Over the last few years, large organisations have started to review their structures and processes to drive consistency, better support their staff, reduce costs and provide better management information. The operating model is a key concept to facilitate this process, and is foundational for improving operational efficiency.
What is an operating model?
An operating model is way of representing how an organisation functions as a whole in order to fulfil its objectives. Organisations are highly complex and need to be broken down into their constituent parts to fully understand how they fit together and where there are opportunities for improvement. To best define the operating model, each component must be defined starting from the top-down. Consequently, activities and services head up the model as they are the central concern for any organisation (as illustrated in the diagram below). Additionally, the components of the operating model should be seen as interconnected rather than being viewed in isolation, and each component should aim to support the services or activities the organisation delivers.
Some key questions for the (re)definition of the operating model are:
- What are the processes and tools required to support our activities and services?
- What kind of skills and culture do we need?
- What IT systems are needed to support our processes?
- How should we be organised to best deliver our processes and ensure we develop our skills?
- Which people do we need (employees and volunteers) and how do we best attract, develop, and motivate them?
A thorough assessment of the operating model needs to be part of the strategic planning process, and a strategy will only be successful if the operating model is supportive of the organisational objectives. When there is a misalignment between the two, a number of key issues can arise that affect organisational performance both in businesses and charitable organisations alike. Among them are:
- Lack of clarity around the responsibilities of leaders
- Difficulty finding the right structure and eliminating silos
- Lack of effective ways to genuinely engage and develop employees and volunteers
- Ineffective processes and IT systems
- Effort expended on ancillary tasks that do not directly support objectives
In this article we examine what organisations need to consider in terms of their organisational structure, skills and culture, and processes and tools, to ensure that their operating model achieves their ambition.
Silo working, poor communication, and lack of strategic alignment are common issues in regards to organisational structure. Staff in support functions such as HR, Finance or IT, often feel distanced from frontline operations, while frontline staff can feel that support functions focus on their own agendas rather than meeting the needs of operational staff. There are a number of examples where frontline services have tried to escalate the issue of the lack of functional support, but in almost every case, this escalation only travels up one level in the organisational hierarchy before being pushed back. This lack of a genuine, bottom-to-top feedback loop is of critical concern if issues are to be identified and resolved. Large organisations also struggle to balance the power between central teams and local teams. It is a common trend to go through phases of dispersed and centralised power, as leadership tries to find the right balance. These issues can be addressed in different ways:
- Leveraging technology, such as building virtual communication hubs to facilitate collaboration across geographical and functional areas.
- Implementing working practices that foster communication and collaboration, with desk swaps between fundraising staff and service delivery staff or shared strategic planning sessions.
- Changing organisational structure to realign it to beneficiaries, customers and funders and hence break internal silos.
Skills and Culture
There are several key challenges that charities face when building the right culture and the finding the right capabilities within the workforce:
- High staff absenteeism and turnover rates. According to CIPD’s 2013 Absence Management Survey, the absentee rate in charities is 8.1 days/employee/year (vs. 7.6 across all sectors), with a median cost of absence of £590 per employee in the sector. The median staff turnover rate in the third sector is 15.2, vs. 11.9 across sectors.
- Lack of a robust performance management or appraisal process to support managers, particularly for volunteers. Some organisations have refined performance management, but have found that change must be incremental so that the right level of buy-in is achieved.
- Lack of clear development opportunities and career progression for staff. Limited resources and failure to articulate what is expected from staff and managers can prevent staff from developing. Only 29% of staff we surveyed feel they have clear career development opportunities.
- Additionally, one of the biggest skill gaps identified is management skills, which is crucial to maintaining valuable staff – as one of our interview respondents said, what most people want in their job is a clear vision and strong line management.
Processes and tools
Processes and tools are powerful, but often overlooked, levers within organisations. Many UK charities have realised that there is an opportunity to increase operational efficiencies and impact by making process improvement a priority for the next 12 months. Most respondents feel that their internal processes are neither effective nor efficient – a sentiment that is especially true at levels below senior management. Four main reasons can explain the current situation:
- An historical under-investment – process and systems have rarely been a priority for senior management. As a consequence, it is not uncommon to see systems that are too old to be supported by the vendor.
- Significant growth of the last 10 to 15 years – in addition to legacy systems from mergers, many have processes and systems not designed to be scalable and handle a larger organisation.
- Increased external requirements from funders, customers and partners – this creates a new challenge to have flexible processes, systems and tools able to interact with external organisations.
- Finally, process reengineering is difficult – failure rates are typically above 70%. Issues often relate to a lack of support from management, limited internal knowledge and the support of poorly qualified consultants.
The solution: Redesigning internal processes
Achieving leaner, more targeted processes presents long-lasting benefits: greater cost efficiency, with reductions in duplication and manual labour; improved compliance and employee satisfaction; and a simplified approach to impact measurement. It also ensures that frontline staff do not spend a disproportionate amount of time form filling, but report on activities and services in a targeted, time efficient way – giving them more time to work with beneficiaries. Despite significant improvements and benefits, there are high risks associated with radical changes of business processes. Organisations need to respect some basic principles and follow a structured approach.
Basic principles of process improvement:
- Don’t get bogged down by details – any process can be broken down into a handful of sub-processes – capture those on a single page.
- Prioritise the problems that matter – don’t get overwhelmed by all the things that could be improved – focus on the 2-3 areas where change will have the most impact.
- Implementation is as essential as design – keep this in mind when thinking of whom to engage and how – pilots are often an effective way to launch implementation and refine the design.
How to approach the work:
- Identify inefficient processes
- Map current processes (high-level)
- Evaluate current processes, prioritise challenges, and identify where re-design makes sense
- Re-design process with key stakeholders
- Develop implementation plan; if possible, begin piloting new process