Operating Model Components¶

1. Introduction¶

1.1 What is an Operating Model?¶

An operating model is a comprehensive mapping of how a company or organization generates outputs. It defines the structure and systems that enable a company to deliver its value proposition to its customers and stakeholders. For our purposes, the operating model development best practices we will explore here are designed to optimize private entities, which we will refer to generally as organization or company.

1.2 Importance of Operating Models¶

Operating models are crucial for several reasons: 1. They provide a clear framework for how an organization functions. 2. They help align resources and activities with strategic goals. 3. They facilitate efficiency and effectiveness in operations. 4. They enable better decision-making and resource allocation.

1.3 Common Pitfalls in Operating Model Development¶

Many organizations attempt to develop operating models from the perspective of the process or some other form of action. This approach is susceptible to several failure modes:

1. Analysis Paralysis: The endless documentation of actions inside groups often leads to analysis paralysis. No matter how much effort goes into documenting activities, the organization is unable to ascend out of chaos.

2. KPI Failure: The resulting Key Performance Indicators (KPIs) from action analysis often do not translate into efficiency or performance improvements. This failure occurs because the KPIs focus on activities rather than outcomes.

3. Wireheadings: Systems implemented based on action analysis often end up working exactly as designed rather than as intended. The outcome is that the organization is optimized to produce an action that is not desirable or useful.

1.4 Our Approach: Focus on Artifacts and Outputs¶

Our approach to operating model development focuses specifically on inputs and outputs, emphasizing a global perspective on how work is initiated and how inputs are transformed into final work products and end value.

By concentrating on artifacts, we can streamline operations, ensure alignment with organizational goals, and enhance productivity. For private entities, the primary focus is on maximizing productivity, a core tenet of strategic management for achieving competitive advantage.

This artifacts-centric approach allows us to create an operating model that is both efficient and effective, minimizing the common pitfalls of process-centric models and ensuring that every transformation adds real value to the organization.

2. Core Components¶

2.1 Artifacts¶

2.1.1 Definition and Characteristics¶

An artifact is any tangible material or piece of information that serves as an input or output in a transformation process within an organization. Artifacts are fundamental components that undergo various processes to create value, meet organizational requirements, and achieve strategic objectives.

Characteristics of artifacts include: 1. Tangible or Intangible: Can be physical items or intangible elements like data or documents. 2. Transformational: Undergo a process of refinement, modification, or assembly. 3. Purpose-Driven: Exist to fulfill particular functions within the organization. 4. Integral to Processes: Essential components in the organization's operations. 5. Versatile: Can be varied in nature, from financial reports to physical components. 6. Contextual: Significance depends on the organizational context and specific requirements.

2.1.2 Examples of Artifacts¶

• In a software development company: A piece of code (input) that becomes a fully functional software application (output).
• In a construction company: Architectural blueprints (input) that guide the construction process, transforming raw materials into a completed building (output).

2.1.3 Importance in Operating Models¶

Artifacts are crucial in operating models as they represent the tangible inputs and outputs of organizational processes. By focusing on artifacts, we can: 1. Clearly define what is being produced and consumed in each process. 2. Measure and improve the efficiency of transformations. 3. Ensure that all activities contribute to valuable outputs. 4. Align processes with organizational goals and customer needs.

2.2 Policies¶

2.2.1 Definition and Purpose¶

A policy regulates activities where the inputs are irregular, non-uniform, or too numerous to account for all of them with specific detail. It is a description of guidelines and principles that are specific enough to result in desired outcomes without exhaustively accounting for every possible condition.

2.2.2 Characteristics of Effective Policies¶

1. Guiding Principles: Outline fundamental principles and guidelines that direct actions and decisions.
2. Flexibility: Accommodate a wide range of inputs and conditions without detailing every possible scenario.
3. Consistency: Ensure a consistent approach to handling diverse situations.
4. Outcome-Oriented: Designed to achieve specific outcomes, providing clear direction while allowing for adaptability.
5. Comprehensive Framework: Provide a structured yet adaptable framework to guide decision-making and behavior.
6. Broad Applicability: Cover broad areas of activity where detailed procedures are impractical due to variability and complexity of inputs.

2.2.3 Examples of Policies¶

An example of an appropriate use for a policy is company expense management. A company is likely to incur a vast range of specific expenses that would be difficult or impractical to exhaustively enumerate. An expense policy can address this wide variation by formulating categories with clear and mutually exclusive criteria, allowing for most, if not all, inputs to be appropriately classified.

2.3 Procedures¶

2.3.1 Definition and Purpose¶

A procedure is a detailed, step-by-step set of instructions designed to standardize the execution of specific tasks or processes. It translates policies into actionable steps, ensuring consistency, efficiency, and effectiveness in task performance.

2.3.2 Characteristics of Effective Procedures¶

1. Detailed Instructions: Include explicit, step-by-step directions for performing tasks.
2. Consistency: Ensure tasks are performed uniformly, reducing variability.
3. Actionable: Translate abstract policies into concrete actions.
4. Efficiency and Effectiveness: Streamline processes to achieve desired outcomes efficiently and effectively.
5. Training and Evaluation: Serve as a basis for training employees and evaluating performance.

2.3.3 Examples of Procedures¶

Let's consider a procedure for processing a customer refund request in an e-commerce company:

1. Receive Refund Request - Log into the customer service portal - Open the "Refund Requests" queue - Select the next unassigned request

2. Verify Request Validity - Check if the purchase was made within the last 30 days - Confirm that the item is eligible for refund as per the return policy - Verify that the item has not been used or damaged

3. Process the Refund - If request is valid:

   • Approve the refund in the system
   • Initiate the refund to the original payment method
   • Update the inventory system if the item is to be returned
   • If request is invalid:
   • Document the reason for denial
   • Prepare a standard explanation for the customer

4. Communicate with the Customer - For approved refunds:

   • Send an approval email using the standard template
   • Include the expected timeframe for the refund to process
   • For denied refunds:
   • Send a denial email using the standard template
   • Include the reason for denial and any next steps for the customer

5. Close the Request - Update the request status in the system - Add any necessary notes to the customer's account - Move to the next request in the queue

This procedure provides a clear, step-by-step guide for customer service representatives to follow, ensuring consistency in how refund requests are handled across the organization.

2.5 Relationship Between Policies, Procedures, and Specifications¶

Policies, procedures, and specifications work together to create a comprehensive framework for organizational operations. Here's how they relate to each other:

1. Policies set the overall guidelines and principles. They provide the "why" and the general "what" of organizational activities.

2. Procedures translate policies into specific actions. They provide the "how" by detailing the steps to be followed to implement the policies.

3. Specifications define the exact standards and requirements. They provide the precise "what" by detailing the exact criteria that must be met in carrying out procedures and adhering to policies.

In practice, this relationship works as follows:

• A policy sets a broad guideline (e.g., "All customer refund requests must be processed within 48 hours of receipt").
• A procedure details the steps to follow to implement this policy (as in the refund procedure example above).
• Specifications define exact standards (e.g., "A valid refund request is one made within 30 days of purchase for unused, undamaged items").

Here's a visual representation of this relationship:

graph TD
    A[Policy] -->|Guides| B[Procedure]
    A -->|Sets context for| C[Specification]
    B -->|Implements| A
    B -->|Follows| C
    C -->|Defines standards for| B
    C -->|Provides details for| A

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#eeac99,stroke:#333,stroke-width:2px
    style C fill:#e06377,stroke:#333,stroke-width:2px

In this diagram: - The Policy guides the creation of Procedures and sets the context for Specifications. - The Procedure implements the Policy and follows the Specifications. - The Specification defines standards for the Procedure and provides details for the Policy.

This interrelated system ensures that organizational activities are guided by clear principles (policies), carried out in a consistent manner (procedures), and meet specific standards (specifications). Together, they form a robust framework for effective and efficient operations.

2.4 Specifications¶

2.4.1 Definition and Purpose¶

A specification is a detailed standard that is specific, unambiguous, and objectively verifiable. It defines the criteria, metrics, and benchmarks for performance and quality, providing a clear and measurable reference point for evaluating the effectiveness of interventions, processes, or products.

2.4.2 Characteristics of Effective Specifications¶

1. Specificity: Detailed and precise, leaving no room for ambiguity.
2. Clarity: Clear and unambiguous, ensuring that all stakeholders understand the requirements and expectations.
3. Objective Verifiability: Include criteria and metrics that can be objectively measured and verified.
4. Performance and Quality Benchmarks: Set specific benchmarks for performance and quality, which serve as standards for evaluation.
5. Measurable Criteria: Provide measurable criteria that facilitate consistent assessment and comparison.
6. Comprehensive Coverage: Cover all necessary aspects to ensure that the performance or product meets the required standards.

2.4.3 Examples of Specifications¶

An example of a specification is defining the company brand color to ensure consistency and precision. Instead of simply stating "orange," a specification includes detailed color information such as the HEX code #FF6600, RGB values (R: 255, G: 102, B: 0), and Pantone 151 C. This ensures that the exact shade of orange is used consistently across all digital media, print materials, and branded merchandise, eliminating ambiguity and maintaining brand integrity.

3. Transformers¶

3.1 Overview of Transformers¶

In the context of an operating model, a transformer is a mechanism or entity that facilitates change or transformation within a system to achieve desired outcomes. Transformers are crucial components that take artifacts as inputs and produce new or modified artifacts as outputs, thereby driving the organization's processes and value creation.

Transformers can be classified into four types based on their scope and function: task transformers, activity transformers, workflow transformers, and process transformers. Each type operates at a different level of granularity and complexity within the organization.

3.2 Task Transformers¶

3.2.1 Definition and Characteristics¶

A task transformer focuses on transforming a specific, discrete task within an activity. It addresses the smallest unit of work that is objectively measurable. Key characteristics of task transformers include:

• They deal with the most granular level of work.
• The output is often not sufficient on its own to inform or activate subsequent tasks in neighboring transformers.
• Multiple tasks are typically required to produce a comprehensive output that can enable downstream processes.
• They help avoid analysis paralysis by preventing an infinite loop of KPI definition.

3.2.2 Examples of Task Transformers¶

An example of a task transformer is running an estimating man-hours report. While this task is necessary, its output often needs to be combined with other tasks to be useful in a broader context.

graph LR
    subgraph Estimating
        direction LR
        style Estimating fill:#ff8c00,stroke:#333,stroke-width:2px,padding:10px,color:#000
        subgraph Task
            direction LR
            style Task fill:#dda0dd,stroke:#333,stroke-width:2px,padding:10px,color:#000
            A["Material Stocking Report"]:::darkBox
        end
    end

    subgraph Construction
        direction LR
        style Construction fill:#9370db,stroke:#333,stroke-width:2px,padding:10px,color:#000
        B["Field Specs"]:::darkBox
    end

    A --> B

    classDef darkBox fill:#333,color:#fff,stroke:#333,stroke-width:2px

3.3 Activity Transformers¶

3.3.1 Definition and Characteristics¶

An activity transformer focuses on modifying or improving a specific activity within a broader process. Key characteristics of activity transformers include:

• They are self-contained bodies of work.
• They generally aggregate outputs of several tasks.
• They generate outputs suitable to initialize downstream transformers.
• They represent a higher level of abstraction compared to task transformers.

3.3.2 Examples of Activity Transformers¶

An example of an activity transformer is the estimating turnover process. This process may involve producing or conveying multiple artifacts. For instance:

• Activity 1: Turnover of artifacts to the Construction team
• Activity 2: Turnover of artifacts to the Operations team

graph LR
    subgraph Turnover
        direction LR
        style Turnover fill:#ffd700,stroke:#333,stroke-width:2px,padding:10px,color:#000,font-weight:bold,text-transform:uppercase

        subgraph Estimating
            direction LR
            style Estimating fill:#ff8c00,stroke:#333,stroke-width:2px,padding:10px,color:#000

            subgraph Activity_1
                direction LR
                style Activity_1 fill:#dda0dd,stroke:#333,stroke-width:2px,padding:10px,color:#000
                A1["Material Stocking Report"]:::darkBox
                B1["Man Hours Report"]:::darkBox
            end

            subgraph Activity_2
                direction LR
                style Activity_2 fill:#dda0dd,stroke:#333,stroke-width:2px,padding:10px,color:#000
                A2["Sub Rough Scope Narrative"]:::darkBox
                B2["Owner Proposal"]:::darkBox
            end
        end

        subgraph Construction
            direction LR
            style Construction fill:#9370db,stroke:#333,stroke-width:2px,padding:10px,color:#000
            N["Field Specs"]:::darkBox
        end

        subgraph Operations
            direction LR
            style Operations fill:#9370db,stroke:#333,stroke-width:2px,padding:10px,color:#000
            G["Subcontracts"]:::darkBox
            H["Prime Contract"]:::darkBox
        end
    end

    A1 --> N
    B1 --> N

    A2 --> G
    B2 --> H

    classDef darkBox fill:#333,color:#fff,stroke:#333,stroke-width:2px

3.4 Workflow Transformers¶

3.4.1 Definition and Characteristics¶

A workflow transformer represents the aggregate of all activities required to produce the complete and total output necessary to initialize the downstream transformer. Key characteristics of workflow transformers include:

• They are fully defined and leave no ambiguity regarding the inventory of artifacts.
• They specify the transformations needed to initialize or complete the artifacts.
• They represent a higher level of abstraction compared to activity transformers.
• They often span multiple activities and may involve multiple teams or departments.

3.4.2 Examples of Workflow Transformers¶

An example of a workflow transformer is the complete Estimating Turnover Workflow. This workflow is considered complete when:

1. Operations has enough information to provision the project
2. Construction has enough information to mobilize

This workflow might include multiple activities and involve the transfer of numerous artifacts:

graph LR
    subgraph Turnover
        direction LR
        style Turnover fill:#ffd700,stroke:#333,stroke-width:2px,padding:10px,color:#000,font-weight:bold,text-transform:uppercase

        subgraph Estimating
            direction LR
            style Estimating fill:#ff8c00,stroke:#333,stroke-width:2px,padding:10px,color:#000

            subgraph Activity
                direction LR
                style Activity fill:#dda0dd,stroke:#333,stroke-width:2px,padding:10px,color:#000
                A1["Material Stocking Report"]:::darkBox
                B1["Man Hours Report"]:::darkBox
                C1["Field Proposal"]:::darkBox
                D1["Sub Rough Scope Narrative"]:::darkBox
                E1["Award Letter"]:::darkBox
                F1["Owner Proposal"]:::darkBox
                G1["Vendor Quote"]:::darkBox
                H1["PreBid RFI"]:::darkBox
                I1["PreBid Photos"]:::darkBox
                J1["Subcontractor Bids"]:::darkBox
                K1["Permit /IFC Set Plans"]:::darkBox
                L1["Permits"]:::darkBox
                M1["Bid Set Plans"]:::darkBox
            end

            subgraph Activity2
                direction LR
                style Activity2 fill:#dda0dd,stroke:#333,stroke-width:2px,padding:10px,color:#000
                A2["Sub Rough Scope Narrative"]:::darkBox
                B2["Owner Proposal"]:::darkBox
                C2["Estimate"]:::darkBox
                D2["Award Letter"]:::darkBox
                E2["Vendor Quote"]:::darkBox
                F2["Subcontractor Bids"]:::darkBox
            end
        end

        subgraph Construction
            direction LR
            style Construction fill:#9370db,stroke:#333,stroke-width:2px,padding:10px,color:#000
            N["Field Specs"]:::darkBox
        end

        subgraph Operations
            direction LR
            style Operations fill:#9370db,stroke:#333,stroke-width:2px,padding:10px,color:#000
            O["Subcontracts"]:::darkBox
            P["Prime Contract"]:::darkBox
            Q["AP"]:::darkBox
            R["Compliance"]:::darkBox
        end
    end

    A1 --> N
    B1 --> N
    C1 --> N
    D1 --> N
    E1 --> N
    F1 --> N
    G1 --> N
    H1 --> N
    I1 --> N
    J1 --> N
    K1 --> N
    L1 --> N
    M1 --> N

    A2 --> O
    B2 --> P
    C2 --> P
    D2 --> P
    E2 --> Q
    F2 --> R

    classDef darkBox fill:#333,color:#fff,stroke:#333,stroke-width:2px

3.5 Process Transformers¶

3.5.1 Definition and Characteristics¶

A process transformer is an abstract term used to describe the end-to-end series of transformers required to produce an organizational output. Key characteristics of process transformers include:

• They represent the highest level of abstraction in the transformer hierarchy.
• They conceptually convey a large amount of work.
• It's generally not possible to include enough information at the process level to inform task execution.
• The goal is to have the content of every process (e.g., workflows, activities, tasks, policies, procedures, and specifications) fully documented, but this level of detail may not be evident from the process view.

3.5.2 Examples of Process Transformers¶

An example of a process transformer could be the entire project lifecycle in a construction company, from initial market analysis to project closeout:

graph LR
    A["Marketplace"] --> B["Business Development"]
    B --> C["Estimating"]
    C --> D["Project Controls"]
    C --> E["Construction"]
    D --> F["Closeout"]
    E --> F
    F --> A

    class A,B,C,D,E,F title
    classDef title fill:#ffd700,stroke:#333,stroke-width:2px,padding:10px,color:#000,font-weight:bold,text-transform:uppercase

In this example, each node represents a complex process that contains multiple workflows, activities, and tasks. The process transformer provides a high-level view of how these components interact to deliver the organization's overall output.

4. Key Performance Indicators (KPIs)¶

4.1 Definition and Importance of KPIs¶

Key Performance Indicators (KPIs) are measurable values that demonstrate how effectively an organization is achieving its key business objectives. In the context of our operating model, KPIs focus on the production of artifacts that are directly consumed by downstream tasks, activities, or processes.

KPIs are crucial because they: 1. Provide objective measures of performance 2. Help align activities with strategic goals 3. Enable data-driven decision making 4. Facilitate continuous improvement

4.2 Our Approach to KPIs¶

Our approach to KPIs differs from traditional methods in several key ways:

1. Focus on Artifacts: We concentrate on measuring the production and quality of artifacts that serve as inputs and outputs in our transformers.

2. Direct Consumption: We prioritize KPIs that measure artifacts directly consumed by downstream processes, ensuring relevance and impact.

3. Avoidance of Action Mapping: We avoid creating KPIs that merely map actions, as this can lead to infinite loops and ineffective measurements.

4. Alignment with Efficiency: For private entities, we focus on KPIs that maximize productivity and competitive advantage, rather than just measuring activity.

4.3 Characteristics of Effective KPIs¶

Effective KPIs in our operating model have the following characteristics:

1. Productive: They result in the creation or transformation of an artifact that is a direct input to a downstream task, activity, or process.

2. Measurable: They are quantifiable and have a defined method of measurement with reliable data sources.

3. Specific: They detail what is being measured and why, ensuring all stakeholders understand the KPI and its relevance.

4. Time-bound: They have a defined time frame for achieving the desired outcomes, allowing for tracking progress and making timely adjustments.

5. SPOT (Single Point of Truth): They are linked to a single, reliable data tracking location, maintaining data integrity and preventing discrepancies.

4.4 Types of KPIs¶

We focus on four main types of KPIs:

4.4.1 Time (SLA - Service Level Agreement)¶

Time-based KPIs measure how quickly or efficiently processes are performed.

Example: Average time to process a customer refund request.

graph LR
    A[Refund Request Received] -->|Max 48 hours| B[Refund Processed]
    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#e06377,stroke:#333,stroke-width:2px

4.4.2 Cost¶

Cost-based KPIs measure the financial efficiency of processes or the production of artifacts.

Example: Cost per unit of production in a manufacturing process.

graph LR
    A[Raw Materials] -->|$X per unit| B[Finished Product]
    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#e06377,stroke:#333,stroke-width:2px

4.4.3 Quality/Quantity¶

These KPIs measure the quality or quantity of artifacts produced.

Example: Defect rate in manufactured products.

graph LR
    A[Production Run] -->|Max 0.1% defect rate| B[Quality Control]
    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#e06377,stroke:#333,stroke-width:2px

4.4.4 SPOT (Single Point of Truth)¶

SPOT KPIs ensure data consistency and reliability across the organization.

Example: Percentage of data entries in the centralized customer database that are complete and up-to-date.

graph LR
    A[Data Sources] -->|Min 99% accuracy| B[Centralized Database]
    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#e06377,stroke:#333,stroke-width:2px

4.5 Balancing KPI Elements¶

A well-crafted KPI will always have a SPOT to ensure consistency and reliability. However, it might only define two of the other three elements (Time, Cost, Quality/Quantity) to avoid overcomplication and ensure focus.

For example, a KPI for the refund process might include: - SPOT: Customer Service Database - Time: Average processing time - Quality: Accuracy of refund amount

By focusing on these elements, we create clear and actionable metrics without diluting their effectiveness.

4.6 Examples of Effective KPIs¶

1. Project Estimating Accuracy - SPOT: Project Management System - Quality: Percentage difference between estimated and actual project costs - Time: Measured at project completion

2. Customer Satisfaction in Service Delivery - SPOT: Customer Feedback Database - Quality: Net Promoter Score (NPS) - Time: Measured monthly

3. Production Line Efficiency - SPOT: Manufacturing Execution System - Quantity: Units produced per hour - Cost: Cost per unit produced

These KPIs directly measure the output of key processes, providing actionable insights that can drive improvement and align with organizational goals.

5. Integrating Components in a Complete Operating Model¶

5.1 Overview of Integration¶

An effective operating model is more than just the sum of its parts. It requires the seamless integration of artifacts, policies, procedures, specifications, transformers, and KPIs. This integration creates a cohesive system that drives organizational performance and achieves strategic objectives.

5.2 Flow of Artifacts Through Transformers¶

The flow of artifacts through transformers forms the backbone of the operating model. Here's how this integration works:

1. Input Artifacts: These are the raw materials, data, or information that enter the system.
2. Task Transformers: Process individual artifacts, making small but crucial transformations.
3. Activity Transformers: Combine the outputs of multiple tasks to create more substantial artifacts.
4. Workflow Transformers: Orchestrate multiple activities to produce comprehensive outputs.
5. Process Transformers: Manage the end-to-end flow of artifacts through the entire system.
6. Output Artifacts: The final products or services that provide value to customers or stakeholders.

graph LR
    A[Input Artifacts] --> B[Task Transformers]
    B --> C[Activity Transformers]
    C --> D[Workflow Transformers]
    D --> E[Process Transformers]
    E --> F[Output Artifacts]

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#eeac99,stroke:#333,stroke-width:2px
    style C fill:#e06377,stroke:#333,stroke-width:2px
    style D fill:#c83349,stroke:#333,stroke-width:2px
    style E fill:#5b9aa0,stroke:#333,stroke-width:2px
    style F fill:#d6d4e0,stroke:#333,stroke-width:2px

5.3 Role of Policies, Procedures, and Specifications¶

Policies, procedures, and specifications provide the framework within which transformers operate:

• Policies guide decision-making at all levels of transformation.
• Procedures provide step-by-step instructions for executing tasks and activities.
• Specifications define the exact requirements for artifacts at each stage of transformation.

Together, they ensure consistency, quality, and alignment with organizational goals throughout the operating model.

5.4 Aligning KPIs with Organizational Goals¶

KPIs serve as the measurement system for the operating model. They should be carefully aligned with organizational goals to ensure that the model is driving the right outcomes. This alignment involves:

1. Identifying key strategic objectives
2. Mapping these objectives to specific processes and workflows
3. Developing KPIs that measure the performance of these processes
4. Regularly reviewing and adjusting KPIs to ensure continued alignment

graph TD
    A[Organizational Goals] --> B[Process Objectives]
    B --> C[Workflow Metrics]
    C --> D[Activity KPIs]
    D --> E[Task KPIs]

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style B fill:#eeac99,stroke:#333,stroke-width:2px
    style C fill:#e06377,stroke:#333,stroke-width:2px
    style D fill:#c83349,stroke:#333,stroke-width:2px
    style E fill:#5b9aa0,stroke:#333,stroke-width:2px

5.5 Case Study: A Complete Operating Model in Action¶

Let's consider a case study of a software development company to illustrate how all these components integrate in a complete operating model.

Company: TechInnovate Solutions¶

Organizational Goal: Develop and release high-quality software products efficiently.

Process Transformer: Software Development Lifecycle

Workflow Transformers: 1. Requirements Gathering 2. Design 3. Development 4. Testing 5. Deployment

Activity Transformer Example: Code Review (part of the Development workflow)

Task Transformer Example: Unit Testing (part of the Code Review activity)

Artifact Flow: 1. Input Artifact: Feature Request 2. Intermediate Artifacts: Requirements Document, Design Specs, Code, Test Cases 3. Output Artifact: Released Software Feature

Policy Example: "All code must be reviewed by at least two other developers before being merged into the main branch."

Procedure Example: Step-by-step guide for conducting a code review.

Specification Example: Coding standards document detailing naming conventions, formatting rules, etc.

KPI Examples: 1. Time: Average time from feature request to deployment 2. Quality: Number of bugs reported in production per release 3. Efficiency: Percentage of code passing automated tests on the first try

graph TD
    A[Feature Request] --> B[Requirements Gathering]
    B --> C[Design]
    C --> D[Development]
    D --> E[Testing]
    E --> F[Deployment]
    F --> G[Released Feature]

    H[Policy: Code Review] --> D
    I[Procedure: Review Guide] --> D
    J[Spec: Coding Standards] --> D

    K[KPI: Time to Deploy] --> G
    L[KPI: Bug Count] --> G
    M[KPI: Test Pass Rate] --> E

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style G fill:#d6d4e0,stroke:#333,stroke-width:2px
    style H fill:#eeac99,stroke:#333,stroke-width:2px
    style I fill:#e06377,stroke:#333,stroke-width:2px
    style J fill:#c83349,stroke:#333,stroke-width:2px
    style K fill:#5b9aa0,stroke:#333,stroke-width:2px
    style L fill:#5b9aa0,stroke:#333,stroke-width:2px
    style M fill:#5b9aa0,stroke:#333,stroke-width:2px

This case study demonstrates how artifacts flow through transformers, guided by policies, procedures, and specifications, with KPIs measuring performance at each stage. The result is a cohesive operating model that aligns all activities with the organization's goal of efficient, high-quality software development.

6. Evaluation and Continuous Improvement¶

6.1 Importance of Evaluation in Operating Models¶

Evaluation is a critical component of any effective operating model. It allows organizations to:

1. Assess the effectiveness of their current processes
2. Identify areas for improvement
3. Ensure alignment with organizational goals
4. Adapt to changing market conditions and internal needs

Without regular evaluation, an operating model may become outdated, inefficient, or misaligned with the organization's strategic objectives.

6.2 Methods for Evaluating Operating Model Effectiveness¶

Several methods can be employed to evaluate the effectiveness of an operating model:

1. KPI Analysis: Regularly review KPIs to assess performance against targets.

2. Process Audits: Conduct thorough examinations of processes to ensure they're following established policies and procedures.

3. Stakeholder Feedback: Gather input from employees, customers, and other stakeholders about their experiences with the operating model.

4. Benchmarking: Compare your organization's performance against industry standards or best practices.

5. Value Stream Mapping: Visualize the flow of value through your processes to identify inefficiencies or bottlenecks.

graph TD
    A[Operating Model] --> B[KPI Analysis]
    A --> C[Process Audits]
    A --> D[Stakeholder Feedback]
    A --> E[Benchmarking]
    A --> F[Value Stream Mapping]
    B --> G[Evaluation Results]
    C --> G
    D --> G
    E --> G
    F --> G
    G --> H[Improvement Initiatives]

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style G fill:#e06377,stroke:#333,stroke-width:2px
    style H fill:#5b9aa0,stroke:#333,stroke-width:2px

6.3 Using KPIs for Evaluation¶

KPIs play a crucial role in the evaluation process. They provide quantitative measures of performance that can be tracked over time. When using KPIs for evaluation:

1. Regular Review: Consistently monitor KPIs to identify trends or sudden changes.
2. Holistic Analysis: Look at KPIs in combination, not in isolation, to get a comprehensive view of performance.
3. Root Cause Analysis: When KPIs indicate issues, dig deeper to understand the underlying causes.
4. Adjustment: Be prepared to modify KPIs if they're not effectively measuring what's most important to your operating model.

6.4 Continuous Improvement Strategies¶

Continuous improvement is about making incremental enhancements to the operating model over time. Key strategies include:

1. PDCA (Plan-Do-Check-Act) Cycle: - Plan: Identify an opportunity and plan for change. - Do: Implement the change on a small scale. - Check: Use data to analyze the results of the change and determine whether it made a difference. - Act: If the change was successful, implement it on a wider scale and continuously assess your results. If not, begin the cycle again.

2. Kaizen: Encourage all employees to suggest and implement small, incremental improvements in their daily work.

3. Six Sigma: Use data-driven methods to eliminate defects and reduce variability in processes.

4. Lean Management: Focus on maximizing customer value while minimizing waste.

graph TD
    A[Identify Improvement Opportunity] --> B[Plan Change]
    B --> C[Implement on Small Scale]
    C --> D[Analyze Results]
    D --> E{Successful?}
    E -->|Yes| F[Implement Widely]
    E -->|No| A
    F --> G[Continuous Assessment]
    G --> A

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style E fill:#e06377,stroke:#333,stroke-width:2px
    style F fill:#5b9aa0,stroke:#333,stroke-width:2px

6.5 Case Study: Evolving an Operating Model¶

Let's consider a case study of a retail company, "GlobalMart," evolving its operating model through evaluation and continuous improvement.

Initial Situation: GlobalMart's operating model was focused on traditional brick-and-mortar sales. However, changing consumer habits were leading to declining foot traffic and sales.

Evaluation Process: 1. KPI Analysis: Revealed declining in-store sales but increasing online traffic. 2. Stakeholder Feedback: Customers expressed desire for more online shopping options. 3. Benchmarking: Showed competitors were investing heavily in e-commerce capabilities.

Improvement Initiative: Develop a robust e-commerce platform integrated with physical stores.

Implementation (Using PDCA): 1. Plan: Designed an e-commerce platform with click-and-collect functionality. 2. Do: Launched a pilot program in one region. 3. Check: Analyzed sales data, customer feedback, and operational efficiency. 4. Act: Based on positive results, rolled out the platform nationwide.

Continuous Improvement: - Regular customer surveys to identify areas for enhancing the online shopping experience. - Kaizen initiatives to streamline the click-and-collect process in stores. - Six Sigma project to reduce order fulfillment errors.

Results: - 30% increase in overall sales within first year of full implementation. - Improved customer satisfaction scores. - More efficient inventory management across online and offline channels.

This case study demonstrates how systematic evaluation and a commitment to continuous improvement can help an organization evolve its operating model to meet changing market demands and improve overall performance.

7. Practical Implementation Guide¶

7.1 Steps to Develop an Operating Model¶

Implementing an effective operating model is a comprehensive process. Here's a step-by-step guide:

1. Define Organizational Goals: Clearly articulate what the organization aims to achieve.

2. Map Current Processes: Document existing workflows, activities, and tasks.

3. Identify Key Artifacts: Determine the crucial inputs and outputs at each stage.

4. Design Transformers: Create task, activity, workflow, and process transformers that effectively process artifacts.

5. Develop Policies and Procedures: Establish guidelines and step-by-step instructions for each transformer.

6. Create Specifications: Define precise standards for artifacts and processes.

7. Establish KPIs: Develop metrics that align with organizational goals and measure the effectiveness of transformers.

8. Implement the Model: Roll out the new operating model, starting with pilot programs if necessary.

9. Train Staff: Ensure all employees understand their roles within the new model.

10. Monitor and Evaluate: Continuously assess the model's performance and make adjustments as needed.

graph TD
    A[Define Goals] --> B[Map Processes]
    B --> C[Identify Artifacts]
    C --> D[Design Transformers]
    D --> E[Develop Policies & Procedures]
    E --> F[Create Specifications]
    F --> G[Establish KPIs]
    G --> H[Implement Model]
    H --> I[Train Staff]
    I --> J[Monitor & Evaluate]
    J --> A

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style D fill:#e06377,stroke:#333,stroke-width:2px
    style G fill:#5b9aa0,stroke:#333,stroke-width:2px
    style J fill:#eeac99,stroke:#333,stroke-width:2px

7.2 Common Challenges and How to Overcome Them¶

Implementing a new operating model can face several challenges:

1. Resistance to Change: - Challenge: Employees may resist new processes or tools. - Solution: Communicate the benefits clearly, involve employees in the design process, and provide comprehensive training.

2. Lack of Resources: - Challenge: Implementing a new model requires time and resources. - Solution: Prioritize changes, implement in phases, and demonstrate ROI to secure necessary resources.

3. Misalignment with Existing Culture: - Challenge: The new model may conflict with established ways of working. - Solution: Align the model with core organizational values and gradually shift culture through leadership example and incentives.

4. Complexity: - Challenge: The model may become too complex to implement effectively. - Solution: Start with core processes, simplify where possible, and gradually increase complexity as the organization adapts.

5. Data Quality Issues: - Challenge: Poor data quality can undermine KPIs and decision-making. - Solution: Invest in data governance, cleansing processes, and training on data entry and management.

7.3 Tools and Techniques for Operating Model Design¶

Several tools and techniques can aid in designing and implementing an operating model:

1. Process Mapping Software: Tools like Lucidchart or Microsoft Visio for visualizing processes.

2. Data Flow Diagrams: To illustrate how artifacts move through the system.

3. RACI Matrix: To clarify roles and responsibilities within processes.

4. Balanced Scorecard: For aligning KPIs with strategic objectives.

5. Simulation Software: To model and test processes before full implementation.

6. Collaboration Platforms: Tools like Microsoft Teams or Slack to facilitate communication during implementation.

7. Project Management Software: To track the progress of operating model implementation.

7.4 Best Practices for Implementation¶

1. Start with a Pilot: Test the new model in a specific department or process before full-scale implementation.

2. Ensure Executive Sponsorship: Secure support from top leadership to drive change throughout the organization.

3. Communicate Clearly and Often: Keep all stakeholders informed about changes, progress, and wins.

4. Focus on Quick Wins: Implement changes that can show immediate positive results to build momentum.

5. Provide Adequate Training: Ensure all employees have the skills and knowledge to operate within the new model.

6. Be Flexible: Be prepared to adjust the model based on feedback and results.

7. Document Everything: Keep detailed records of processes, decisions, and changes for future reference and improvement.

8. Celebrate Successes: Recognize and reward individuals and teams who successfully adopt and improve the new model.

graph TD
    A[Pilot Implementation] --> B[Secure Executive Support]
    B --> C[Clear Communication]
    C --> D[Focus on Quick Wins]
    D --> E[Provide Training]
    E --> F[Be Flexible]
    F --> G[Document Everything]
    G --> H[Celebrate Successes]
    H --> A

    style A fill:#f9d5e5,stroke:#333,stroke-width:2px
    style D fill:#e06377,stroke:#333,stroke-width:2px
    style H fill:#5b9aa0,stroke:#333,stroke-width:2px

By following these steps, addressing common challenges, utilizing appropriate tools, and adhering to best practices, organizations can effectively implement and benefit from a well-designed operating model. Remember, implementation is an ongoing process that requires continuous monitoring, evaluation, and improvement.

8. Conclusion¶

8.1 Recap of Key Concepts¶

Throughout this knowledge base, we've explored the fundamental components and principles of effective operating models:

1. Artifacts: The tangible inputs and outputs that flow through an organization's processes.
2. Transformers: The mechanisms (tasks, activities, workflows, and processes) that change artifacts from one state to another.
3. Policies, Procedures, and Specifications: The guidelines and standards that govern how transformers operate.
4. Key Performance Indicators (KPIs): The metrics used to measure the effectiveness of the operating model.
5. Evaluation and Continuous Improvement: The ongoing processes of assessing and enhancing the operating model.

We've emphasized the importance of focusing on artifacts and outputs rather than just actions, ensuring that every component of the operating model contributes directly to organizational goals.

8.2 Future Trends in Operating Models¶

As we look to the future, several trends are likely to shape the evolution of operating models:

1. Increased Digitalization: Digital technologies will continue to transform how organizations operate, enabling more efficient and data-driven processes.

2. Agility and Flexibility: Operating models will need to become more adaptable to rapidly changing market conditions and customer expectations.

3. Sustainability Focus: Environmental and social sustainability will increasingly be integrated into operating models across industries.

4. AI and Machine Learning: These technologies will play a growing role in automating and optimizing processes within operating models.

5. Remote and Distributed Work: Operating models will need to accommodate more flexible work arrangements and geographically dispersed teams.

6. Ecosystem Integration: Organizations will increasingly need to design operating models that seamlessly integrate with broader business ecosystems and partnerships.

8.3 Final Thoughts¶

An effective operating model is not a static entity but a dynamic system that evolves with the organization. By focusing on artifacts, aligning processes with strategic goals, and committing to continuous improvement, organizations can create operating models that drive efficiency, adaptability, and competitive advantage.

The concepts and practices outlined in this knowledge base provide a foundation for developing and refining operating models. However, each organization must tailor these principles to its unique context, culture, and objectives. With careful design, thoughtful implementation, and ongoing evaluation, an operating model can be a powerful tool for organizational success in an ever-changing business landscape.

Appendices¶

A. Glossary of Key Terms¶

• Artifact: Any tangible material or piece of information that serves as an input or output in a transformation process.
• Transformer: A mechanism or entity that facilitates change or transformation within a system to achieve desired outcomes.
• Policy: A set of guidelines and principles that regulate activities where inputs are irregular or numerous.
• Procedure: A detailed, step-by-step set of instructions designed to standardize the execution of specific tasks or processes.
• Specification: A detailed standard that is specific, unambiguous, and objectively verifiable.
• KPI (Key Performance Indicator): A measurable value that demonstrates how effectively an organization is achieving its key business objectives.
• SPOT (Single Point of Truth): A single, reliable data tracking location for KPIs to ensure data integrity.
• Operating Model: A comprehensive mapping of how a company or organization generates outputs and delivers value to its customers and stakeholders.