Comment: Design operating models to cope with complexity

This article is part of a series of four from Boxwood, tackling the issue of how to impress customers and deliver results – "Execution Excellence" for short.

Your operating model is the combination of roles, skills, structures, processes, assets and technologies which enable your organisation to deliver its customer value proposition. It is the organisational construct which determines how and where work gets done. Excellent execution requires people to translate ideas and customer strategies into what it means for them in their area of the business. This is where the operating model comes in.

Old truths – relentless focus

Aldi's focus on operational excellence delivers its strategy of offering consistently low prices. Every aspect of Aldi's operating model is designed to deliver value at low prices: from the standard layout of the stores, to the limited
 choice within product ranges, to the culture of continuous improvement. Aldi has a relentless focus on low cost, in everything that it does. That consistency means staff and consumers know what to expect and trust the brand. When you have a relatively simple proposition, having a relentless focus works. The complexity of today's world means that this is increasingly rare.

Even more true – complexity capable

Retailers historically used to just have stores, they then added call centres. Now they have multiple channels in which to sell and market their products. They also have consumers who demand transparency, value for money and even personalisation. We operate in a far more complex environment than we used to, and that inevitably means complexity creeping into our organisations.

Complexity often gets a bad press, particularly with the growth in 'lean' programmes. However, there is a difference between complexity which gets in the way of the day-to- day running of the organisation, i.e. chaos, and complexity which delivers value to your customer. The former needs bringing under control, and introducing lean principles and techniques is an excellent way of achieving that. The latter needs to be managed tightly, delivering the right level of complexity for your organisation.

The key is to keep the complexity outside the organisation and not allow it to destroy efficiency inside the organisation. Operating models need to be designed to cope with complexity; they shouldn’t be over-simplified otherwise the consumer will go elsewhere, where their multitude of needs can be met.

New truths – data enabled

Complexity has taken on a new twist with the explosion 
of data. We are surrounded by data. Big data includes structured and unstructured data; structured data includes things such as company sales reports, and unstructured data includes things such as Facebook and Twitter posts. Every day an average of 500 million messages are posted on Twitter. The rapid adoption of connected devices (phones, iPad etc.) is having a massive impact on the volume of data being generated. In fact, Intel estimates that the number of connected devices equalled the world’s population in 2012. This number is expected to reach double the world’s population by 2015. IDC estimates that by 2020, the 'digital universe' will be 40 trillion gigabytes.

Why does it matter? Speaking at a BRC event in 2014, Sebastian James, CEO of Dixons Carphone, said that making sense of customers' online history, social media activity and eCommerce patterns will
 be the key focus for retailers in the coming years he argued, before adding that an algorithm-driven workforce can "convert this wealth of data into true behaviours that speak to us about what customers really want".

Retail intuition needs to be enhanced for example by people with maths PhDs. A singular focus is no longer enough. To survive in today’s environment, retailers need to harness data to help prioritise and make informed decisions. This ability needs to be built into the operating model and become the way that you do business. By doing this, as James said, "new niche ways to anticipate, excite and entice customers will evolve, breathing new life into our high streets".

And as David Thatcher, group CEO of Direct Wines, suggests: "Understanding the data and translating that into proper actionable information is more important now than it ever was. It’s what gives you capabilities to do things that are meaningful for large groups of customers while at least giving the impression that you’re not ignoring those that are on the fringes."

Getting the operational model right means keeping complexity on the outside, but don't over-simplify: you need the capability to cope with the right amount of complexity to deliver customer expectations. Recognise the volume and power of data and employ people with the ability to harness it, to enable you to find new ways to anticipate, excite and entice customers.

Paul Martin is managing director of Boxwood Insights at management consulting firm KPMG Boxwood. His series of articles on "Execution Excellence" will be published on Essential Retail over the coming months.

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