Ross & Weil - Chapter 2 (Define your Operating Model) Flashcards
What does a business strategy entail?
It provides direction and an impetus for action. They are multifaceted, encompassing decisions to which markets to operate in, how to position the company in the market and which capabilities to develop and leverage.
Why should a company not build their IT infrastructure and business process capabilities on their business strategy?
Strategic initiatives can shift in response to competitor initiatives or new opportunities. Therefore, it does not offer a clear direction.
What is the first step in building a foundation for execution?
Deciding on their operating model
What is an operating model?
The necessary level of business process integration and standardization for delivering goods and services to customers. It supports the business strategy and affects the implementation of business processes and IT infrastructure.
What happens if a company does not have a clear operating model?
The company will not bring automated, pre-existing, low cost capabilities to a new strategic pursuit, but needs to identify its key capabilities for every new strategic pursuit.
Which benefits are there for companies that are able to leverage their foundation for execution with their supporting operating model?
- Greater strategic effectiveness
- Operational efficiency
- Customer intimacy
- Product Leadership
- Strategic Agility
What is standardization?
Exactly defining how a process will be executed regardless where or who is performing it.
What are the consequences of standardization?
+ Efficiency and predictability
+ Allows activities across BU’s to be measured
+ Reduction in variability
+ Increased throughput
- Limits local innovation
- Requires good systems to be replaced with the new standard
What is integration?
Linking the efforts of BU’s through shared data.
- Can be between processes to enable end-to-end processes
- Can be across processes to have the same face towards customers
What are the consequences of integration?
+ Efficiency
+ Coordination
+ Transparency
+ Agility
+ Better customer service and better decision making
+ Speed up overall flow of information and transactions
- Biggest challenge is getting a standard for data
Which questions should a company ask themselves to decide in which quadrant they are?
- “to what extent is the successful completion of one BUs transactions dependent on the availability, accuracy, and timeliness of other BUs’ data?”
- “to what extent does the company benefit by having BUs run their operations the same way?”
Which 4 operating models are there?
- Diversification
- Coordination
- Replication
- Unification
What is diversification?
- Low integration and standardization
- BU’s have few common customers, suppliers, partners
- BU often run autonomously, with their own operating model
- These BU often offer different products to different customers
- Growth through organic growth of a BU or through acquisitions
- May pursue brand recognition
- May pursue economies of scale through shared service centers
What is coordination?
- High integration, low standardization
- BU’s share some common customers, suppliers, partners
- Goal is not low cost, but best service to customers
- Company-wide thinking on BU level
- BU have unique processes
- Integration fosters product expertise while enhancing customer service
- Customized service to retain high-value customers
- Grow by extending reach to defined customer segments in new markets or by increasing services to meet new (related) customer demands
What is replication?
- Low integration, high standardization
- Success of the business depends on global innovation and efficiency by standardized processes
- BU’s are run independently, but with the same IT infrastructure and standardized core processes
- Value is added through economies of scale and new and improved products
- BU managers limited discretion over process design
- Local decision making somewhat allowed
- Growth through acquisition or organically
