Operating Model Changes Must Align with the Company Culture or Choose to Intentionally Break it

A several years ago I was part of a company servicing the Higher Education Industry that changed its operating model and I can say it was a less than fun experience. The company moved from a diversification model to a replication model in order to address what was a changing industry. Deregulation has removed barriers to entry and new competition was driving down both sales and margins. Additionally, the workforce was aging and as employees retired their institution knowledge and connections were lost.

In the past, team members would spend 30 years working for this company because each location was given significant freedom to cater to their unique market and the bonus structure was configured to significantly reward that knowledge and hard work. Inventories and purchasing were managed locally as each market was unique and the people who were in that market knew it best. Only HR and payroll were housed at the corporate office in the Midwest and most other IT decisions were made by the local management.

When the industry was deregulated, these colleges and universities had to publish what had previously not fallen under the Freedom of Information Act. The moved the power from the seller to the buyer and increased competition. In efforts to keep pace with the changed landscape the President of the division I worked for began the shift to a replication model. Purchasing, Marketing, inventory management and other core aspects of the business were one moved to corporate control out of company headquarters. In theory this was a solid business move as it would allow for standardization and replication across the several hundred locations. However, what occurred was a dilution of the culture and uniqueness of each location.  Every college and university has a different look and feel and that was translated by the local staff into sales. Those at the HQ office had no idea what each location was like nor had they ever visited most of the schools. Local managers could make suggestions but actually getting something approved took so long the business opportunity was often gone by that time. Additionally local vendors who had been doing business locations for decades were shut out because central purchasing was not willing to purchase for just one location and these local products were what sold well. Central purchasing ordered standard items from national vendors and the local stores lost their identity.

After a couple of years sales continued to decline and management placed the blame at the local level. They stated we were not executing the plan and we stated the products they provided were trash. It wrecked the existing company culture, caused many experienced team members to move on, and it took a couple of years for the new operating model to establish itself. That said, this shift in operating model did allow the company to sell off this business unit several years later even though the industry was in continued upheaval. It could be described as successful depending on the viewpoint one takes.

So as one thinks about changing an operating model consider this:

How will you mitigate the short term turbulence so you can best get to the long term gain an operating model shift can provide?

Don’t throw the baby out with the bathwater.