Many large digital transformation efforts often commence with the reinvention of the operating model. The journey to becoming an adaptive organization, to be able to predict and defend against evolving conditions, requires a sound operating model in place. An operating model with digital at its core seeks to align an organization’s limited resources, people, processes, policies, platforms, and even culture to unlock new business opportunities.
Operating model transformations are typically associated with cost optimization and organizational redesigns. But how do we define an operating model? An operating model represents how business value is continuously created by an organization – and by whom within the organization. The operating model is the cornerstone for any organization and is critical to the strategy’s effectiveness.
How to design an operating model that adapts to the evolving digital landscape?
- In a digital transformation journey, the most important step is to first identify the set of capabilities that are imperative to fulfilling an organization’s strategic ambitions. This mapping of competencies should include both existing capabilities and new ones (which need to be developed) across both front-office and back-office functions.
- Once the organization has a clear view of its capability map, the next step is to source these competencies to fill the capability gaps. Bridging this gap is sometimes challenging for organizations, as companies can be resistant to changing their traditional ways of operating with legacy processes and technologies. Hence, early investment in talent and capabilities can expedite the transformation journey for organizations in their pursuit of digitalization. These capabilities can be sourced in the following ways:
- Organizations can develop these competencies internally via internal and external training programs, and workshops.
- Some capabilities can be nurtured and transformed internally via change agents, such as FTEs, who are already digitally adept, and possess these skillsets.
- Some capabilities can be built via acquisitions, and some can be accessed via partnerships. (Rather than trying to build these competencies organically, M&A is a much faster approach.)
- Capabilities can be outsourced as well and get delivered as-a-Service.
- Once organizations have the right skillset and capabilities in place, the next step is to allocate work to the most efficient parts of the organization. Capabilities typically provide either demand- or supply-side values. Demand-side benefits drive attention toward a company’s products and offerings, driving up prices, revenues, and margins. Supply-side advantages enable the company to operate more efficiently.
Along with the above-mentioned steps, it’s also equally important to invest in digital assets and projects which help the organization in the larger scheme of things to achieve its strategic business objectives, and successfully overhaul the operating model.
- For instance, deploying digital tools, which have the potential to revolutionize customer-facing operations in powerful ways, often by creating the opportunity for self-service, is a must in the formative stages of an operating model transformation journey, as it immensely helps in revamping the time-consuming transactional and manual tasks.
- Additionally, it’s equally important for organizations to gradually invest in advanced analytics using latest tools, as it will enable them to discover insights and make recommendations that can improve decisions in real time, thereby altering the way they have traditionally conducted business.
- Moreover, organizations can also consider business process outsourcing (BPO), which is essentially using certain resources outside of their core business to complete specific tasks and functions. Organizations tend to achieve improved cost efficiency in this case, owing to labor arbitrage.
- Finally, certain other tactics, for instance implementing lean processes, help firms in streamlining processes, eliminating waste, and fostering a culture of continuous improvement. Firms can also invest in robotics and create centers of excellence (CoEs) to drive operational efficiencies in their mid and back-office operations. Centers of excellence (CoE) can also help drive companywide adoption of tools and technologies and help achieve full digital enablement.
Lastly, with evolving market conditions, it’s imperative for organizations to redefine their KPIs to measure success. Organizations need to move away from the traditional metrics (e.g., market share) that are no longer meaningful indicators of economic success. KPIs need to be of a form which indicate whether the organization is truly leading on parameters such as innovation, productivity, and the adoption of digital technologies.
For any such reinvention to be a complete success, the senior leadership team plays a crucial role in making this all turn into reality. They are essentially the change agents who can convince employees that the next-generation operating model can penetrate the organizational inertia and trigger improvements. They should ultimately serve as beacons to demonstrate the model’s potential!
In the subsequent blog, the final article of this series on digital strategy and organizational transformation, we will see how setting up standardized governance principles and mechanisms is important for a successful 360-degrees digital transformation.