In recent times, it appears that every year organization’s are fixated on switching up or changing their operating model. Consultancies are brought into the c-suite to advise on the latest industry trends, perform their analysis, make a recommendation and then slap you with a $Xm bill.

Now, there are plenty of reasons as to why an organisation should look at reviewing and implementing a different model – namely a decline in performance, increased costs/decline in margins, regulatory impacts, market exits etc. – however, it is not always the right thing to do. More often that not, defining and implementing a new TOM (target op model) is a disguise for cutting costs.

The problem with this approach is that everyone (CEO, C-Suite, External Consultancy) all want to put their stamp the changes.

• The CEO wants to be seen as the driving force for change and increase shareholder value
• ExCo want to be seen as enablers, delivering huge results within their own functions
• Consultancy wants to deliver big savings bank $ for their firm.

All of the above, at the core, are self-serving interests.

An organisation will typically switch up their operating model every 2-3 years (Strategy&, 2023), and it can take up to two-years for an organisation to fully implement a new model, often leaving little to no time between embedding and implementing their next iteration of op model (McKinsey & Co., 2019).

On the flip side of that, and looking at failure rates; other studies suggest that up to 88% of businesses fail to deliver on their initially defined transformation goals (Bain & Co., 2024). So, the question to ask should not be on which type of operating model should be implemented, but rather; are we actually operating in the way the current model should be operated as; and do our employees understand our operating model?

This leads us to the question: 3 questions to consider before implementing a new TOM.

Has the model been adopted and is it being utilized correctly?

Whatever your operating model is, the workforce needs to understand how they are expected to operating and within what parameters. For example, operating (at a high-level) focus on people, processes and technology. Does the workforce know how they should recruit staff? do they know the process for onboarding a new supplier? Do they understand how to use the newly procured accounting software?

More often than not, a model wouldn’t have been adopted correctly. Let’s take an example of just 1 hire being processed incorrectly.

Someone needs resource but cannot get it quick enough, so they decide to skip the process of going via TA / SS and decide to hire directly into their function.

• +1 headcount incorrectly hired:
  • Misaligned cost vs. the operating model
    • Cost within wrong cost-centre
    • Cost sitting within the wrong P&L
    • Cost within the wrong geographic location
  • Misaligned FTE/headcount in the org structure
    • Incorrectly aligned to the wrong function
    • Incorrectly aligned to the wrong BU
    • Impacting budgeted FTE/Headcount for the function
    • No defined career pathway as the role is standalone in the wrong area
    • Diluted span of control
    • Additional layer to organisation created for the role? Or, are they aligned to the correct level?
    • Incorrect reporting lines
    • Incorrect benefits / reward / incentives alignment

Not so bad if it is 1 or 2, but multiply that by 500 employees across the enterprise and it can be a significant issue, so much so as to force decisions from the CEO that a shift in operating model is the only way to rectify the problem.

Do the same with other people related elements, processes, and technology, and you can have a real genuine problem. However, is the operating model being incorrect to blame, or is it the fact user adoption, more specifically, training and support across the workforce has not been adequately provided.

My view on this is that the business should be looked at to establish if it has an incorrect operating model, or if they are operating the model incorrectly? If it is the later, huge $ value can be saved purely from better implementation, or reimplementation. If it is the former, as a result of declining profits/increased costs as stated at the beginning of this article, then perhaps a review and new TOM design is the correct choice.

References:

Strategy& 2023

McKinsey & Co. (2019)

Bain & Co. (2024)