By David Winders and Kirill Deverenski. October 2018
The last ten years have shown great promise in operational change with new and different ways of communicating how a business should be structured to deliver value to its stakeholders. Materials have moved away from stuffy journals and methods, often kept under lock and key by transformation consultancies, to bright simple and vibrant books and materials.
However the main themes stay in place – the concept of a strategy to execution journey that follows a series of interlinked phases:
- Strategy Formulation
- Operating Model Development
- Operational Control and Feedback
Historically the above steps were presented in a rigid way. One developed a strategy – a set of goals for a journey, then designed a delivery model and then implanted it in a very sequential “waterfall” approach. This often took a long time and no longer reflected market conditions by the time the transformation was completed.
The final phase of control is frequently overlooked; the basic requirement here is ensuring that your operating model stays on course within business as usual activity delivering the strategy.
There has in recent times been a strong recognition that, although described as phases or stages, there is fluidity between the phases with some overlap, repetition or iteration; both back and forth across the phases, and up and down in the levels of detail where, as is well known, “that the devil is in the detail”).
A key improvement we have seen are the development of tools and techniques that are readily accessible and simply explained; one approach in particular is the use of “canvasses”.
Business Model Generation
In 2010 Alex Osterwalder published his now well-known book Business Model Generation using the idea of acanvas, a pre-set template to stimulate structured thinking. The book, published in a colourful landscape format was highly visual, low on text and gave numerous examples of how to apply its ideas. The business model canvas became a new “strategy statement” to accompany the more traditional statements of vision, mission and goals. It gave focus to the creation and grounding of a business model as a way of showing how value was created and delivered to stakeholders. It is one way of expressing how value generates revenue and how costs are created by serving that value creation – a business model.
The Business Model Canvas of course has its limitations and isn’t perfect, but one has to say it has been really successful in getting executives to think about how their business “ticks or could tick”.
One point coming out of this was that the left side of the canvas – the cost creating part – was the operating model. Costs constrain the way value is delivered and the two sides have to be in balance. One informs the other and vice versa, therefore presenting a circular repeated piece of thinking that gets more confirmed as different ideas are tried out and tested.
The canvas helps us by suggested “links” and connections. All this prompts thinking which is really helpful for people starting out in this type of skill set. Others have added arrows and action words on lines between boxes on the BMC canvas providing a more explicit and better understanding of the mechanism of delivering value.
Since 2010 the BMC has been modified and added to and has been applied to organisations beyond its original target of the profit centred firm.
For all its advantages, the Business Model Canvas lacks the crucial ‘how to actually do it’ element. The BMC is only at the high level – too high level some critics say – only having the two zones of key activities and key resources to address the operating model; these are not nearly enough from an operational perspective. One does really need more detail to inform whether the operational practicalities fit in to deliver the business case, the cost element, for the proposed business model.
Enter the Operating Model Canvas
The brevity of the two zones and the need for greater focus in the operation led to the Andrew Campbell et al(2016) publication of the same name. A similar style of book, again in landscape, colourful and text light, it uses six themes: Process, Organisation, Location, Information, Suppliers and Management Systems to structure operating model design. The emphasis presented in the book was the flow of value and how each category assisted that flow. It leaves the value to be defined elsewhere; it simply gives focus to how the operation serves that value. The book describes an eclecticmix of thirteen supporting tools without going into details of how to do this work at a practical and ground level.
Just to point out, splitting the operating model into themes or zones is not new. CCPPOLDAT (Customer, Channel, Product/Proposition, Process Organisation, Location, Data Application and Technology) served us well since the early 2000’s and still does as a structure for operating model work. In fact, one could argue that CCPPOLDAT does the job of both the BMC and the operating model canvas. It is an alternative approach and has its merits too.
As contributing authors to Andrew’s book, Kirill and David have published six companion articles each taking an Operating Model Canvas Zone and looking at how each aspect affects both the cost and value models. These assist the practitioner to “drop down a level” beneath the high level conceptual ideas of how to operate, starting to flesh out the practicalities rather than staying in the “consultancy plane”.
In tying back to our original statement that rework and iteration are essential in this sort of work, only once you explore the practicalities and detail of the operation can you be certain that the costs fit with the original business case. Indeed, in many cases the transformation team has to revisit and modify its high level ideas once the real outcomes are understood to some depth.
Although Andrew Campbell presents the Operating Model canvas as “plug in” to replace the Key Activities and Key Resources in the Business Model Canvas, it is not really necessary to have a BMC as a precursor. In fact, just knowing ‘what one wants to achieve’ is often enough to start working on operating model design!
Regarding Implementation and Control & Feedback themes of a transformation journey several models exist, too. But herein lies a problem, in most instances, these too are discreet and stand-alone ‘modules’ not directly connected to phases before or after them. The absence of a clear, logical and easy to understand A to Z approach to transformational activities from strategy to ongoing operational improvement complicates decision making and reduces the chances of success. Importantly for organisations and decision makers, the absence of clear transformation project A to Z roadmap hides the costs, diminishes employee engagement and risks client attrition; it makes fluid ‘agile’ approach to transformation effort impossible.
Both Business Model and Operating Model Canvases are just “jigsaw puzzles” in the overall transformation activity. To succeed, they must have a head (Strategy) and a tail (Implementation), all seamlessly connected into one narrative. Over the course of next months, this is what Kirill and David will be working on to make things real and practical for our clients and the operating model space in general – so stay tuned!
A. Osterwalder, 2010, “Business Model Generation”. Wiley, London.
A. Campbell, 2016, “Operating Model Canvas”. Van Haren, Amsterdam and London.