Part 2. Why Use the Modern Operating Model?

The Modern Operating Model is an updated approach to business operating models. It describes a new way of thinking regarding how to best align, run, change, adapt, and optimize your business. In turn, you can bridge the strategy execution gap and better navigate a fast-changing world.

As an overview, here’s what the model looks like:

• Component 1 — Define the destination: Mission, cultural values, vision, and strategy
• Component 2 — Change the business: Create alignment with strategic objectives and OKRs
• Component 3 — Run the business: Business observability through OKRs and KPIs
• Component 4 — Do the work: Organization architecture, culture, systems, and procedures to empower work
• Component 5 — Assess and adapt: Identify threats and opportunities, navigate, optimize, and adapt

In this article, we dive deeper into why the model was created and how adopting the Modern Operating Model enables you to:

• Achieve goals and outcomes faster and more effectively through increased organizational productivity, efficiency, and speed.
• Survive in a rapidly changing world through adaptiveness and agility.
• Gain a competitive advantage and win in hyper-competitive, evolving markets.

Operating models, strategy execution, and the bigger picture

With 70% of chief strategists reporting challenges with strategy execution, there is substantial evidence to suggest that conventional operating models are no longer meeting the demands of business today and driving strategic results. In fact, the concept of the Modern Operating Model was created in response to three issues impacting businesses:

• The lingering strategy execution gap
• Megatrends in a rapidly changing world
• The fourth industrial revolution and the wealth of data

The lingering strategy execution gap

Strategy execution is arguably the hardest yet most important challenge for businesses to overcome. There is a reason for this — all goals and outcomes including market leadership and people retention are directly influenced by strategy execution. From this perspective, strategy execution can be framed as one of the key enablers of business success.

But what makes strategy execution so difficult? There are many factors to get right including:

• Alignment: Bringing the organization together to work in sync toward common goals
• Prioritization: Focusing on the most important things with strategic objectives and OKRs
• Capabilities: Understanding the extent of your organizational bandwidth, market position, people, and resources
• Efficiency: Making the best use of your capabilities and processes
• Engagement: Unlocking the full power of your people
• Change management: Leading and managing the difficult process of organizational change management
• Culture: Creating a transparent, learning, and adaptive culture
• Performance management: Reviewing and optimizing progress toward goals
• Organization design: Optimizing your structure and processes to improve decision making, collaboration, and information flow
• Observability: Pulling together and monitoring KPIs to identify threats, opportunities, make data-driven decisions, and continuously improve strategy execution

For strategy execution to be effective, an operating model must account for and optimize these different variables. As it stands, many operating models fail to incorporate these factors into a cohesive, self-optimizing unit. Particularly, modern elements of strategy execution such as OKRs and AI driven observability are not utilized to their full potential.

Megatrends and a rapidly changing world

But it’s not only these lingering challenges that need to be addressed. We also need to think about current and emerging trends that are influencing strategy execution.

At the heart of these trends is one core idea: the rate of change across all dimensions of life is accelerating. Although change can be observed throughout the entirety of history, what’s different now is how quickly it’s occurring — all aspects of our lives are evolving at an increasing rate.

Particularly at the business level, the rate of innovation, disruption, and competition is increasing. The ubiquity of data and information, direct-to-consumer channels, and greater access to capital mean market opportunities are filled faster by a greater number of vendors. What’s more, this rate of change will continue to increase as time progresses.

Other megatrends include:

A new generation of workers: 35% of the current workforce are millennials and by 2025, 27% will be Generation Z. These generations value autonomy, flexibility, and social impact. They also place less value on company loyalty and longevity of tenure.

New ways of working: Accelerated by the pandemic, the way we work is changing. Remote and hybrid work, gig work, asynchronous, and decentralized work environments are becoming more common.

The age of uncertainty: The business environment is becoming more complex and difficult to navigate. Risks have evolved in the form of pandemics, supply chain disruptions, climate change, war, recessions, inflation, interest rates, inequality and cybersecurity.

With lingering strategy execution challenges amplified by a fast-changing world, a company’s operating model must not only optimize for efficiency, speed, and productivity, but also for adaptiveness and agility.

The fourth industrial revolution and the wealth of data

Aside from the accelerated rate of change, a core megatrend at the technological level is the fourth industrial revolution. This describes the level of technology that includes autonomous systems, microservices, edge computing, interconnectivity, artificial intelligence, data, and the digitization of the physical world through the internet of things.

This new suite of technologies represents a significant opportunity to rethink conventional operating models — particularly when it comes to data. Factors such as how decisions are made can be completely overhauled through edge computing and interconnectivity — to become more data-driven, at the edge of the network, and closer to the points of execution.

Artificial intelligence can be leveraged to gain insight and foresight to solve problems before they manifest. Overall, strategy execution can be optimized using the wealth of data and tools provided by the fourth industrial revolution.

The Modern Operating Model: Themes, benefits, and outcomes

With the historic challenges of strategy execution and the megatrends in mind, let’s now look at how the Modern Operating Model is best suited to meet the business demands of today.

From the collective components of the model, two key themes arise which produce various business outcomes:

• Alignment toward goals and objectives
• Data-driven optimization

Theme 1: Alignment toward goals and objectives

Alignment is achieved primarily through OKRs and strategic objectives, but other factors such as a strong mission, transparent culture, and a more flexible organizational structure also contribute to alignment within the Modern Operating Model.

Through greater alignment, your entire team can focus and prioritize the right things with a clear connection to top-line objectives. This creates less waste and a more outcome-focused culture which boosts efficiency and productive power. Alignment also contributes to adaptability — your organization will be able to change form or direction without operational lag or cultural resistance.

Greater alignment serves to empower your employees through a clear line of sight, both vertically and horizontally. This boosts engagement as your people feel better connected to the company’s objectives, in addition to improving collaboration as silos are removed. Decision-making power, backed by data, is distributed across the organization which increases accountability and ownership.

This empowers employees to do their best work and provides freedom to innovate without needing higher-level approval. Finally, employees adopt a growth mindset and are continuously learning and improving through regular OKR reviews and retrospectives. Taken together, engagement, distributed power, and continuous learning contribute to boosting organizational output and problem-solving.

Theme 2: Data-driven optimization

KPIs, OKR data and reports, and market intelligence are used for monitoring and business observability. Through the interconnectivity and monitoring of data, your organization gains greater certainty, validation, and precision about working in the right direction.

You gain a more complete picture of your organization’s progress and can identify any potential roadblocks toward objective achievement. This also serves as a mechanism for incremental improvement. The organization now has an embedded learning system which collects data and information, turns that into knowledge and then utilizes it to improve how the organization functions.

Ongoing monitoring also boosts the speed of your business. As feedback loops are compressed, you don’t have to wait for quarterly or even annual reviews to make important adjustments. Speed is also increased through decision-making power being distributed and closer to the points of execution.

Decisions no longer need to go up and down the chain of command so they can be made quicker. Combined, greater organizational speed, observability, and alignment improve adaptiveness. You will be able to more readily identify threats and opportunities in your business and move quickly in response.

The opportunities of the Modern Operating Model

Most executives know that improvements, sometimes major, need to be made to their strategy execution. But the discipline of strategy execution is often framed through the perspective of solving challenges such as a lack of alignment. Although this is valid, what’s less spoken about is the opportunity — what happens when your organization achieves mastery over strategy execution?

Through an updated operating model and correct implementation, strategy execution can become the ultimate competitive advantage — achieve strategic goals faster and navigate the threats and opportunities of a fast-changing world.

Opportunity 1: Achieve goals and outcomes faster and more effectively

Effective strategy execution is the catalyzing force behind better goal and outcome achievement. The Modern Operating Model acts as an updated driver and engine of strategy execution.

Hence, through the increased productivity, efficiency, and speed that the Modern Operating Model offers, you can achieve strategic goals and outcomes faster and more effectively. Your various strategic imperatives of growth, diversification, and innovation can be simultaneously optimized toward by updating your operating model and approach to strategy execution.

Opportunity 2: Survive in a rapidly changing world

Only 52 US Companies have been on the Fortune 500 since 1955. Fundamentally, corporate extinction comes down to not adapting both strategy and strategy execution to a fast-changing world. Although change comes with new threats, it also comes with new opportunities — there will be a new generation of winners and losers.

Through the Modern Operating Model and the adaptiveness and agility it provides, you gain the ability to navigate the threats and opportunities of a fast-changing world. The productivity, efficiency, and speed increases also ensures that your organization is operating at its best to overcome challenges.

The promise of the Modern Operating Model

By achieving goals and outcomes more effectively, in addition to navigating threats and opportunities, you gain two significant competitive advantages which help you win in hyper-competitive, evolving markets.

Strategy execution, amplified by the Modern Operating Model, represents a hidden opportunity for all companies. Regardless of size, stage, or industry, you can gain a needed edge in the complex, uncertain, and hyper-competitive business environment of today.

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