We recently worked with the CEO of a company who, supported by a large consulting firm, had launched heavy-weight business units in an effort to create greater accountability and agility. An articulate white paper was distributed across the leadership team that argued for the necessity of establishing “autonomous, independent” business units that operate with few interdependencies. His frustration with the plodding pace of the company and the finger-pointing among executives was completely understandable; and a so-called BU-centric organization seemed like the right fix. We suggest caution, however, as it is easy to overcorrect in the drive to create accountability and simplicity.

Our clients in consumer packaged goods, life sciences, retail, and industrial products have different needs as they design organizations that will bear the weight of their complex growth strategies. But they share something in common. They are all trying to find the sweet spot between strong, empowered business units and able functions, managed from the center, that reduce corporate risk and deliver the benefits of scale. Increasingly the connections across business units is becoming critical too.

For healthcare companies to capitalize on the integrated care promise (better health outcomes at a lower cost structure), legacy business units have to collaborate with start-up business models inside the company to leverage the collective horsepower of diverse products and services. (Think: healthcare service providers insuring their patients.) Digital commerce business units have to work seamlessly with traditional sales and marketing functions inside brick and mortar retail and consumer products companies if they are to avoid sinking the consumer experience and creating channel chaos.

Designing the operating model for the company as a whole is more important than ever. Before pen is put to paper to draw out a new set of organization “boxes and wires” we strongly urge CEOs and senior executives to first imagine the nature of the company they are trying to create by defining the overall operating model for the company.

 

The operating model is not a structure. It is a set of management processes, operating mechanisms, decision-making forums and leader behaviors that answer how the piece parts of the structure (business units, functions, and geographic execution teams) will work together to grow the company. Taking the time to put some stakes in the ground for “how we will run the company” is a critical step to bringing organization structure to life, and may be the biggest outage in most corporate restructuring initiatives.

An effective operating model usually answers these kinds of questions:

  • What synergies do we expect across our operating units, and for what purpose?
  • What are the basic roles that business units, functions, and geographic teams play in our growth strategy?
  • What are the capabilities and processes that should be built company-wide?
  • Where should we drive scale to reduce waste and unnecessary complexity?
  • What are the basic decision-guard rails that should be put in place to create the right power dynamics to deliver our strategies?
  • What forums need to be operational in order to build the right connections across boundaries?

This is the work of the senior executive team. The CEO must weigh in with a clear point of view, but executive alignment around the answers to these questions is critical and the more dialogue that takes place in spelling out the answers, the greater the shared understanding and likelihood that the right behaviors will follow.

Our counsel to our CEO client was to temper the desire to drive accountability through strong, autonomous business unit structures with a recognition of where integration across those units was required. And, then to achieve those goals through the design of highly skilled functions that enable better, faster decision-making and scale. Each company must define its own unique formula to tie the organizational piece parts together. It is the work of the top executive team to design the operating model that will carry the company forward.

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Operating model illustration for a large industrial company.

Amy Kates and Greg Kesler

Managing Partners