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The Importance of an Operating Model

What is an Operating Model?

The term Operating Model is frequently used but what is it? It is worthwhile understanding what is meant by the term, the following definition was taken (in parts) from Wikipedia;

Operating model is both an abstract or visual representation (model) of how an organization delivers value to its customers or beneficiaries as well as how an organisation actually runs itself.

An organization is a complex system for delivering value. An operating model breaks this system into components, showing how it works. It can help different participants understand the whole. It can help those making changes check that they have thought through all elements and that the whole will still work. It can help those transforming an operation coordinate all the different changes that need to happen.

An operating model can describe the way an organization does business today – the as is. It can also communicate the vision of how an operation will work in the future – the to be. In this context it is often referred to as the target operating model (TOM), which is a viewpoint of the operating at a future state or point in time. Most typically, an operating model is a living set of documents that are continually changing, like an organization chart or the capability model or functional model.

The term operating model may have been first used in corporate-level strategy to describe the way in which an organization is structured into business divisions, what activities are centralized or decentralized and how much integration is required across business divisions. The term is most commonly used today when referring to the way a single business division or single function operates, as in 'the operating model of the exploration division' or 'the operating model of the HR function'. It can also be used at a much more micro level to describe how a department within a function works or how a factory is laid out.

When considered as a system for delivering value, the operating model naturally undergoes continuous change or business transformation. Business architects who typically take responsibility for designing the target operating model must ensure that change is managed sustainably and in cohesion with the strategic objectives of the organisation, including any key performance indicators. Today's operating models must also learn how to be data intelligent and be in the position to leverage the power of data along with managing the process activities in an organisation. With data science or big data, and where the organizational culture is highly innovative, the operating model can become truly agile and operate at its highest level of maturity with predictive analytics, which allow it to change proactively rather than reactively, and deliver the best possible services to customers, this is what defines an organization as having an 'agile operating model'.

Benefits of a clearly defined Operating Model

The production and maintenance of a clearly defined and articulated Operating Model has the following benefits:

  • Provides one vision of how the organisation / division operates, what components comprise the operating model, whose engaged both internal and external to the organisation, their responsibilities, inputs, outputs, interfaces, dependencies and key artefacts.

  • One Operating Model to support and deliver the Business outputs to the Customer community, enabling consistent operating practices to be resourced, performed and delivered across both internal and external suppliers

  • Common understanding across all parties, both internal and external as to how the organisation will operate

  • External third party suppliers are required to modify their own Operating Models to accommodate the client Operating Model, rather than vice–versa, which would be near on impossible to manage and measure

  • Roles and responsibilities of all parties are defined assisting to eliminate potential confusion and misunderstandings

  • Potentially a reduction in the number of internal resources needed to manage and support the third party suppliers

  • Consistent performance and measurement regime can be applied and replicated across each supplier, both internal and external to the organization.

  • Comparisons can be made across the third party supplier community, high-lighting shortfalls and areas that exceed expectations in the services provided, helping to drive Continual Service Improvement in the supplier community

  • The Operating Model assists with how the organisation and its suppliers engage with other divisions, groups and bodies

  • Increased focus and importance around Security practices can be re-iterated and potentially strengthened through all suppliers, together with being audited as required. Improvements and enhancements can be agreed and applied across the whole third party supplier community relatively easily

  • Reduced risk from a more controlled and stable operating environment

ITIL best practice assists to support or underpin an organizations Operating Model from an IT perspective accommodating both internal and external third party suppliers.

ITILnews would welcome any comments, suggestions or experiences you may have and would be prepared to share with the ITILnews community.


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Tags; Operating Model,Target Operating Model,TOM,ITIL best practice
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