Operating Models

 4 Types of Operating Models

According to Ross, Weill, and Robertson, there are four operating models for how a company addresses business process integration and business process standardization.

1. Diversification (low standardization, low integration)
2. Coordination (low standardization, high integration)
3. Replication (high standardization, low integration)
4. Unification (high standardization, high integration)
5. 
   

Two Questions to Determine Which Quadrant Your Company Belongs In

According to Ross, Weill, and Robertson, companies adopt different models at different levels.  For example, they might adopt one operating model at the enterprise level, but then a different model at the division, business unit, region, or other levels.

To figure out which of the four quadrants your company or business unit mostly belongs, Ross, Weill, and Robertson suggest asking two questions:

1. To what extent is the successful completion of one business unit’s transactions dependent on the availability, accuracy, and timeliness of other business units’ data?
2. To what extent does the company benefit by having business units run their operations in the same way?

This helps you figure out your business process integration requirements and your business process standardization requirements.

Diversification

Diversification is effective “independence with shared services.”

Ross, Weill, and Robertson write:

“Diversification applies to companies whose business units have few common customers, suppliers, or ways of doing business.  Business units in diversified companies offer different products and services to different customers, so central management exercises limited control over those business units.”

Coordination

Coordination is “seamless access to shared data.”

Ross, Weill, and Robertson write:

“Coordination calls for high levels of integration but little standardization of processes.  Business units in a Coordination company share one or more of the following: customers, products, suppliers, and partners.  The benefits of integration can include integrated customer service, cross-selling, and transparency across supply chain processes.  While key business processes are integrated, however, business units have unique operations, often demanding unique capabilities.”

Replication

Replication is “standardized independence.”

Ross, Weill, and Robertson write:

“Replication models grant autonomy to business units but run operations in a highly standardized fashion.  In a Replication model, the company’s success is dependent on efficient, repeatable business processes rather than on shared customer relationships. 

The business units are not dependent on one another’s transactions or data; the success of the company as a whole is dependent on global innovation and the efficiency of all business units implementing a set of standardized business processes.   Accordingly, business unit managers have limited discretion over business process design, even though they operate independently of other business units.”

Unification

Unification is “standardized, integrated processes.”

Ross, Weill, and Robertson write:

“When organizational units are tightly integrated around a standardized set of processes, companies benefit from a Unification model.  Companies applying this model find little benefit in business unit autonomy.  They maximize efficiencies and customer services by presenting integrated data and driving variability out of business processes.”

For a deep dive into each of the operating models as well as case studies and examples, check out Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, by Jeanne W. Ross, Peter Weill, and David C. Robertson.

It’s one of those kinds of books that you can tell is born from experience, rather than just theory.  It’s rich with data and authoritative, prescriptive guidance to help you mature and transform your company to compete in today’s arena (it’s a powerful collection of proven practices and timeless advice, and extremely relevant to our emerging digital economy.)

Make your operating model a clear choice.  Choose the appropriate levels of integration and standardization that help you build a strong foundation for execution and improve your strategic agility.