I’ve received an email from a University Student who read my article What is Organisation Design? From the email, I understood that he had some confusion on some terms often used interchangeably in many articles, especially on the web. So I wanted to help in Understanding Models by shedding some light and trying to provide some definitions for each element. I found some compelling descriptions in a post of Naomi Stanford that I will use to elaborate from (Stanford, 2016).
Understanding Models: a List
- Business Model. It is the definition of what you are offering (product or service) how and to whom. I’ve now dedicated a long post to Business Models Theory.
- Strategy. It is the direction and scope over the coming period to activate the business model. We have already explored in detail what Corporate Strategy is.
- Operating Model. These are the key’ tactical’ components, e.g. systems, process, people, technology which will deliver the strategy.
- Organisation Model. This is the work that people are doing within and across the key components of the Operating Model, and how are these people organised to do the work efficiently, effectively, and with enjoyment. I’ve already done a long post which reviews most existing theoretical Organisation Models, although I have also mentioned that each organisation needs to find its own one. Note: an Organisation Chart can help understand what is the Organisation Model, but it’s not sufficient alone, as it is essential also to consider elements like operational governance.
How do you define these models? An essential discipline is Organisation Design which is traditionally focused on the last aspect (but can often support also the definition of the Operating Model). In any case, Business Model and Strategy usually are inputs for the Org Design process. The fact that sometimes we use standard tools (for example, Design Thinking Workshops) for each of these components is probably part of the reason why there tends to be confusion.
An alternative view.
An interesting note to add: Deloitte in a recent article introduces a model (Kwan, Schroeck and Kawamura, 2019) (seen in Figure 1) which adds an additional component to the four listed above: Capabilities, and inverts the roles of Strategy and Business Model, although the definitions are not fully matching (Andrew Campbell, 2019).
The concept of Capabilities is probably worth exploring further because what the article suggests is to essentially anticipate a key focus area of Strategic Workforce Planning. Capability is defined as a discrete set of objectives, processes, technologies, and talent that collectively generate value for an organization (Kwan, Schroeck and Kawamura, 2019). I appreciate the idea that capability is explored ahead of the Operating Model, becoming an input. But this will require some additional thinking so I will not cover it in detail in this post.
How do we get from Business Model to Organisation?
This is also where confusion still exists. Multiple tools help in the definition of a Business Model, and these are often used also as the first step for Organisation Design (Naomi Stanford covers the most known of these in her Guide to Organisation Design). Why this? Well, the reason is simple: in many cases when you are approaching an organisation issue, you need to ensure there is clarity around the Business Model and the Strategy of an organisation, something that is not always necessarily true.
Start with the Business Model
There is also much confusion between Business Model and Operating Model (Stanford, 2010). Tim Kastelle did build a list of Business Model Tools (Kastelle, 2012) and framed their importance, also pointing out at different ways these can be used for.
The business model of a company is a simplified representation of its business logic. It describes what a company offers its customers, how it reaches them and relates to them, through which resources, activities and partners it achieves this and finally, how it earns money.Alex Osterwalder, How to Describe and Improve your Business Model to Compete Better
I especially like the first suggestion that Kastelle’s delivers, which is that of using a Business Model to test the validity of your Organisation Design, as what you need to ensure is that consistency is reached. This is very much in line with an old concept, called Contingency Theory, which essentially claims that there is no single best way to design organisational structures. The best way of organising, e.g. a company, is, however, contingent upon the internal and external situation of the company.
This is the main reason why Business Models matter, which boils down mainly to the fact that they compel an enterprise to make choices. And this is also the reason why this should be the first step for an organisation. I find the Business Model Canvas a tool particularly friendly to help out with this task.
An alternative tool is the Platform Design Toolkit which enables the exploration of Platform-based Business Models, which seem to be set for real success in today’s economy. As a matter of fact, traditional Business Model frameworks are being challenged today by Ecosystems’ ones. I have now put together a view on the multiple theories on Business Models.
Note: to add to the confusion, there are a plethora of other “things” that seem to overlap heavily with the Business Model or Strategy Definition. Vision, Mission, Purpose, Value Proposition, Employee Value Proposition, Sustainability, Impact Framework…. I’m sure you can for sure add some more. In most cases, these, however, align to some specific communication needs but don’t necessarily encompass the entire Business Model content.
Design the Strategy
Strategy comes second and normally has a limited span of time (3 to 5 years). We have already spoken of it in detail.
Corporate Strategy is a concept that we all assume to be grounded into the way business is managed today. As I read the book The Passion Economy , a few observation by Adam Davidson has, however, drawn my attention to investigate this topic a bit more.
Build the Operating Model
Operating Model is the third component. Some have defined them Tactics in the past to underline the distinction with strategy (but also a hint to the Military Tradition of splitting Strategy and Tactics) (Casadesus-Masanell and Joan Enric Ricart, 2010). Creating an Operating Model is a work that is similar to creating the information system architecture that IT systems need to perform. And I believe that Enterprise Architecture is the nearest proxy to specify what an Operating Model is. Which is also why the definition of an Operating Model is key in a Digital Transformation (Kwan, Schroeck and Kawamura, 2019).
An operating model represents how value is created by an organization—and by whom within the organization.Deloitte, Architecting an operating model (Kwan, Schroeck and Kawamura, 2019)
Also here there are different tools available, and I find the POLISM Operating Model Canvas particularly user-friendly.
Note: another word of caution. In consulting jargon, we often read the name Target Operating Model (or TOM). What is it? In theory, it is the model that is defined as the goal of a change programme or transformation process. Unfortunately, sometimes this is limited to one domain only (often technology).
Design the execution through the Organisation Model
Fourth Step in Understanding Models is the creation of the Organisation Model. We use here the tools of Organisation Design, with the focus to really build consistency (as already mentioned). We have previously referenced Nicolay Worren’s blog: What is organisation design, as it provides an excellent reference framework (Worren, 2015). I’ve recently shared a post on the different Organisation Model that exist and are used, with particular reference to New Human Centered Models.
Conclusion: It is a Matter of Intentional Design
As with all other elements listed here, there’s never a possibility to copy and paste someone else model or adopt a template. Everything needs to be intentionally and purposefully designed around the specificity of each organisation. Everything needs to be intended as an act of Intentional Design aimed at connecting the reason why the organisation exists with its performance and results. This articulates the need for an additional aspect: the Purpose. Reason for it is that it becomes the reason for why an intentional design focus needs to be started.
How does this relate to the current Change we are living in? I believe that the most significant transformative element is that for many years we could design all of the above aspects without necessarily considering the Customer of the organisation. With the adoption of Design Thinking Principles, we should now embed the customers in each and every Model Design Process. A challenge worth taking, also because it will create a much more synergic process in the redesign of all the elements mentioned in this post.
What do you think? Are the definitions of these elements now more explicit? Did it help in Understanding Models, or something missing? Feel free to comment in the form below.
Reference Listshow more
Andrew Campbell (2019). A Critique of Deloitte’s Thoughts on Operating Models. [online] Ashridge on Operating Models. Available at: https://ashridgeonoperatingmodels.com/2019/08/07/a-critique-of-deloittes-thoughts-on-operating-models/ [Accessed 27 Feb. 2020].
Casadesus-Masanell, R. and Joan Enric Ricart (2010). From Strategy to Business Models and onto Tactics. Long Range Planning, [online] 43(2–3), pp.195–215. Available at: http://www.businessmodelcommunity.com/fs/Root/8oex1-Casadesus_et_Ricart.pdf.
Kastelle, T. (2012). Eight Models of Business Models, & Why They’re Important. [online] Tim Kastelle. Available at: http://timkastelle.org/blog/2012/01/eight-models-of-business-models-why-theyre-important/ [Accessed 27 Feb. 2020].
Kwan, A., Schroeck, M. and Kawamura, J. (2019). Architecting an operating model. [online] Deloitte Insights. Available at: https://www2.deloitte.com/us/en/insights/focus/industry-4-0/reinvent-operating-model-digital-transformation.html [Accessed 27 Feb. 2020].
Stanford, N. (2010). Business and operating models. [online] Naomi Stanford. Available at: https://naomistanford.com/2010/06/23/business-and-operating-models/ [Accessed 27 Feb. 2020].
Stanford, N. (2016). Operating, and other, models. [online] Naomi Stanford. Available at: https://naomistanford.com/2016/08/29/operating-and-other-models/ [Accessed 27 Feb. 2020].
Worren, N. (2015). What is organization design? – Organization (re)Design. [online] Organizationdesign.net. Available at: http://www.organizationdesign.net/whatisorganizationdesign [Accessed 27 Feb. 2020].