Looking for growth? It's time to review your operating model

Today’s competitive business landscape is changing. Organisations must navigate many complex challenges, such as changes in market dynamics, technological advancements and social behaviours. Staying competitive requires more than simple cost-cutting to create a short-term solution. These types of changes demand operational agility to ensure that the operating model is as efficient as it can be and that costs are being managed effectively. Often, this is a common catalyst for business transformation to ensure that sustainable growth and strategic goals remain achievable.  

Cost management starts from evaluating your business model, how your business operates and how it creates value. You need to know how to best utilise your resources across the business, in line with the outputs that you need. And start with the end in mind, not 'but this is how we have always done it' to drive change. 

What can organisations do to leverage and transform their existing operating models to set themselves up for long-term success and to drive effective cost management?  

How operating model design can drive sustainable cost reduction 

A well-designed operating model should optimise people to best deliver services that align with your strategic direction. Where this isn't the case, organisations can find themselves knowingly or unknowingly incurring additional costs. These costs often manifest as overhead costs that could look like: 

• resources not being fully utilised – such as labour costs or a facility not being used
• inefficient supply chains – leading to redundant processes or a requirement to streamline
• outdated or unused technology – such as maintenance costs for software that's not often used.

Such excess costs can quickly become cumulative and organisations may not even be aware of the opportunity costs of re-designing their operating model to optimise resources.  

Questions to ask:  

• Does your current operating model remain competitive and relevant in the market? 
• When was the last time your operating model was evaluated?
• Do you understand how to assess the effectiveness of your operating model? 

Reevaluating your existing model, and identifying opportunities to streamline functions or enable more efficient ways of working, can completely innovate the operational effectiveness of your business on a functional and activity-based level. It creates a blueprint for effective cost management by ensuring that you have the right baseline to help you control costs going forward.    

Culture as an enabler for cost reduction 

Cost management isn’t just about numbers on a page. It's also important to consider how the behaviours of your people can influence to service level productivity and efficiency. The vision for sustainable growth should resonate with your people, who should naturally have a delivery-focused mindset and understand the importance of cost reduction. 

Business transformations, such as refreshing an operating model, is a large change for employees, which can be unsettling. You need to take proactive steps to ensure that you're bringing them with you on the journey, regardless of scale. There are ways to facilitate this, including: 

• ensuring that employees understand the organisational goals and strategies 
• articulating a case for change for business decisions or changes
• using transparent communications and strong engagement on organisational changes
• creating nudges to encourage a cost-conscious or continuous improvement mindset within employees.  

Non-financial metrics can also help you understand whether your organisation has strong cultural enablers. This includes trends in relation to: 

• staff turnover rates
• employee engagement survey results 
• customer satisfaction scores.

Culture can be a powerful enabler for increasing productivity in your organisation. There will be a mindset shift and change in behaviours required when businesses evolve, adapt to changes or embrace new strategic directions. By ensuring that people are motivated and bought in to the change, you can maximise the benefits of a refreshed operating model and manage costs going forward from a continuous improvement perspective.  

Benefits realisation 

As part of an operating model review, organisations will typically see the following benefits: 

• Operational excellence by streamlining processes, improving productivity and eliminating inefficiencies
• Cost savings from removing inefficiencies and increasing how resources are utilised 
• Increased agility to changes in the market, enabling faster decision making and responsiveness to opportunities to drive growth  

A key part of re-designing an operating model is ensuring that there are tangible short- and long-term outcomes, and that it is future-fit for the environment that it operates in. 

In order to track the benefits, organisations need to define the objectives of their operating model and what key performance indicators (KPIs) may support the measurement of success. This may vary depending on what data is available and reporting capabilities at your organisation. Data-driven insights will support whether your operating model is working effectively or if there is further work or intervention required. 

A post-implementation review will let you compare progress to your baseline. Not only will you be able to measure progress but you can ensure that your operating model is still effective, in line with emerging changes in the business landscape.  

Five challenges when reviewing your operating model

1 Leadership alignment

Unclear or conflicting priorities within the strategic direction can create unnecessary barriers to change and a successful operating model.

2 Business case

Effectively articulating the rationale for change, demonstrating benefits and ensuring buy-in is necessary for the operating model review.

3 Internal change capability or readiness

Internal teams may struggle to adapt to new processes, technology or ways of working as part of the new operating model.

4 Balancing BAU with change

Organisation capacity and change management is a challenge when re-designing an operating model, due to the need to ensure that business as usual (BAU) isn't interrupted and the demand for subject matter experts (who also need to focus on running the business).

5 Culture

An operating model may have a variety of subcultures, which may struggle to integrate or to adapt to the changes required. Resistance to change will need to be carefully managed.  

For more insight and guidance, contacts Carolyn Hicks.