5S Operating Model

5S OPERATING MODEL

There is an enormous waste of effort in even the best organized companies.

The gains for those who achieve a requisite total organisation system with effective accountable managerial leadership are large.

5S Operating Model – Key Elements

Over years of research and practice, to ensure smooth integration of organisational capabilities within an Operating Model. The following organisational dimensions were identified as critical, for which the alignment must be developed:

Strategy

Strategy matches the level of Business Complexity
Strategy Operationalisation Requirements
Cascading the Strategy through the organisational levels

Business Complexity

Understanding the complexity of the company, of the business unit within the company – the complexity of the value chain for which the business unit is accountable

Grow complexity – Level up
Maintain status quo – the same level

Sustainability

Organisational Culture
Organisational Communications
Managerial Leadership
Business Continuity
Social & Environmental Bottom Lines

Systems

Value Stream / Value Chain Model
Business Process Architecture (Complexity Levels of Business Processes)
Maturity of Organisational Systems

Structure

Role Design (Accountabilities, Tasks, Authorities
Competency Mapping for Roles
Felt Fair Pay
Cross-functional Accountabilities & Authorities
Critical Roles
Career Paths

Staff

Capability match with Complexity
Potential Assessment and Talent Management
Gap Analysis
Workforce Planning
Succession Planning
Training & Learning

Operating Model Question – that is rarely asked, answered

“What is an optimal number of organisational levels for a particular company?” must be the primary question that is asked before any reorganisation starts, unless you are happy with the “less is better” answer

Levels	Value Chain	Strategy	Value Proposition	Revenue	FTE	Stratified Systems
	Number of Value (product, supply) value chains Geography of assets	Strategy Planning Horizon Strategy content (growth in complexity, maintain the complexity)	Highest Complexity of Product value proposition Complexity of B2B clients and their decision makers in relation to product	Annual Operating Revenue	Number of Employees (including contractors)	Number of Layers in Stratified Systems Hierarchy / Business Process Architecture
Levels 8	Multiple global	> 50 years	Non-Linear Parallel	> 100 bln USD	Up to 1 mln and more	System Application to Multiple International Chains
Levels 7	Multiple multinational or Single global	20 – 50 years	Non-Linear Serial	Up to 100 bln USD	Up to 100,000	System Application to Multiple Value Chain
Levels 6	Multiple national or Singe multinational	10 – 20 years	Non-Linear Cumulative	Up to 10 bln USD	Up to 30,000	System Application to Multiple Business Units
Levels 5	Single national or Multiple regional	5 – 10 years	Non-Linear Declarative	Up to 1 bln USD	Up to 6,000	Business Units
Levels 4	Single regional	2 – 5 years	Linear Parallel	Up to 100 mln USD	Up to 2,000	Business Functions
Levels 3	SME	1 – 2 years	Linear Serial	Up to 10 mln USD	Up to 250	Functional Systems
Levels 2		Up to 1 year	Linear Cumulative			Business Processes
Levels 1		Up to 3 months	Linear Declarative			Activities

5S Operating Model – Cost Drivers

One of the key reasons for reorganisation failures is a lack of clarity about an organisational structure’s
cost-drivers and optimal targets aligned to the company’s overall business objectives:

Design a
cost-effective Operating Model
that fits the business of the company’s value chain.

ORGANISATIONAL LEVELS What is the right number of organisational levels the company needs to have to be effective?

ROLES PER ORGANISATIONAL LEVEL What is the right number of organisational levels the
company needs to have to be effective?

PEOPLE PER ROLE TYPE PER ORGANISATIONAL LEVEL What is the right number of people per role/ organisation level?

PAY PER ROLE PER ORGANISATIONAL LEVEL What is the right number of people per role/ organisation level?

5S Operating Model Alignment

Requisite Organisation design ensures the complexity level of a business and its environment are considered as work is described and cascaded through strategy, organisational systems, structure, data support and resource capability


Levels	Business	Strategy	Systems	Structure			Staff	Sustainability
Complexity	Environment Complexity	Time-horizon and milestones	Levels of Functional Work	Titles used	Type Span Discretion	Key Aspects of Work	Decision Making Capability	Organizational Leadership
L.6	Multiple national value chains	10 – 20 years	Corporate System	CEO	10 – 20 years	Creation of a business-friendly environment	Non-linear Cumulative	Sustaining an effective vision and culture which exemplifies the vision and culture of the board
L.5	Companies with the assets in one country with multiple value chains, with up to 30,000 employees, with >1 bln USD revenue (Level 6 Business Complexity in ROII Classification)	5 – 10 years	Strategic Business Functions Business Unit	COO / VP	5 – 10 years	Business Unit and Environment Scan for changes	Non-linear Declarative	Give organisational leadership by maintaining a sound business unit culture consistent with the corporate culture
L.4		3 – 5 years	Business Functions Production Unit	General Manager	3 – 5 years	Integration of multiple systems	Linear Parallel	Manage discrepancies as they arise, modify and interact with VP/MD where GM considers business unit culture needs to be changed
L.3		1 – 2 years	Functional Systems Operating Unit	Manager	1 – 2 years	Pre-planed alternative plans	Linear Serial	Transfer vision and culture into Mutual Recognition and Inclusion culture
L.2		3 - 12 months	Business Processes Output Team	Superintendent	3 - 12 months	Diagnose emerging problems	Linear Cumulative
L.1		3 months	Activities Direct Output	Supervisor / Operator	1 day – 3 months	Prescribed linear pathway	Linear Declarative

Why is Alignment important?

Alignment of the Operating Model with Business Complexity is the most important factor determining the growth, contraction, or the stability of an organisation. Market and economic conditions may provide the opportunities for organisational change, but not the changes themselves.

Level of Business Complexity is higher than the Complexity Level of the Operating Model:

Do nothing: the corporation will not be able to add value to its subsidiaries / value chains / business units as the potential of the business will not be realised. The share value of the corporation will drop below the aggregate value of its subsidiaries taken separately, creating a situation ripe for takeover, asset stripping and restructuring.
Increase complexity of Operating Model: realise the true value of the business, it may require additional cost to increase the complexity level of the operating model, and the CEO must swallow hard, move up one, re-orient and re-organise for keeps.

Level of Business Complexity matches than the Complexity Level of the Operating Model:

Gradual increase in revenue reflect growth by lateral extension within the current level of business complexity and existing operating model until, years later, the next jump might loom on the horizon.

Level of Business Complexity is lower than the complexity Level of the Operating Model:

Do nothing: the cost of operating model (structure, staff, strategy, systems) is too high for the level of the business complexity and the revenue that the business generates; such situation will be not be maintained for long; cost-cutting, divesting are frequent options.
Increase the Business Complexity: frequently depends on available talents at C-levels to grow the business to match the operating model; mergers and acquisitions are preferred options; it will cost and require investments but the next level of complexity brings higher levels of revenue.

Simplification of Operating Model

Product Portfolio

Reduce number of products
Increase complexity of product value propositions to maintain the revenue
Independent product configuration and activation

Strategy

Reduce a number of critical success factors
Reduce the level of planning horizon (typically, 1 level down in planning
complexity

Value Chains

Reduction in a number of value chains
Re-arrange the groupings of business units
Divesting, etc.

Systems of Work

Reduce a number of business process of higher complexity to match the strategy simplification
Reduce the cost of business processes
Evaluate outsourcing opportunities

Structure

Reduce number of Strategic Business Functions
Reduce number of roles at higher level of complexity (Level s 6, 5 and 4) to match the simplification of the business strategy

Digitalisation

dentify primary value chain activities (logistics, supply chain, manufacturing, marketing, etc.) and evaluate opportunities to simplify the activities with the help of digital technologies

Distribution Channels

Re-segmentation of the client base to match the simplified product portfolio
Full inter-channel integration, omnichannel
Transformation of sales and services model

Simplification Reasons:

Cost optimisation
Mergers and acquisitions
Crisis mode or Turnarounds
Shortage of Capability / Talent

Simplification Rules:

Simplify, but do not reduce the level of business complexity
Sustain an alignment between strategy, systems, structure, and staff (capability)