Move guide
Start from the strategy, and set the criteria
Your report suggested a move on this practice:
- whether the model still fits the size of the business.
This move guide writes down what the strategy needs the operating model to do. It ranks the criteria the model will be chosen on, and turns the design principles into tests. Then it names the next size step today's model cannot survive.
1. When it applies
Use this move guide if your report placed this practice in the lowest two stages. Every other step uses the criteria it sets, so read it first whatever your report says.
| Practice | Where it may sit today | Where this move guide aims |
|---|---|---|
| Whether the model still fits the size of the business | Lagging: "The model was designed for a business of a different size, and overheads have grown as fast as revenue or faster." Basic: "Everyone agrees the model has been outgrown, and fixing it is on next year's list again." |
Competent: "The model fits today's size, and whether it still does is asked every year at planning rather than when something breaks." |
If it already sits at the middle stage or higher, still write the criteria. Then skip the size step.
2. What to do
Five steps, in two to three weeks.
- Write what the strategy needs the operating model to deliver. A few lines, in the strategy's own words.
- Rank the criteria the model will be chosen on. Lowest cost, closer to the customer, more flexibility, tighter control, room to grow. Most businesses need two or three.
- Write the design principles as tests. For example: each leader owns a named line of the profit and loss. Every option must pass every test.
- Name the next size step the model cannot survive. Count it in sites, headcount or countries, and write the date you expect to reach it.
- Plot overhead against revenue for the last three years. If overhead grows as fast as revenue, you may already be past the step.
Table A below holds the criteria, the tests and the size step on one page.
The free worksheet does the overhead plot and the size step:
3. What to produce
One table, plus the worksheet above.
Table A. The criteria, the tests and the size step
| Item | What we wrote | Agreed by | Date |
|---|---|---|---|
| What the strategy needs the model to deliver | |||
| Criterion ranked first | |||
| Criterion ranked second | |||
| Criterion ranked third | |||
| Design principle 1, as a test | |||
| Design principle 2, as a test | |||
| The next size step the model cannot survive, and when |
A model chosen with no criteria is chosen by whoever argues longest.
4. A worked example
Illustrative. Written for this move guide. It describes no client.
A building services contractor has grown from three regions to six by buying smaller firms. Each firm it bought kept its own estimating, payroll and fleet.
The criteria.
- The strategy asks for national contracts with large property owners. The leadership team ranked closer to the customer first, and lowest cost second. Tighter control came third.
The tests.
- Two tests went on the page. A national customer deals with one account lead. Each regional manager owns a named line of the profit and loss.
The size step.
- Today's model would not survive a seventh region without a second layer of managers. Overhead had grown faster than revenue for two years.
- 3 criteria, ranked and signed
- 2 design principles, written as tests
- 7 regions: the size step, named with a date
On a retake, the practice could be answered at the middle stage.
What it looked like in our work
From our own work. Redrawn.
A hotel management company still ran a model designed when it was a fraction of its size. Almost every service sat at head office. The review proposed regional clusters for its full-service hotels, paid for by the hotels in each cluster.
| Activity | Where it sat | Where the review proposed it |
|---|---|---|
| Executive, finance, people and systems | Head office | Head office, charged to the hotels |
| Central reservations | Head office | Head office, with a fee for each booking |
| Brand marketing | Head office | Head office |
| Sales and key accounts | Regional clusters | Regional clusters, paid for by their hotels |
| Revenue management | Head office | Regional clusters, for full-service hotels |
| Food and drink, and local marketing | Head office | Each hotel |
| Day-to-day running of each hotel | Each hotel | Each hotel, reporting to a regional manager |
The head-office column had grown with the business. The review asked which services each kind of hotel needed, and placed them nearest the hotels that paid for them.
5. Effort and dependencies
- Chief executiveWrites what the model must deliver and owns the size step.
- Leadership teamRanks the criteria and signs the tests.
- AnalystPlots three years of overhead against revenue.
What you need
- The current strategy, or its one-page summary.
- Three years of overhead and revenue.
How long
- Two to three weeks.
What gets in the way. We have seen this in our own work:
- A model built for a smaller business. A hotel management company's central costs grew as fast as its income, because the model was designed at a fraction of its size.
6. How will you know it worked?
The test is whether the criteria are used when the model is chosen. Retake the check after the next planning round. This should be true when you answer:
| Practice | You can answer Competent when | A document alone does not count if |
|---|---|---|
| Whether the model still fits the size of the business | The next size step is named with a date, and the question is asked at each year's planning. | The step is named, but nobody has plotted overhead against revenue. |
The worked example is illustrative.
Think we've used your work without proper credit? Tell us and we'll fix it.