Strategic Growth Through the Right Operating Model
by Sharon Flemings

In my article entitled “What’s Your Operating Model (and Why You Should Think About It)?” I discussed the four operating models identified by Ross, et. al in their book “Enterprise Architecture as Strategy”. While it is important to know the operation model in place in your organization in order to develop overarching corporate strategies and understand the impact of change, the operating model also impacts the growth strategy of the organization. Is your growth strategy influenced by your operating model, or do you have a disconnect between the two?

Before I discuss how the growth strategies are impacted by the chosen operating model, let’s quickly review the four operating models:

·        Diversification – companies with little business process standardization, and little integration of processes and information across the organization

·        Coordination – organizations with little business process standardization, but with high levels of business process integration

·    Replication - companies with high levels business process standardization, and little integration of processes and information across the organization

·        Unification – organizations with high levels of business process standardization, and high levels of business process integration

The level of integration of business processes, technology systems and information sharing has a significant impact on the success of the strategy(ies) for growing the organization. A misalignment between the growth strategy and the internal operating model places significant risk on any growth initiative – whether through organic growth or acquisition. Let’s examine each of the operating models in terms of the growth strategies, and how they are influenced by the organizations operating model:

Diversification Operating Model
Companies operating with a Diversification model generally have business units which operate somewhat independently. Therefore, growing the company through new products and services developed in-house can be an effective strategy since business processes can be developed specifically to support the need of the new business unit. New, smaller business units can also feed core business, potentially resulting in additional sales; however, the new business units are the primary drivers of growth. 

Growth by acquisition for Diversification model companies is fairly easy - there is no information integration or process standardization to worry about. While standardized infrastructure (such as IT) or shared services may be desirable, there is relatively no impact to the business if standardization does not occur. Opportunities for growth are limited only by the resources of the company and its ability to increase shareholder value.

Coordination Operating Model
Since the Coordination model relies so heavily on process/information integration, growth from in-house product and service development can be accomplished by taking advantage of this infrastructure integration, leveraging existing customers for new sales and customer feedback data for product development initiatives. This strategy of growth can also take advantage of existing distribution channels to reach the marketplace, thereby reducing the cost of distribution for new products, and providing additional “up selling” opportunities to existing customers.

Growth through acquisition for these companies provides the opportunity to gain additional customers for existing products and services through the acquisition; however, the data and information must be integrated into the organization to realize the benefit of the acquisition.

Replication Operating Model
Since companies with a Replication operating model have high levels of business process standardization, they can leverage the standardized best practices already in place in their business into new markets. These business processes have been tested and proven in existing markets, so they only need to be replicated in new markets to realize a reasonable level of success. (Note: certainly local culture and customs must be considered, particularly in foreign markets, and processes adjusted accordingly.)

Because Replication companies have such strong, standardized business processes, growth through acquisition may be potentially costly. Direct competitors and/or complimentary businesses can be acquired in order to reach into new markets and extend product and service offerings. The implications are, however, that the business processes of the acquired company must be replaced if the new organization is truly to remain with a Replication operating model. Careful consideration must be taken when evaluating acquisitions to identify 1) whether this acquisition would/should result in a new operating model, and 2) the true costs of acquisition, considering the replacement of internal processes (and associated changes in infrastructure) should the Replication model be preserved.

Unification Operating Model
A Unification operating model affords an organization several advantages in growing organically. Probably the greatest advantage for these organizations is the ability to leverage the economies of scale for introducing new products and services to the marketplace. Existing business processes and shared services (including distribution channels) can be leveraged rather than establishing business unit level processes and supporting functions. Information already available within the organization can be mined to identify customers for new products, and provide feedback and input for new innovations. It is relatively easy to expand individual product lines in this kind of organization.

Like the Replication model, growing a Unification company through acquisition may prove challenging. Acquiring a competitor or complimentary business is possible, but requires the existing infrastructure (processes, channels and technologies) be replaced with those of the acquiring company. This can be costly, and must be considered when building a case for acquisition.

So, how well does your organization’s growth strategy fit with its current operating model? Do you struggle with reaching your growth objectives? Have you experienced challenges with your acquisitions in the past? Perhaps this information provides some insight into why this might be the case, and give you something to think about going forward.

Works Cited
Jeanne W. Ross, Peter Weill, and David C. Robertson. Enterprise Architecture as Strategy. Boston, MA: Harvard Business School Press, 2006.

Related articles:
What’s Your Operating Model (and Why You Should Think About It)?
Understand the Current State
Identifying the Strategic Processes
Operating Model Implications for Technology