Organization Practice

Bridging the gap between

a company’s strategy and
operating model
Four questions can help a company translate business goals into
operating-model design.

by Harris Atmar, Camilo Becdach, Sarah Kleinman, and Kirk Rieckhoff

© Jorg Greuel/Getty Images

May 2019
 How well is your company’s operating model they were working—their operating model—did
keeping up with its evolving strategy? Under not fully enable what they needed to achieve: their
pressure to respond more quickly to rapidly business goals. They knew they needed to update
changing competitive circumstances, executives their operating model to keep up with the company’s
today are more likely to adopt a rolling strategic evolving strategy, but they wanted to avoid the
plan that they update as needed instead of the common pitfalls of operating-model design.
three-to-five-year plan that was once standard.
Reorganization follows, as often as every two years— In situations like these, it is critical for managers
followed by a new operating model that can take as to link a company’s strategy to its organization.
long as two years to implement. Companies scarcely Answering four questions will identify the
have time to complete one organizational redesign capabilities and accountabilities required to
before starting the next one. enable a company’s operating model and unlock
its strategy: What do we need to be able to do to
Change at that pace can create a disconnect create value? What distinctive capabilities do we
between a company’s strategy and its operating need to create this value? Where do we have these
model—aggravating existing problems, creating capabilities today? And what are the implications
arbitrary or disconnected reactions, and breeding for our operating-model design, especially on
organizational confusion. Efforts to redesign the accountability and the corporate functions?
operating model can be too tactical to create
real value. They often move departments and
individuals around and change reporting lines What do we need to be able to do to
without fundamentally shifting how an organization create value?
functions to support its strategy. And the more the Not all work is equally valuable, nor are all parts of
intuition and cognitive biases of executives shape an organization. In one airline example (see sidebar,
the process, the more an operating model can “Strategy and operations in an airline”), executives
lack the grounding in the business strategy, fact determined that what they needed to be able to
base, and competing perspectives that enable it to do to create value was to increase the time planes
support a company’s goals. Instead of drawing out spent in the air moving customers and reduce the
the link between the strategy and organization, the time spent on the ground. For any given company to
new design may merely confirm existing biases and achieve its strategy, there are always business units,
social dynamics.1 process steps, or brand attributes that make outsize
contributions to creating value relative to others.
Consider the case of one marketing-services
company. After five years of rapid-fire acquisitions This insight may sound simple, but companies often
in an industry with a fast-changing business don’t know precisely what they do that creates the
model, managers realized that they continued to most value. They seldom sit down to identify two
lose ground to boutique competitors. They had or three things that really matter, let alone to map
acquired new companies to add similar capabilities the value chain of their industry to identify where
and continued to believe in that strategy. Yet they the company needs to differentiate itself. That’s
also felt they weren’t getting the full benefit of all a critical step, since it determines not only how to
those acquisitions, even though business ticked design an effective operating model but also where
up. They were at risk of failing in part because how to allocate resources.

1
Chris Bradley, Martin Hirt, and Sven Smit, Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds,
Hoboken, NJ: John Wiley & Sons, 2018.

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

Strategy and operations in an airline

Consider a major airline in the US market, Instead, by answering the four questions bility in pockets of the existing operating
where price wars and low product differen- linking strategy to organization, executives model, so they invested in creating the best
tiation make it hard to maintain a compet- realized that a very different approach trained and equipped ground crews in the
itive edge. Several years ago, executives would help them achieve their goals. They industry. This had important implications
there settled on a strategy to differentiate determined that what was needed to create for their operating-model design, including
their airline by pushing costs down for value against their strategy of being the a need to reallocate resources to support
passengers while maintaining a high-qual- lowest-cost carrier was keeping as many training and ground operations, to ensure
ity customer experience. A typical intuitive planes in the air as possible at any given clear incentives for ground crews, and
approach to designing an operating model time. Therefore, the distinctive capability to ensure visible senior support for front-
might have led to one that cut costs across they needed was to be able to turn planes line operations and talent. This approach
the board—stripping out overhead wher- around faster than any of their competitors. clearly linked the airline’s strategy to
ever possible and dropping support They knew that they only had this capa- its organization.
functions to bare-bones levels.

In an example from the defense industry, completing For each of the above example organizations, the
this exercise revealed that the most important first and most important step in redesigning their
step for a major procurement organization was operating models was to understand which specific
the very first one—having a clear, compelling, and parts of the work or steps in the value chain were
well-designed purchasing strategy. If not done well, most critical to creating value. Once they knew
then subsequent steps in the value chain, lasting as that, they could proceed to the next step and begin
long as 15 years for one product, would be painful, thinking through the capabilities they’d need.
sluggish, and costly. To ensure that those steps could
be completed quickly, effectively, and with minimal
rework, the organization invested time, resources, What institutional capabilities do we
and talent in the first step of the value chain—to need to capture this value?
ensure the up-front purchasing strategy produced a Once a company understands where it creates the
clear yet flexible direction for the product. most value, it must identify the specific institutional
competencies it needs. This usually means getting
When the marketing-services company from our specific about what it needs to be able to do
earlier example completed the value-mapping to deliver on the most important parts of the
exercise, it realized that cultivating long-term high- value chain:
revenue relationships was critical to its ability to
meet its goals. Through analysis of the company’s —— For the airline that wanted to reduce customer
accounts, the company concluded that its ability to costs, the institutional competency was
serve large clients across multiple service offerings exceptional ground operations. That included
over consecutive years would create the most value frontline employees with the technical expertise,
and differentiate it from competitors. problem-solving skills, and continuous-

Bridging the gap between a company’s strategy and operating model 3

 improvement mind-set—as well as the resources As agile ways of working become a source of
and authority—to increase plane-turnover rates. value, executives in many industries will need to
get better at identifying where the most desired
—— For the defense-procurement organization, it capabilities already exist in their organizations, both
was a clear and agile approach to designing organizationally and geographically. In this dynamic
strategy that included diverse stakeholders, world, it is even more critical to map talent to value,
such as engineers, program managers, putting people with the right skills and capabilities
contractors, and financial managers. These into the right jobs and the best people into the most
changes minimized costly delays and rework critical roles. This will make it easier for executives
throughout the rest of the acquisition timeline. to adapt to changes in strategy and operating
model—as well as to address gaps between the
—— For one food and beverage consumer-goods current and desired future state.
company, it was about rigorously managing
supply and support-function costs to reinvest When executives in the marketing-services
in digital capabilities and insight analytics while company looked closely at how their company
rethinking the innovation model to rapidly test created value, they learned that few of their existing
new products and scale successful ones. account executives proactively opened doors for
their colleagues, which limited their ability to build
—— For the marketing firm, it was an ability to build enduring, long-term relationships with their largest
enduring relationships with large, long-term customers. In some cases, they lacked a clear
clients by providing bundles, discounts, and understanding of what others could do. In other
related services. cases, they worried about damage to their own
client relationships if their colleagues recommended
Effective operating models are not designed to services that fell short of expectations.
satisfy everyone; companies can’t be great at
everything. Instead, they need to clearly identify The company’s approach to profit-and-loss
where they can really excel in order to achieve their accountability exacerbated the problem: it booked
strategic goals. revenues and costs entirely against individual
service lines, rather than by customer. That
reinforced existing silos of activity and limited the
Do we have these capabilities today— company’s ability to serve its largest customers in
and where? an integrated way. Without an account lead across
Here is where a company begins to look inward to all service lines, senior executives lacked structural
understand whether the functions and capabilities or financial motivation to cross-sell services within
it needs to create value currently exist—or need large accounts.
to be developed. Understanding whether there
are distinctive institutional capabilities and where
they lie involves answering a few further questions: What are the implications for our
Which functions and capabilities should reside operating-model design?
within the corporate center versus within the Building a road map for operating-model
business units? Who should be empowered to make design requires a company to prioritize existing
key decisions and manage the budget or allocation strengths and redress strategic weaknesses—by
of resources? What are the most critical roles within reconfiguring, building, or acquiring new capabilities
the organization, and do we have the best people to ensure it can deliver on its strategic goals.
assigned to those roles? Before embarking on the full operating-model

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

redesign process, a company should articulate any The company then shifted responsibilities to give
implications coming out of the above assessment account leaders time to develop their account-
and ensure that the design of the operating model management skills and focus on relationship-
reflects them. building efforts. They updated their performance-
evaluation process to encourage the right activities
For our airline example, these implications included and outcomes. Finally, they brought together new
ensuring frontline ground-crew employees were business-development activities and project-
well paid and had clear paths to promotion. They delivery capabilities, which were previously scattered
also included narrowing the span of control for throughout the organization. This allowed teams to
supervisors to emphasize coaching and support. collaborate on integrative relationships with specific,
And they included empowering ground-crew- high-revenue clients. These actions would boost
operations leadership with decision rights. the company’s ability to deliver on the function that
created the most value for the company: delivering
For the marketing-services company, managers best-in-class project work across its various service
needed to develop and provide incentives for a offerings for the largest clients.
group of client counselors who fully understood
customers’ needs and could represent a wide
array of marketing services. This meant higher pay,
more training, and rewards for cross-selling and Experts in operating-model design have long known
collaboration across service lines. It also meant the importance of aligning a company’s operating
creating a single senior account leader for each model with its business strategy. Answering these
customer with clear lines of internal accountability four questions can unlock growth and provide clarity
and centralized communication with customers. to what matters in an operating-model design.

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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