- Agility and flexibility: Modern operating models are designed to be responsive to market changes, replacing rigid structures with more fluid and adaptable systems.
- Customer-centricity: They prioritize delivering value to the customer by organizing around products, services, or customer outcomes rather than internal functions.
- Integration: They seamlessly connect different parts of the business, such as strategy, funding, and execution, into a single flow.
- Digital transformation: Technology is a core component, integrated into all business functions to improve efficiency, customer experience, and innovation.
- Data-driven decision-making: Organizations use data to inform their decisions and track progress, enabling continuous improvement.
- People and culture: Involves fostering a culture of continuous improvement, cross-functional collaboration, and employee empowerment.
- Processes: Shifts from traditional, linear processes to more agile workflows that enable faster delivery and adaptation.
- Technology: Leverages technology to automate tasks, enhance communication, and provide insights through data analytics.
- Governance: Includes new forms of governance that empower teams and focus on customer outcomes rather than traditional metrics.
- Structure: Often moves away from hierarchical, siloed departments towards cross-functional teams dedicated to specific products or solutions.
| Feature | Modern Operating Model | Traditional Operating Model |
|---|---|---|
| Structure | Cross-functional, product-focused teams | Siloed, functional departments |
| Decision-making | Empowered, agile, and data-driven | Hierarchical, centralized |
| Focus | Customer outcomes and value delivery | Internal processes and performance |
| Change | Continuous and adaptive | Periodic and project-based |
Why the Modern Operating Model is necessary
An operating model drives value creation and strategy execution across an organization. It represents the guiding principles of operations: how different parts of a business should work together to deliver value to customers and stakeholders. It also encompasses how an organization functions to meet core business objectives such as efficiency, growth, and adaptability. Organization structure, culture, processes, technology and decision-making procedures are key parts of an operating model.
In the modern era, several factors impact how we think about conventional operating models:
- The lingering strategy execution gap
- A fast-changing world across all dimensions of life
- The fourth industrial revolution, the wealth of data and its application
Considering these factors, an updated, modern operating model is needed to solve the lingering strategy execution gap and unlock the opportunities of an evolving world. In this article, we’re going to outline what the Modern Operating Model looks like. For detailed information on the context, challenges solved, and the opportunities of the Modern Operating Model, we will be releasing a second part to this article.
The Modern Operating Model overview
There are five core components that make up the Modern Operating Model, each with different parts within.
1) Define the destination
Your mission, cultural values, vision, and strategy work together to act as a north star for your organization. This sets the destination and goals that your organization needs to align towards.
2) Change the business
Strategic objectives, OKRs, and planning the work quantify and make reaching your destination a tangible proposition. They create alignment, structure, and focus to maximize efficiency, speed, and productive power toward your goals.
3) Run the business
Observability of KPI’s through a connected technology stack in addition to OKR reporting gives you powerful insights into what’s happening inside the business, in addition to progress toward goals.
4) Do the work
With the organization aligned, the plan is executed through daily work. Proper alignment through organization architecture, culture, and a clear line of sight between strategy and execution empowers your employees to do their best work.
5) Assess & adapt
Through continuous monitoring, data-driven decisions are made to incrementally optimize, navigate threats, and seize opportunities. Strong top-down alignment liberates your organization to adapt quickly and move as one.
Although there’s a chronological logic to the Modern Operating Model, all components of the Modern Operating Model work together in a feedback loop and need to be engaged simultaneously as an ongoing discipline. Let’s now dive into the different components of the Modern Operating Model and their corresponding parts in more detail.
Component 1: Defining the destination
Correctly defining the destination impacts alignment. At the highest level, defining your destination is about where you want to go, why you want to go there, what needs to be done, and how you will do it. If there’s a disconnect between how your team sees the bigger picture, conflict, erosion of trust, and misaligned execution may emerge.
Defining the destination can be broken down into three core parts:
- Mission and cultural values
- Vision
- Strategy
Mission and cultural values
Mission and cultural values play a role in alignment as everyone in your organization needs to approach their work from the same perspective. Otherwise, there will be a disconnect at the execution layer of the organization. For instance, having a common philosophy that prioritizes customer satisfaction over short term revenue will lead to different behaviors and decisions from your team.
Mission and cultural values also affect engagement, especially in the context of a new generation of workers. Generation Z and Millennial workers aspire to work at organizations that have a greater purpose and more conscious culture. Failure to align your mission and culture with these changing attitudes means you may reduce employee engagement — another key part of effective strategy execution. As these generations value company loyalty less, you may also risk losing key personnel which leads to other execution challenges.
Vision
Like with mission and cultural values, your vision is important for alignment. Your whole team needs to see the future in the same way to maximize engagement and work in synchronization. Vision also has an impact on priorities and strategic focus. A clear idea of your destination means you can make better decisions about the relevant work that needs to be done, take advantage of the right opportunities, and importantly, not become side tracked along the way.
Strategy
Your strategy is the first tangible link between defining your destination and generating the momentum to get there. Your strategy represents why, what, and how your company will navigate at the highest level and informs how you set strategic objectives and OKRs, which play key roles in the next component of the Modern Operating Model.
Component 2: Changing the business
The next component of the model is changing and aligning the business. Changing the business is about deciding on the initiatives and goals you want to focus on to reach your destination. Good organizational alignment is about getting the whole organization in sync and moving in the same direction.
Proper organizational alignment improves strategy execution through:
- Greater efficiency: working on the right things means less waste in the form of time and resources
- Higher engagement: having a clear line of sight between strategic objectives and daily execution means employees can see how their work impacts the organization
- Prioritization and focus: alignment means the whole team focuses on the objectives and activities that are mission critical
Alignment plays an important role in organizational adaptability. If there are any big changes or shocks to the business, your organization needs to be able to move together as one unit. If parts of your organization are misaligned, they may lag behind if your destination changes which can lead to operational roadblocks. In addition, the megatrends of remote and flexible work mean getting alignment right has become more difficult due to a more distributed, asynchronous, and multi-cultural workforce.
Alignment starts with clear top-down communication about the destination and what needs to be done to get there. This is achieved through setting strategic objectives and OKRs, in addition to careful planning of how your team will execute the work.
Strategic objectives and OKRs
The first part of aligning the business is setting and communicating strategic objectives and OKRs. In many cases, the communication of strategy can get lost as it filters through the multiple layers of the organization. This is made worse due to strategy being more abstract and high-level, with language that may not be easily understood by the execution layer of the organization.
Strategy without objectives is meaningless — it needs to be clarified, quantified, and plotted against a timeline. This is what strategic objectives enable — they break down your strategy into tangible goals that can be easily communicated and worked toward as a team.
With strategic objectives set and communicated, your organization can then set OKRs (objectives and key results). These break down your strategic objectives even further by quantifying the specific outcomes different parts of the organization need to achieve. These also need to be communicated across the organization to ensure alignment. Where strategic objectives work on a yearly or multi-year timeline, tactical OKRs function on a quarterly or yearly basis.
Strategic objectives and OKRs impact strategy execution by:
- Plotting ambitious yet achievable goals to stretch the team’s capabilities while preserving morale.
- Creating vertical alignment so everybody is working toward strategic objectives.
- Enabling horizontal alignment so interdependencies between departments can be mapped out, increasing collaboration.
- Boosting efficiency, engagement, prioritization, and focus through bottom-up involvement in goal setting.
- Creating an outcome focused organization as opposed to activity which doesn’t generate results.
Planning the work
With strategic objectives and OKRs set and communicated, planning the governance and execution of work is next.
A few things to consider during this phase are:
- Culture design: Your operational culture must be transparent, continuously learning, and braced for constant transformation. This enables effective use of the OKR method and continuous adaptations. At the leadership level, there must be a shift from control and compliance to trust and transparency.
- Organization architecture: Your organization structure needs to be adaptable to account for asynchronous, remote, and flexible ways of working.
- Policies and procedures: Decision making should be made at the edge of the network — closer to the source of data and point of execution, as opposed to centrally. In the modern era, there’s no longer time to go up and down the chain of command to make decisions. Greater communication and transparency efforts need to be pushed to eliminate information silos and shadow organizations.
- Playbooks and processes: Mapping out the strategies and tactics of the work to be done.
- People: Deciding who will be doing what.
- Tools: Choosing the right software tools to enable work. With the Modern Operating Model, special emphasis is placed on connecting all your data sources for better observability and assessment.
- Resource allocation: Setting budgets appropriately to meet different OKRs.
- Programs and initiatives: Organizing work at a high level in conjunction with strategic objectives and OKRs.
- Approaches to work: Deciding on how work will be carried out with task management, workflows, projects, sprints, etc.
Effective work planning increases the efficiency of your strategy execution. Conducting work in the right manner means time and resources are saved through error reduction, in addition to faster and better work outputs.
Component 3: Running the business
As work is conducted, there needs to be continuous monitoring of both data and information. In a Modern Operating Model, monitoring incorporates and goes beyond traditional management check-ins and annual and quarterly performance reviews. KPIs are gathered from all parts of the business in addition to the application of the OKR method. Working in conjunction, OKRs and KPIs create a more powerful picture of what’s happening in the business and how it affects progress toward strategic goals.
As part of the internal monitoring aspect of The Modern Operating Model, KPIs are pulled from a connected technology stack to provide business observability. With the right tools, you can sync your KPIs to continuously update alongside your OKRs, in addition to gaining insight about potential risks and opportunities. To add to this, OKRs provide quantitative data in the form of key results and confidence assessments toward meeting objectives. They also provide qualitative information in the form of weekly OKR reviews and quarterly retrospectives.
External monitoring is also a necessary part of the Modern Operating Model. This involves constant surveillance of your business environment to identify changes, threats, and opportunities. This could be in the form of understanding megatrends such as the next wave digitization or keeping tabs on startups that could potentially disrupt your space.
Together, internal and external monitoring are used to compress learning feedback loops and boost business observability, which can then be used to make more accurate decisions about changes and adaptations to your strategy execution.
Component 4: Doing the work
The next component of the model is doing the work. At the surface level, this involves the basics of completing tasks, inputs, transformations, and outputs. But under the Modern Operating Model, the essence of how the work is done is different.
When applied correctly, the ideal state of work should look like this:
- Fully engaged employees who expend discretionary effort to improve their craft and solve problems.
- Collaboration and communication between teams to work toward common objectives.
- Continuous learning and feedback based on regular OKR reviews and KPI observability.
- Greater ownership and accountability of work through transparency.
- Decisions made locally in a data-driven way.
- Greater focus on outcomes, as opposed to tasks and activities.
- More experimentation and embracing failure.
- Recognition and reward based on merit and adherence to company values.
Although this ideal state of work doesn’t happen overnight, the components of the Modern Operating Model are designed to optimize your strategy execution over time, bringing this ideal closer to reality over time.
Component 5: Assessing and adapting
With the right data and information through business monitoring, assessments can be made to adapt strategy execution to help you stay the course. The process of assessing and adapting involves looking at the data and information you have collected, extracting the insights and narrative, and turning them into knowledge which can be used for decision making.
At the macro level, the purpose of this component is to help you navigate the threats and opportunities of a fast-changing world. This means you may need to make changes to your destination and how to get there at a strategic level. In addition to the points mentioned above, these could include navigating changing economic, political and social conditions, adapting to innovation, and ESG (environment, social, and governance) concerns.
At the micro level, you want to assess and adjust your strategy execution for:
- Overall effectiveness: Optimizing the different components of the Modern Operating Model such as how work is done.
- Progress towards OKRs: Looking at key results metrics for each objective and uncovering the reasons for possible underperformance. Deciding whether the OKRs set are still relevant in terms of achievability and being critical to current strategic objectives.
- Internal warning signs: Gaining insight and foresight, as opposed to hindsight, about operational problems through AI and KPI data. This could be technical issues such as servers going down or business challenges such as a high churn rate among a customer demographic.
- Internal opportunities: Spotting patterns and trends to map out new opportunities. For instance, looking at customer support data to identify unmet or emerging customer needs.
As adaptability is central to the Modern Operating Model, you will continuously adjust different components of your strategy execution based on the data and information you collect. You may only need to make small changes to a work tactic, for instance, or realize there is one threat or opportunity you need to focus on. But as time progresses and the business environment changes, you may need to adjust at the strategic level. Full adaptiveness of strategy execution at both the macro and micro level is the promise of the modern operating model.
Why use the Modern Operating Model?
Optimizing your strategy execution is relevant to every company regardless of size, stage, or industry. Working together, all components of the Modern Operating Model boost alignment, focus, adaptability, and efficiency in your strategy execution.
Through adopting the Modern Operating Model, you can better navigate the threats and opportunities of a fast-changing world, in addition to achieving your strategic goals faster. To learn more about the broader context, challenges solved, and opportunities of using the Modern Operating Model, we will be releasing a second part to this article.
