split.

The word governance, however, has always given me difficulties in this context.  For a project, governance refers to the steering group and the design authority that the project needs to work with.  For an organization it is partly the decision rights and committees, which I think of as part of organization design, but it is also the planning, budgeting and risk processes that I position as part of the management system. So the word governance cuts across different categories in the Operating Model Canvas. As a result, I have started avoiding the word where possible, yet its usage is growing and may be confusing people rather than enlightening them.

Last point, I was intrigued by the other two columns – Key questions and Accelerators.  What is attempted here is to list the key questions for an LNG company in the current market and also the levers that managers might use to accelerate future performance.   I like the idea very much – but I did not feel that this list of questions and accelerators quite delivered.  Either it is too long so not honing in on the real insights or it is not based on good insights.  Questions like the “Are you able to respond to changing demands?” or “How are you monitoring risk and evaluating new risks?” left me flat.  I was equally unmoved by the text in the Accelerators column “5. Unit cost competitiveness.  Challenge complacency and bring insights from downstream business with a relentless focus on asset performance through lower capex and opex as well as maximum possible throughput.”

But I am determined to have a go at this format for a business I know well to see if it can be made to deliver something more dramatically insightful, as I tried to do on pages 144 and 145 of Operating Model Canvas.

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About andrew campbell

Ashridge Strategic Management Centre Focus on strategy and organisation Currently working on group-level functions and group-level strategy
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