Organisation and the Operating Model
Guide to the Operating Models
Discover how to design an organizational structure that supports value delivery
Overview
Introduction
Designing an effective organisational structure is about more than just rearranging an org chart — it’s about enabling your business to deliver value efficiently. This guide explores why traditional structures often hinder agility, how to balance cost, control, and value provision, and the six key principles for value-driven organizational design.
By focusing on value chains and optimizing roles to match strategic goals, you’ll learn how to create an operating model that enhances communication, accountability, and performance. Let’s dive into the steps needed to align your structure with the value your organization delivers.
Want to Read More About Target Operating Models?
We’ve created a collection of FREE guides on TOM and how to design and implement one successfully with your organisation
Table of Contents
In this guide you will learn about:
The organisational chart
Often the transformation of an operating model starts with an organisational chart and the objective even if not explicitly stated is often to move to a new chart. This over focus on structure is because it is about the people who populate the structure not necessarily the need to support the delivery of value.
The importance of the organisational chart as a design tool is overstated and brought to the front of discussion far too early in the design process. Our message is simply “leave it to last and create the structure that is best to support the delivery of value”.
Traditionally organisations were structured in a hierarchy within areas of expertise directorates of: sales, operations, HR, and finance being typical vertical silos. Organisations were, and are, frequently designed for the convenience of those operating them; they take an internal perspective looking in rather than out.
Functional structures are technically efficient leveraging quality and economies of scale but they have their downsides. They are poor at delivering cross functional delivery and poor at communication, the ability to respond to change and adapt is slow as the cross function cooperation occurs at the higher levels of the organisation not at operational levels. Information and instructions pass up and down the silos of control.
So, if traditional structures give efficiency and perhaps give greater hierarchical control but hinder agility and end to end customer value what do we do.
Three key factors
Three factors need to be balanced and the need for each analysed before deciding on an organisational structure.
The three axes are:
Cost efficiency
Control
Value Provision
Each strategy and its resulting business model will have addressed value cost and control so this tells us what is important and to what degree, we can plot where we are today and where we want to be.
If the choice is high on the value delivery and often this is what the analysis requires then the structure need to mirror the value chains. If the requirement is control, perhaps the sector is highly regulated, and then the structure needs to reflect that in its division of duties and division of accountability.
If it’s high on cost reduction and not high on differentiated value provision, then a traditional functional approach maybe more appropriate.
Six principles to adopt
1
Value is defined by the customer not the organisation providing it.*
2
Delivery of value should be made accountable.
3
Avoid hand offs and mixed accountabilities.
4
Delivery of end to end value should be measures and rewarded.
5
Structures should mirror value chains unless control or efficiency drives the business model and therefore the operating model.
6
Communication between people of different skills need to happen at all levels of the structure with focus on delivering value.
*i.e. the customer journey (the value delivery chain) defines what structure is required.
How to optimise the operating model
Steps:
- Ignore the existing organisational chart for now.
- Map the value chains to capabilities and there pre requisites and identify tasks to be undertaken to differ what is needed. – logical processes end to end.
- Identify the volumes of these activities and the service levels within which to deliver them.
- Calculate the instances of these tasks and their levelling or frequency in the operation to see what resources are needed.
- Identify the culture, skills and behaviours required to deliver the processes.
- Design roles to deliver the tasks and benchmark their level and cost.
- Apply organisational spans of control applicable to the level of employees.
- Define team size and supervision in line with controls and cost based decisions.
- Create a logical organisational chart.
- Map existing personnel to the new logical organisational chart
- Identify gaps and new hirers or people not suitable for the new world.
- Consult with workforce hire and or restructure.
- Transform into new structure in line with technology and process changes.
Conclusion
The organisation as an operating model theme is not just a reconfigured organisational chart in fact this should be avoided as an approach.
Organisational structure choice should be in answer to an analysis of the three axes of value, control and efficiency, with a default position of seeking to align to value by mirroring organisational structure with value chains wherever possible.
Our final observation is to leave physical names in boxes to the last moment as a “true” value aligned structure that fits with what the firm seeks to deliver to its stakeholders is the main driver not the politics of those running the organisation.
About the author
David Winders BSc (Hons), DTLLS
David is a strategic partner of The Sixsess Consultancy an organisation specialising in Business Architecture and the development of effective business change.
David has worked in business design and business transformation for over three decades with many large organisations including Centrica, Barclays Bank, Dell Financial Services and AXA.
David Winders
Business Architect - Principal Target Operating Model Course Facilitator.
