Operating Governance is about how the organization makes, tracks, and enforces key decisions. It’s the “operating system” of the organization. Unlike Corporate Governance, which divides power and responsibilities between the board, management, and other stakeholders, Operating Governance focuses on who decides what, how they make those decisions, and when those decisions should be made. It also includes the metrics which score the outcomes of decisions. Operating Governance defines executives’ power — up, down, and across the organization.
Operating Governance does not encompass every decision — only the key ones. The key decisions are those which most affect elements of the strategy: choices shaping the organization’s ability to compete for targeted customers, and to win in the chosen markets. Certain fundamental decisions are almost always key, such as who controls hiring, performance evaluation, sales quotas, and budgets. Others may be less obvious but no less crucial — for example, who defines the market segments; or who enforces technical standards, and how.
Governance and Decision Processes
How key decisions are made is a process — many times, that process may be informal, one-off, and only tangentially supported by data. However, more effective decision processes are thought-out, consistent, repeatable, and informed by appropriate data and analysis. And when they are consistent, they can be improved, leading to better outcomes.
It’s not sufficient just to make good decisions, though — it is as important to be able to track the outcomes of strategic choices, as well as actions taken to implement those decisions. Appropriate metrics should be agreed on, and targets specified, when the decisions are made (or as soon as possible).
Finally, it must be in decision makers’ interest to follow through — so incentives should be attached to the metrics. Incentives can be positive (for example, more resources) or negative (for example, fewer resources).
Strategy is most likely to succeed when all of these elements of Operating Governance and Metrics are defined and coherent. Organizations may muddle through with only some of them addressed, but they rarely thrive for long in changing business environments.
Our experience has shown that there are two areas of Operating Governance that tend to be particularly critical — especially when partnering/outsourcing is involved. These are:
- Process governance — for example, product development or manufacturing
- Functional governance — for example, IT’s interactions with the business
Either of these may come into play when companies are involved in partnerships or outsourcing arrangements, either to operate a process or deliver a function. It’s especially important to be explicit about who decides what, when, and how, because the assumed decision rights may be very different in each company.
EXAMPLES of Governance Processes:
- Product Development Funding
- Joint Venture Governance
- Risk Management
- Product Lifecycle Management
- Collaboration across Regions and Functions
- Production Planning
- Order Fulfillment
- Project Prioritization
- Business Performance Management
- New Product Launch
- Knowledge Retention & Sharing
- Complexity Management
- Product Development Processes
- Process Integration (between sites, organizations)
- Standards Development & Enforcement
- Supply Chain Management
- Capacity Planning
- Market Intelligence
When a business process is of paramount importance (for example, rapid product development when the business strategy relies on bringing products to market faster than competition), it can be valuable to define the governance of that process — especially when success requires the collaboration of multiple functions and/or operating units, within or even across company boundaries.
Business processes requiring effective governance might include, for example:
- Construction and maintenance of a balanced product development portfolio
- Prioritization of projects across the division
- Customer segmentation — including development, reporting, updates
We help you:
- Specify the process, at the appropriate level of detail for the situation
- Define any needed governance bodies (e.g., councils, committees, boards), their memberships, and their operating rhythms
- Collaboratively specify the key decisions and decision rights, for both individual roles and governance bodies
- Develop (as needed) any frameworks, analytics, and/or choice criteria for particular decisions
- Define process metrics and targets
In many businesses, functional organizations themselves (e.g., marketing, manufacturing, finance, IT), can become very large and diverse, making it challenging to run efficiently and responsively. Even a well-run functional organization can benefit from governance assistance when new capabilities are demanded by the business strategy; when new tools or processes have been deployed; when you must collaborate with a partner to deliver certain functional capabilities; or when you have outsourced certain activities, and must ensure they are delivered seamlessly as part of the function.
We help you:
- Restructure the organization if needed
- Define roles and decision rights to support and reinforce new processes or capabilities
- Assess functional personnel and identify where capability gaps need to be filled
- Define and implement critical decision processes
Client Engagement Examples
Strategy, Organizational Architecture and Governance need to be aligned for the organization to succeed. A good strategy that is poorly executed due to ineffective operating governance or an unsuitable organizational structure is likely to fail (or at least underperform). A reorganization that doesn’t take into account dynamic strategy is less likely to meet its objectives; and operating governance, to ensure the right people are making the right decisions, must take into account the organizational architecture and the strategy.
Any of these elements may need to change due to new competitors, changed regulations, different input costs, new technologies, or any of the other myriad ways the business environment is continuously evolving. That doesn’t mean they all must change or that they must change together — successful companies carefully evolve as the environment changes, and we can enter in any of these practice areas to begin to make improvements.
We employ distinctive techniques (such as business wargaming and organizational simulations) across all our practice areas, as well as proprietary frameworks and processes.