Strategic Operating Model Defines How a Company Looks and Works. This document gives a good overview of the the various aspects of the concept including: 1. Understand the Linkage Between Strategy and an Operating Model. 2. Recognize the Key Components of a Company’s Operating Model. 3. Familiarize Use of Operating Models to Make Comparisons Across Companies.

1. Strategic Operating Model Design

2. Agenda and Objectives
Definition of a Strategic Operating Model
Understand the Linkage Between Strategy and an Operating Model
Key Components of an Operating Model
Recognize the Key Components of a Company’s Operating Model
Summary
Familiarize Use of Operating Models to Make Comparisons Across
Companies

3. Strategic Operating Model Defines How a Company
Looks and Works
Definition Key Components Summary
Organization Vision
/Mission
Business
Strategy
Value
Propositions
 Who are we?
 What do we do?
 What is our role?  Where will we compete?
 Who will we compete
against and when?
 How will we compete?
- method of
competition
- goals and objectives
- critical success factors
 Who are our
customers?
 What do they want?
 What can and will we
offer to our customers
to meet their needs and
improve our value
exchange?
Strategic
Operating Model
 What do we need to do
to deliver the value
propositions (e.g.,
objectives, operating
principles)?
 What organizational
constraints exist?
 What are the expected
results?
 What do we need to do
differently?
- business structure
- process architecture
- organization structure

4. An Operating Model Consists of Three Primary
Components
Definition Key Components Summary
 Business Unit Structure: Determination of how the
company is organized (i.e., around customers,
markets, products, geographies) and how the
business units should work together (i.e., allied vs.
integrated)
 Shared Elements: Delineation of dedicated and
shared services across business units, countries and
areas
 P&L Responsibility: Preliminary evaluation of profit
and loss responsibility, revenue responsibility, and
cost centers
 Rules of Operation: The unwritten rules which
govern the way we work together and manage our
business
 Clearly identified and defined business
system that support the strategy and the
high level business structure
 Organizational Structure which supports
the operating model and the business
system describe at a high level all
elements of:
- span of control
- reporting structures
- roles and responsibilities (RASCI)
- job description and requirements
 Design of an organizational structure
that is aligned with the strategy and
other operating model components
High Level Business Structure
Organization Structure
Business Process Architecture
Sales
Marketing
Call Center (Service)
BillingOperators
Remittance Processing
System Control Center Ops
Generation
Engineering and Construction
Environmental
Regulatory (Lobbying)
Legal Services
Human Resources
Finance
External Affairs
Business Planning
Administration
One Operating Business Unit
Regulatory (Lobbying)
Legal Services
Human Resources
Finance
External Affairs
Business Planning
Administration
Engineering
Environmental
Compliance
Transaction
Management
Regulatory
Compliance
Energy Generation Unit
(Genco)
Customer Operations Unit
(Disco)
Energy Delivery Unit
(Transco)
Low Cost Differentiated Services
By-Product (Ash)
Management
Maintenance
Operations
Maintenance
Operations
Customer Service
Product
Development
Marketing
Sales
Business
Processes
Culture/
Values
Jobs, Skills,
Organizatio
n
Information
Technology
Management Processes

5. What business unit structure will best
support business requirements of
customers, markets, products and
geographies?
What degree of shared, dedicated and
outsourced services should exist
across business units?
Minimize costs while providing
necessary services to effectively run
the business
Leverages resources when business
requirements are similar, yet allows for
dedicated resources when
requirements are unique
Minimizes redundancy of duplicate
infrastructure
Outsource non-core activities when
they can be more efficiently delivered
by others
Who has control over P&L, Revenue
and Cost Centers?
Creating an Operating Model Starts With Several Key
Questions Which Define the Business Structure
Definition Key Components Summary
Supports the development of a
competitive advantage (e.g., low cost,
product differentiation, service
differentiation)
Aligns to substantive differences in
customer, market, product or
geographic needs and the skills
required to fulfill these needs
Reflects differences that warrant top
management attention
Responsibility, authority, and
accountability must be aligned
Accountability will be assigned to
those who can truly influence revenue,
costs and investments

6. The Business Structure Illustrates How a Firm Organizes
to Meet Customer Requirements/Value Proposition
Definition Key Components Summary
Customer Value Proposition Determines Business Configuration
(Example Depicts a Single Country Model)
Operating Model Impact
DifferentiationLow Cost
Sales
Finance
Tech Reps
Mfg./Distrib.
R&D/Eng.
Purchasing
Info. Tech.
Sales
Mfg./Distrib.
R&D/Eng.
Purchasing
Info. Tech.
Tech Reps
Human Resources
Finance
Sales
Cust. Service
Marketing
Sales
Cust. Service
Marketing
Customer Value Proposition: Provide
consumer segments the lowest total
cost
Customer Value Proposition: Provide
consumer segments unique offerings to fill
their needs
Shared Services Outsourced Services
• Heavy reliance on shared and outsourced
services in order to reduce cost structure
• Each business unit focused on producing a
high volume of standard products
• Only customer facing processes are dedicated
within each business unit
• Predominately utilizes dedicated services in
order to focus on the unique needs of each
distinct customer group
• Focused on building products around
customer requirements and to order
• High degree of customer interface to allow
“customization” for large spectrum of needs
Business
Unit #1
Business
Unit #2
Business
Unit #1
Business
Unit #2
vs.Purchasing
Human Resources
Mfg./Distrib.
Information Technology
Low Cost Strategy:
Differentiation Strategy:

7. Market Complexities Drive Larger Companies to Adopt
a Hybrid Business Structure
Definition Key Components Summary
Shared Services Outsourced Services
Low Cost Differentiation
Information Technology
Product Innovation
Marketing
Sales
Customers “A”
Total Cost Focus
Marketing
Sales
Information
Technology
Sales
Prod. Specialists
Distribution
Channels
Prod. Innovation
Customers “B” Customers “C”
Best Product Focus
Information
Technology
Sales/Service
Specialists
Prod. Specialists
Distribution
Channels
Best Service Focus
Purchasing
Human Resources
Finance
Distribution Channels
Cust. Service Cust. Service

8. A Typical Business Structure Consists of These Common
Business Functions
Definition Key Components Summary
01
Sales
Develop customer relationships
and identify needs; sell
products/services that meet
those needs
05
Procurement
Manage vendor relationships
and maintain parts/raw
materials inventory
06
IT Services
Build and maintain information
systems to support operations
07
Finance
Track financial performance,
ensure compliance with
reporting requirements and
manage financial assets
08
Human Resources
Hire, train, and manage the
career development process
02
Customer Service
Assist customers during and
after a sale; provide ongoing
support
03
Marketing
Determine what messages will
generate customer demand and
how to deliver them
04
Manufacturing
Make products and send them
to customers

9. Business Process Architecture Defines the Way Work Is
Accomplished
Definition Key Components Summary
Business
Processes
Culture/
Values
Jobs, Skills,
Organization
Information
Technology
 Human Resource processes
 Core competencies
 Skill requirements
 Accountabilities
 Job categories and
descriptions
 Tasks
 Decision support
requirements
 Technology platforms
and architecture
 BU specific tools and
infrastructure
 Widely held organizational
beliefs (Paradigms)
 Values
 Rules of operation
(unwritten rules of how work
is accomplished)
 Demand creation
 Service creation
 Service delivery
 Supply chain and logistics
 Engagement
management
 Shared/support services
(e.g., finance, HR, IS)
Management Processes
 Leadership, decision making and
accountability
 Business performance metrics
 Management incentive and reward
structure
 Resource allocation and investment
strategy
 Planning (strategy, budgeting)

10. Business Process Architecture Defines the Activities of
Each Major Function
Definition Key Components Summary
Components Example Activities
Business Processes  Identify value chain of critical activities
 Establish a cause and effect relationship between business issues and activities
 Identify points of cross functional interaction
 Generate alternatives to resolve issues
Culture and Values  Identify changes in behavior required to support desired culture and values
 Link desired behavior to appropriate incentives and rewards
Jobs, Skills and Organization  Identify changes in skills and competencies required to execute new business processes
within the organization
 Determine career progression that supports development of required skills
Management Processes  Identify business drivers which need to be monitored
 Identify critical decisions which need to be made concerning drivers
 Identify committees that need to exist and the members
Information Technology  Identify information required to make decisions
 Identify data flows between systems that need to take place

11. World Class Companies Successfully Integrate Their
Strategy Into Their Business Process Architecture
Definition Key Components Summary
Business
Processes
Culture and
Values
Hallmark
• Optimized its supply chain by
integrating suppliers into
product development,
manufacturing and inventory
management
Federal Express
• Expects its employees to go to
almost any means to ensure
package delivery
Toyota Corolla (Japan)
• Dedicates one salesperson to
deal with an individual
customer throughout every
interaction
Home Depot
• Empowers personnel to go to
any length to satisfy a
customer regardless of the
time or expense required
Hallmark
• Streamlined its product
development process by
creating cross-functional
teams to simultaneously
create products
Microsoft
• Allows software engineers
incredible flexibility in
developing new ideas and
supports them with the
necessary resources
• Rules are de-emphasized
Low Cost Best Service Innovative Products

12. World Class Companies Successfully Integrate Their Strategy
Into Their Business Process Architecture (Continued)
Definition Key Components Summary
Organization
Skills
Culture and
Values
Information
and I/S
Walt Disney
• Trains park “actors” rigorously
to deal with all customer
problems and to maintain
exacting standards of
appearance and service
Nissan
• Rewards associates based
upon their ability to reduce
costs and improve quality
• Performance is constantly
monitored and communicated
Wal*Mart
• Links suppliers directly to
point-of-sale transactions to
enable inventory
Nordstrom
• Empowers employees to
respond to customer’s needs
• Sales force relies on “good
judgment” and bends rules if
necessary
Bergen Brunswig
• Mandates that all Vice
Presidents make 100 sales calls
per year in order to stay “close
to the customer”
Staples
• Uses information systems to
anticipate customer needs and
support consultative selling
Hewlett-Packard
• Encourages engineers to leave
projects out on their desks so
that others can “play” and
contribute their ideas
3M
• Ties individual compensation
to the rate of new product
development and
commercialization
• All divisions must generate
30% of sales from new
products
Kodak
• Uses CAD to allow cross-
functional employees to work
on the same project
simultaneously
Low Cost Best Service Innovative Products

13. Organization Structure Is Designed to Create the Skill
Sets Required to Execute the Business Strategy
Definition Key Components Summary
Description
Spans of Control
 Structure designed to decrease corporate reaction times while fully serving the
customer’s needs
Reporting Structures
 Examples include centralized vs. decentralized, functional vs. operationally focused,
etc.
Roles and
Responsibilities
 Direct accountability structure in order to measure component performance
 Minimize number of functional layers
Job Description and
Requirements
 Expand individual responsibilities to drive decision making authority to the lowest
level possible
 Heavy emphasis on teams and knowledge sharing/leverage

14. Ultimately an Organizational Structure Must Support
the Business Structure and Processes
Definition Key Components Summary
Components Example Activities
Reporting structures and
decision making authority
 Link back to business processes
 Group related jobs / competencies under same reporting trees to improve operating
synergies
 Identify major decision points within processes
 Develop RASCI model by identifying:
– who is (R)esponsible to make these decisions
– what level of (A)pproval is required to make decisions
– who is required to (S)upport decision making
– who is (C)onsulted during decision making
– who is (I)nformed of decisions made
Roles and responsibilities  Link back to jobs, skills and competencies
 Create job descriptions that include activities, requirements and responsibilities
 Utilize RASCI model to structure descriptions

15. Operating Model Summary
Definition Key Components Summary
New strategies are implemented
through operating model changes
Operating model has three main
components
1. high-level business unit design
2. business system definition
3. organizational structure
Operating model comparisons
across companies are a powerful
way to learn and highlight
improvement opportunities