Operating Model Implications for Technology
by Sharon Flemings

In my articles “What’s Your Operating Model (and Why You Should Think About It)” and “Strategic Growth Through the Right Operating Model”, I discussed the four operating models identified by Jeanne W. Ross and her colleagues, and published in the book “Enterprise Architecture as Strategy”. In these articles, I outlined the characteristics of each model based on the level of business process integration and extent of process standardization. While it is important, from a strategic perspective, to understand the operating model of your organization, it is equally critical to understand the implications of the operating model on the infrastructure of the organization – in particular, the technical landscape. What are the technology considerations for each of these operating models?

If an organization’s operating model is described by its level of business process standardization and integration across the enterprise, it is apparent that there must be implications for the organization’s infrastructure as well. Consider the communication mechanisms and channels, corporate policies, computer systems and other support “structures” in an organization which enable an organization to function successfully. While I won’t argue the value, or inherent cost, of human communication networks in a workplace and how they are influenced by the operating model, I would like to focus on the implications of the business model on the technology infrastructure – particularly since this is one of the largest financial investments in any organization.

Depending on the operating model in your business, you may need to determine how and/or when the technology and software systems you are considering will impact others in the organization. Remember that some organizations have highly integrated processes, relying on shared customers, suppliers and data across multiple departments or business units. In these instances, enterprise-level software applications may be appropriate in order to share information easily and efficiently across the organization. On the other hand, those businesses that have low levels of integration may be equally successful without large enterprise applications.

Let’s examine the four models once again, and consider how technology decisions are impacted by the operating model in place.

Diversification
Previously, we discussed that Diversification-model companies have low business process standardization, and a low level of business process integration. These organizations share little data across the entire enterprise, and have business units which operate autonomously. Since each department or business unit works independently, there is no value in large, complicated software applications which are intended to support integrated processes and shared data.

Simple and “smaller” software packages, with capabilities focused directly on the needs of the business unit are most appropriate. While “standardized” software applications across the entire enterprise are easiest for the Information Technology (IT) department to administer, support and manage, this should be limited to applications such as email, word processing, spreadsheet, workflow and other office productivity applications which are used broadly throughout the organization. This allows the IT organization to minimize the number of applications requiring support, allows for better software license management, and lessens the level of complexity in the business and technical environment.

Coordination
Coordination-model companies, with their low level of process standardization and high level of process integration, rely on shared information to support common customers, suppliers, and complementary products. In this case, software systems which allow the smooth and efficient flow of information throughout the enterprise, such as Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM) systems, are critical for business success. One of the most critical aspects of successfully implementing these large, enterprise-level systems is the identification of “master” data – the identification of the source of a piece of data (e.g. customer name) and the system in which that data is managed.

With their low level of process standardization, Coordination-model companies should be cautious about implementing large, enterprise-level systems across multiple business units. Unless significant effort is made to gain agreement about a particular business process, there may be conflicts regarding software requirements should an enterprise application be introduced. Customizing or configuring software for differences in business processes can result in significant development and/or upgrade costs. Consider whether multiple instances of a system are more appropriate than a single instance used by the entire organization.

Replication
Organizations with a Replication operating model are characterized by high levels of business process standardization and low levels of business process integration. For these organizations, the IT department can implement the same applications across all business units and/or locations, realizing the cost and support benefits of scalability in development, deployment and user support. This lessens the number of applications being managed and maintained by IT, and allows for effective license and hardware management.

Since there is little integration of data between business units, the level of infrastructure consolidation is determined primarily by the reporting requirements of management and system performance and load-balancing requirements – especially for transactional businesses. IT staff may determine that one or several business units can share infrastructure, or they may opt to run the entire business on one server.

Unification
For Unification-model organizations, with their integrated business processes and process standardization, technology and software infrastructure is critical to success. Enterprise-level software applications and supporting technology allow for the efficient and easy flow of information throughout the entire organization. Since business processes are standardized, implementation of common systems (and even single instances of systems) is easier, and IT can leverage economies of scale for licensing and hardware costs. The biggest challenge in this environment is coordinating rollouts of new systems, and upgrades of existing systems due to the large number of users.

As you consider the introduction of new technology into your environment, consider the technology demands and implications of your operating model on your choices. Understanding the organizational model can guide you through decisions that deliver the right solution for the problem, and for the right cost.

Related articles:
What's Your Operating Model (and Why You Should Think About It)?
Strategic Growth Through the Right Operating Model
The Right Use of Enterprise Architecture

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