Organisations frequently need to evolve and adapt. Whether the change is driven by shifting market conditions, technological advancements, or internal growth, a well-thought-out operating model and organisational design are essential to success.
When companies proceed with restructuring or transformation initiatives without thoroughly considering their operating model, they face a range of risks that can derail their objectives and, in some cases, lead to operational or financial setbacks.
Misalignment with strategic goals
One of the primary risks of not thinking through an operating model is the potential misalignment with the company’s strategic goals. An operating model translates high-level strategy into practical action, outlining how resources, processes, and people work together to achieve business objectives.
Without a straightforward design, there is a danger of creating structures that do not support the business’s strategic priorities. For example, in 2020, HSBC embarked on a major restructuring plan to reduce costs and enhance profitability.
The bank initially faced challenges because parts of its operational structure conflicted with its global expansion strategy in high-growth regions like Asia. By revisiting and aligning its operating model, HSBC could eventually better direct resources towards priority markets.
Inefficient use of resources
Organisations risk wasting resources, including time, capital, and talent, without a clearly defined operating model. Inefficiencies arise when roles and responsibilities are unclear, resulting in duplication of efforts or underutilised capabilities. For instance, Nokia, once a leading mobile phone manufacturer, suffered from a lack of coherent organisational design in the early 2010s.
In its attempts to keep up with Apple and other smartphone competitors, Nokia struggled with complex and overlapping structures that hindered agility and innovation.
This misalignment led to slow decision-making and a fragmented approach to product development, ultimately contributing to its market decline. A well-defined operating model could have enabled Nokia to streamline operations and allocate resources more effectively.
Poor employee productivity
A disorganised operating model often leads to confusion and frustration among employees, who may lack clarity about their roles and responsibilities. This phenomenon, in turn, reduces morale, productivity, and engagement. During Yahoo’s restructuring under CEO Marissa Mayer, the company faced challenges due to an ambiguous operating model that left employees uncertain about their roles in the larger business strategy.
The resulting lack of engagement and productivity played a role in Yahoo’s decline, underscoring the importance of an operating model offering employees clear direction and purpose. Best practices in organisational design emphasise involving employees in the change process and communicating openly about how the changes will impact them, creating a sense of ownership and reducing resistance to change.
Difficulty scaling and adapting
Businesses that do not establish a flexible and scalable operating model may struggle to adapt to changes in the market, leaving them vulnerable to disruption. For example, Kodak’s downfall in the early 2000s is often attributed to its failure to embrace digital photography.
However, a deeper issue was Kodak’s rigid operating model, designed to support its traditional film business and lacked the flexibility to pivot towards digital products. As a result, Kodak failed to capitalise on its innovation, eventually filing for bankruptcy in 2012.
A resilient and adaptive operating model allows organisations to respond quickly to external changes, safeguarding long-term competitiveness.
Customer experience risks
Finally, a poorly designed operating model can directly impact the customer experience. Customers may experience delays, inconsistencies, or poor service when internal processes are inefficient or poorly coordinated. For example, British retailer Marks & Spencer (M&S) faced significant operational challenges in the late 2010s, which affected its ability to deliver a seamless shopping experience.
M&S’s complex and outdated operating model hindered its ability to adapt to e-commerce trends and resulted in stock shortages and delivery delays, ultimately impacting customer satisfaction. By redesigning its operating model to streamline supply chains and leverage digital capabilities, M&S could have better aligned with changing consumer expectations.
Ignoring the importance of a well-thought-out operating model in organisational design exposes companies to several risks, including inefficiency, misalignment with strategic goals, poor employee morale, inflexibility, and a compromised customer experience.
Best practices emphasise the need for a structured approach that aligns the operating model with strategic objectives, fosters efficient resource use, and creates a clear, adaptable framework. By considering these elements from the outset, businesses can build resilience and agility, positioning themselves for sustainable growth and success in a competitive market.