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Bridging the gap between a company’s strategy and operating model

Here is a brief excerpt from an article written by Harris Atmar, Camilo Becdach, Sarah Kleinman, and Kirk Rieckhoff for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Four questions can help a company translate business goals into operating-model design.
[Here’s the first.]
How well is your company’s operating model keeping up with its evolving strategy?
Under pressure to respond more quickly to rapidly changing competitive circumstances, executives today are more likely to adopt a rolling strategic plan that they update as needed instead of the three-to-five-year plan that was once standard. Reorganization follows, as often as every two years—followed by a new operating model that can take as long as two years to implement. Companies scarcely have time to complete one organizational redesign before starting the next one.Change at that pace can create a disconnect between a company’s strategy and its operating model—aggravating existing problems, creating arbitrary or disconnected reactions, and breeding organizational confusion. Efforts to redesign the operating model can be too tactical to create real value. They often move departments and individuals around and change reporting lines without fundamentally shifting how an organization functions to support its strategy. And the more the intuition and cognitive biases of executives shape the process, the more an operating model can lack the grounding in the business strategy, fact base, and competing perspectives that enable it to support a company’s goals. Instead of drawing out the link between the strategy and organization, the new design may merely confirm existing biases and social dynamics.1Consider the case of one marketing-services company. After five years of rapid-fire acquisitions in an industry with a fast-changing business model, managers realized that they continued to lose ground to boutique competitors. They had acquired new companies to add similar capabilities and continued to believe in that strategy. Yet they also felt they weren’t getting the full benefit of all those acquisitions, even though business ticked up. They were at risk of failing in part because how they were working—their operating model—did not fully enable what they needed to achieve: their business goals. They knew they needed to update their operating model to keep up with the company’s evolving strategy, but they wanted to avoid the common pitfalls of operating-model design.In situations like these, it is critical for managers to link a company’s strategy to its organization. Answering four questions will identify the capabilities and accountabilities required to enable a company’s operating model and unlock its strategy: What do we need to be able to do to create value? What distinctive capabilities do we need to create this value? Where do we have these capabilities today? And what are the implications for our operating-model design, especially on accountability and the corporate functions?

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Here is a direct link to the complete article.

Harris Atmar is a consultant in McKinsey’s New Jersey office, Camilo Becdach is a partner in the Southern California office, and Sarah Kleinman is an associate partner in the Washington, DC, office, where Kirk Rieckhoff is a senior partner.



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