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Models to Emulate

By Edward H. Baker  |  Posted 12-28-2005 Print

Can you describe the four operating models you've pinpointed?

Consider ING Direct, the online arm of ING Bank. One of the things that have made ING Direct so successful is that it is so clear about its operating model, which we classify as a "replication" model. The company takes a set of services and replicates it everywhere it goes. Just pull the services off the shelf and put them into the next site. And it can do that organically, or after an acquisition. It doesn't matter.

You hear about ING Direct and you say, "Well, that's a natural. Of course they would do that. Just like Marriott would do that, or McDonald's would do that." But I was fascinated to read a case about Cemex, a Mexican cement company, and realize that they've chosen that model too. They've said, "Cement is something you produce and sell locally. But if you come up with the best processes for marketing and developing and manufacturing cement, those are absolutely replicable all over the world." You see a cement manufacturer using this model, and you say to yourself, this is an operating model with teeth. This is something that has real potential for other companies.

Or consider MetLife and its "coordination" model. Here's a company with a lot of different product lines, making a lot of acquisitions, so it's got more things going on than it can manage using a replication model. Still, it has to get everything in shape for its customers. It can have some inefficiencies, and some redundancies in the back end, and they will cost money, but they're not going to kill the company.

So they got that figured out, and then they said, "OK, all our resources go into making this clean enough on the front end that we can meet our customers' needs." That's a coordination model. It's all around integration. And it recognizes that, as nice as it would be to standardize the stuff in the back end, that's not where MetLife can get the most bang for its buck.

It's a model that works for a lot of full-service financial services companies. It works with pharmaceutical companies too. Pharma companies pretty consistently have independent companies that are really functions—a marketing company, a manufacturing company, an R&D company. And they have to have very smooth transfer of data, for the Food and Drug Administration's sake, if nobody else's. So they've got to integrate that data. But the companies are totally different. It wouldn't make any sense for them to say that their manufacturing unit has to use the same processes as their R&D unit.

Thinking in terms of operating models also helps companies understand the limits to their agility. UPS is one of my favorite companies. What it did in package delivery was create the ultimate highly integrated, highly standardized company—what we call a "unification" model. And yet—and they're very honest about this—when they first started getting into other businesses, such as logistics, they wondered how they could fit it into their model. They realized it didn't work. You couldn't attach those new businesses to the very same model. They have a very strong unification model for package delivery. But their enterprisewide model is a "diversification" model that's designed to meet the needs of all their businesses.

What's interesting is that as UPS evolves as an enterprise, it very well may move into a coordination model. There really is a fair amount of data the company can leverage across its businesses. But right now they're adding businesses, they're testing, they're experimenting. Diversification is the only thing that makes sense.

What's the role of enterprise architecture in aligning to an operating model?

Enterprise architecture is an organizing logic focused on business processes and IT capabilities. It identifies the way IT and business processes will meet a company's needs for integration and standardization as it goes to market. And the critical components of an enterprise architecture are very different, depending on the operating model.

How much of that is technology, and how much of it is business processes?

Those two are not really separable anymore. You have technology infrastructure based on platforms and technologies. But if you try to look at the technology apart from business processes, you miss the point. This gets back to Nick Carr's Harvard Business Review article claiming that IT doesn't matter. If you look at it the way he did, it truly doesn't matter. But to the extent that we look at the technology as an embedding process in the organization that should reflect its operating model, then it matters tremendously in terms of what a company is and is not capable of doing.

Every company needs to understand, first of all, where it is trying to go and, thus, what kind of enterprise architecture to build.


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