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.

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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

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

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)

What actions must be taken to deliver on the modern
purpose of a corporation?

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