Growing up is hard to do…
The operating model challenges of exponential growth
Companies such as successful digital start-ups and Fintechs who have experienced exponential growth often find that the informal organisational models and structures (or lack of) which helped to drive initial growth are no longer fit for purpose once the organisation reaches a tipping point.
Are we nearly there yet?
Definitions vary but there is some consensus  that 10, 50, 250 and 500 workers are key tipping points from an organisational perspective. Each of these brings about a multitude of challenges from an operating model and organisation design perspective and when growth happens quickly, the challenges are amplified.
Key examples of these challenges include:
- Loss of aligned vision and direction leading to more time consuming and sub-optimal decisions being made
- Maintaining customer focus
- Unnecessary hierarchy, division of labour, command and control culture and bureaucracy
- Loss of freedom in decision making and/or autonomy across the team(s)
- Loss of collaboration across compartmentalised teams
In short, the organisation is “growing up”. Organising a larger workforce, managing an increased risk profile and keeping increasingly demanding stakeholders happy requires a level of control and compliance that may feel uncomfortable but is a necessary reality.
As a result, organisations at this point in the maturity curve need to proactively consider how they organise themselves.
Where to begin?
“A satisfied customer is the best business strategy of all” – Michael LeBoeuf
Fundamentally an operating model is developed to deliver the organisation’s strategy. To be successful, this needs to properly address customer needs and should evolve over time in response to changing customer needs, the organisation’s maturity and wider environment. As an organisation grows and the vision and strategy need to be communicated in a compelling way to a wider group so that everyone is “pulling in the same direction” the clarity of the message becomes more important. Do people understand what the leadership wants to achieve and do they understand how they can contribute to delivering the vision?
While it is fairly obvious that an operating model should be driven by strategy, what is sometimes less clear in transformation programmes (and redesigning and implementing a new operating model is most definitely a transformation!) is the case for change. To be successful, an undertaking of this nature requires a significant investment of time and resources so the business case should be carefully considered and explicitly agreed. What does good look like? Additional growth? Reduced cost? Improved quality / customer retention etc?
Our belief is that a purely traditional, ‘top-down’ approach to Op Model/ Organization design is unlikely to tap into and utilise customer insights in the desired way. Instead, organisations should employ both a ‘top-down’ and ‘bottom up’ approach to ensure that Op Model / Org Design is both commercially and customer driven. Clearly understanding requirements at the customer level whilst maintaining focus on strategic priorities allows the organization to build an Op Model / Org Design that satisfies both sides of the coin.
It can be tempting to jump straight into designing solutions, in particular for business leaders who feel they already know their organisations inside out, but as we all know, change is hard and all too often, transformation programmes fail. Developing a clear and factually informed understanding of what has made the business successful to date, the challenges it is facing and the opportunity areas, is a crucial step in successful business transformation.
Traditionally, a current state assessment or Discovery phase focuses on stakeholder interviews and the opinions of a handful of key individuals. This qualitative information should be enriched with data driven insights gained by analysing the information sources which are now more readily available within an organisation, for example, customer and HR data. Further insights can also be distilled by using new technologies such as crowd sourcing and network analytics.
Investing a bit more time upfront on really understanding the organisation’s current state will pay dividends when it comes to designing solutions that are fit for purpose.
Furthermore, implementation and change management activities are much more effective when the impact of future state designs on the ‘As Is’ are properly understood. As the old saying goes, “a stitch in time saves nine”.
Areas to consider during this initial phase include:
- What has made the business successful to date?
- What and where are the key drivers of growth? Are any particular parts of the business operating above average and what is behind this?
- Are there any key individuals or teams on which the organisation is disproportionately reliant?
- How does the organisation identify customer needs and communicate these across the organisation?
- To what extent can the organisation respond to changing market conditions?
Having established the challenges and opportunities for the business, the next stage is to consider the options for moving forward. In order to frame thinking and align the ideas of multiple stakeholders, it is worthwhile spending time agreeing a handful (circa 8-10) Design Principles that articulate the direction of travel for the future design and will help evaluate and select the preferred option.
Things to consider when developing design principles:
- To what extent to some / all parts of the business need to focus on the customer?
- How important is cost effectiveness vs quality of service?
- To what extent can the model be customised vs consistent?
- How important is agility and freedom vs control and compliance?
- To what extent will the operating model and key processes be determined by available technology?
Agreeing on a set of Design Principles is a way of articulating what good looks like in the context of redesigning the organisation. This will help to refine the myriad of options available to any single organisation.
While there may be an assumed ‘preferred option’ from the get-go, feasible alternatives should not be dismissed without careful consideration. It can also be helpful to understand market trends and what other organisations are doing in order to inform what will work best for your organisation.
Forward thinking operating model trends currently seen in industry include:
- Flatter Org (e.g. Cisco): Seeks to open up the lines of communications and collaboration while removing layers within the organization. The most practical option for larger orgs. who want to modernize their Op. Model
- Ambidextrous Org (e.g. Ciba Vision): A ‘dual’ Op Model – Exploitative and Exploring. One focuses on operations, efficiency & ongoing improvement; the other on innovation, agility and ‘future proofing’ – they compliment each other
- Scaled Agile (e.g. Spotify): A scaled approach to the well-renowned software development model. Characterized by small, autonomous, multi-discipline teams who own a product or part of the customer journey
- Holacratic Org (e.g. Zappos): The model allows for distributed decision making while giving everyone the opportunity to work on what they do best. Information is openly accessible, and issues are processed within the organization during special and ongoing meetings
- Platform Org (e.g. Amazon): The organisation no longer functions as a self-contained system, but as a network platform. It gives seamless access to word-class resources. where stakeholders can co-create with shared interests, risks and successes.
There is no single right answer and the optimal option for your organisation may be a hybrid of one or more of the above with more traditional models. What works for one part of the business may not be optimal for another part. For example, some areas may require more structure and codification than others. Having a detailed understanding of the current operation will make this assessment more straight forward.
It is also important to remember that you don’t have to remodel the whole organisation at once. Consider how you can pilot ideas, implement change in sprints and build an iterative design cycle which allows you to build on the lessons learned from each incremental change.
In our experience, where organisations have scaled their organisations effectively, they usually have some or all of the following characteristics:
- Everyone aligns around the strategy and pulls in the same direction
- The customer is the ‘north star’
- Teams are organised around the product/ service and/or specific parts of the customer journey (which is well defined). Teams are likely to be multi-disciplinary and utilise agile ways of working
- The way work is delivered depends on what the required output is. For example, if continuous improvement/ innovation is the goal, Agile/ Scrum ways of working are likely the choice
- Technology both owned and outsourced. Only mission critical tech is owned, the rest should be outsourced to an effective third party
None of us is as smart as all of us
Of course, good organisation design only begins with the design. If changes are not implemented then the design, however good on paper, achieves nothing. Involving the right people in the design process is fundamental to success – not only because it helps to shape the answer that is right for the organisation in question but also because it identifies barriers to change and pockets of resistance well in advance of implementation.
How to identify the ‘right people’?
- Who makes the decisions?
- Who knows ‘how things work around here’ and who are the critical individuals and teams?
- Who knows about each different part of the business?
- Who do we really need to please in order for the business to be successful? (Clue: it’s probably your customers!)
Include as many of the above in the design phase as possible. This doesn’t need to be extensive involvement but gaining input from all the key workforce segments will help shape a design that is fit for purpose as well as inform considerations for implementation.
In the same way that new technologies and the greater availability of data allow for improved data driven analysis, new tools can also enable input from a wide range of sources to be gathered and analysed at pace. Crowdsourcing tools can be used to tap into the internal ‘crowd’ of an organisation, seek input from customers and others within the industry.
So, to summarise
Scaling up a business involves unique operating model and organisation design challenges
Any design interventions must be centred around a clear, customer focused strategy
Establishing a detailed, insight and data driven understanding of the current state takes time but creates a platform for successful design and implementation
Future options should be evaluated against agreed design principles
A multitude of organisational models have been successfully implemented by a range of organisations and there is a trend to move away from the traditional hierarchies of ‘boxes and wires’
Involving your workforce and where possible your customer base in the analysis and design process will facilitate deliver of the right model for you
3 key actions to consider:
- Be clear upfront on what the drivers for change are and why an evolution of the organisation’s Op Model/ OD is required to deliver on key strategic objectives
- Employ both a ‘top-down’ and ‘bottom-up’ approach to Op Model/ Org. Design, ensuring that you fully understand the customer and how value is delivered by front-line employees
- Involve people throughout the organisation in the design process. Find out what currently works/ doesn’t work for them and how they think things can be improved. This will not only result in better design outcomes but also make transitional activity easier as people will feel like they have been involved in the process
 OECD and European Commission
 Ken Blanchard, 2000