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Whether you are pivoting your strategy, have grown and need to fix broken processes, or are facing market pressures and need to simplify, you will need to evolve your operations.  Unless you're a a start-up, more often than not, you won't be starting from scratch. Rather, you will be evaluating your current operating model and defining a target operating model which will help you achieve your strategy.

To do this evaluation it is helpful to look at common constructs. Different constructs or frameworks may be more appropriate than others depending on the tier of the organization you are evaluating or designing. As stated in a previous article, you can define an operating model for an enterprise, an organization or business unit, a functional unit, or a team. Depending on the level, the type of operating model you are targeting may change. The contract and framework we highlight here are for an enterprise or autonomous organization.  

Enterprise Architecture:

Four Different Operating Model Types

A common construct defined by Ross, Weill, and Robertson describes four types of operating models:

• Diversification (low standardization, low integration)
• Coordination (low standardization, high integration)
• Replication (high standardization, low integration)
• Unification (high standardization, high integration)

Diversification would be the operating model with business units that possess the most autonomy. They behave almost as separate operating companies with little overlap in customers, supplies, and product lines. The amount of integration needed and desired is low. Think of this as a typical conglomerate that may own companies that service different industries with different products and services. There still may be shared functions or teams such as executive leadership and corporate accounting. On the other hand, Unification is the most tightly integrated operating model. This is where high levels of integration and standardization between business unties are necessary to maximize outcome and customer services. If this operating model seems most appropriate between two different business units or value chains, it's worth asking if they should, in fact, be different units.

Organizational Architectures: Evolution toward organizational agility

When looking at an organization or a single autonomous business unit, there are several ways to think about this. One is to look through the lens of organizational structures, defining which functions and processes should be centralized, decentralized, or federated. Layering on to this how decisions and information is shared rather it be through a hierarchy, matrix, or networked structure. The latest wave of frameworks, uses how an organization is governed as the underlying driver.

The organizational stages defined by Frederic Laloux based on where the authority sits:

• Red – The power and decision-making are concentrated in the hand of a strong leader, who often uses fear to establish and reinforce authority. There is an established division of labor and hierarchy is based on power. Examples of red organizations: Mafia, street gangs.
• Amber – A more evolved organization with authority based more on tenure and adherence to the mission or belief of the common group. The structure is hierarchal and quite rigid with a stable organizational chart. There is a reliance on formal, settled roles and replicable processes. They don’t respond to changing realities very well with innovation being very difficult. Examples of amber organizations: Government agencies, Army, Catholic church.
• Orange – The world is seen as a machine: predictable, and able to be scientifically understood and controlled to achieve a desired outcome. The focus is on growth and profit rather than stability and cost neutrality of the amber organization. In these organizations, the hierarchy is still strongly present. However, their members have much more freedom and flexibility to do things their own way. The commands still come from above, but the employees get to choose how they want to execute them. Authority is earned through meritocracy with the competencies and hard work leading to career growth. Examples of orange organizations: Wall Street banks
• Green – Still driven by profitability, they use a value-driven culture to engage employees and boost productivity. Characterized by a sense of inclusion, and a drive to view and treat all people as equal. A common metaphor used for relationships is that of a family. Contrary to the previous, green organizations focus on the stakeholders instead of the shareholders. In the green organizations, the pyramid is inverted with more focus on motivating members and promoting egalitarian values. While employees are more empowered, they are still hierarchical in many ways. Examples of green organizations: Southwest Airlines, many software firms, nonprofits and NGOs.
• Teal – The teal organization aligns to the principles of holacracy. The principles are driven by self-management, wholeness, transparency, and evolutionary purpose. They’re characterized by features like self-managed teams, intuitive reasoning and decentralized decision-making. Examples of teal organizations: Patagonia, Zappos

Functional Architectures: Aligning organizational structures to functional purpose

The operating models of functions will be highly dependent on the overarching enterprise and organizational architectures. In addition, each functional unit will need to be evaluated on its own mission. For instance, a sales function will have very different capabilities to be evaluated than an HR function. Combining enterprise and organizational architectures with the function, archetypes can be developed to help guide you. There are growing examples of how agile marketing and agile HR looks as organization drive for more agility and move from orange to green to teal. Another example, Matthew Skelton and Manuel Pais outline of team topologies for IT organizations, we see a highly integrated and coordinated technology supply chain that follow the principles of a green moving to teal organizations. Knowing both the level of business process integration and standardization desired along with the desired governance of the organization will determine if these organizational agility archetypes are right for you.

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