Eric Garton: How the Right Operating Models Deliver Value from Mergers and Separations

Getting the operating model right is essential to deliver value from a merger or separation. Eric Garton, who leads Bain's Organization practice, outlines some common pitfalls and explains the different strategies that help organizations overcome them.

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Read the transcript below.

ERIC GARTON: An operating model, simply put, is a blueprint for how a company is going to organize and manage its resources, deliver its strategic objectives.

Now, when we talk about operating model, we mean a lot more than just the organization design and the blueprint. When companies address their operating models, they also have to touch on accountabilities. And by that, we mean how they define decision rights and ways of working.

They have to address the governance structures for the company, the forms they're going to use to make decisions and the management dashboards they're going to use to affect operational control. They also have to address the ways of working as capturing high-performance behaviors. And finally, companies have to make sure that they integrate the people, processes, technologies and tools to deliver the mission-critical capabilities.

Now, when companies start operating model design, one of the common mistakes they make is to get too involved in the detailed design. And they lose sight of the strategic intent. So we always want to start with an operating model blueprint before delving into that detailed design.

And you know you have an effective operating model when there's very few gaps between the strategic execution and the purpose that you set for the company in the first place. In mergers, integrations and separations, you find that operating model design is particularly tricky when you're taking two companies and creating one out of them or taking one company and creating two or more publicly traded companies. You'll find that the design of the organization requires thinking about it quite differently.

In merger integrations, for instance, you really have three choices: You can take one company's operating model and tuck it into another; you can try to achieve best of both, which can be challenging at times; or in even more rare circumstances, you have to create an entirely new operating model for the combined entity.

Separations create even more complicated challenges for operating model design. Each company has to undergo a process to take its strategy and fully align the organization and cost structure to the more refined strategy for that separated company. One of the challenges companies face in doing that is getting the right balance between day-one readiness to be operationally effective and achieving organizational full potential.

It's not surprising management teams find themselves very consumed with preparing for day one. It's a highly visible transaction. These are expensive. There's a lot of pressure on management teams to get that right. On the other hand, if you aren't thinking about organizational full potential, there's a decent chance that out of the starting blocks, you haven't set up the companies for success.

Now, if you carefully plan, design the operating model and think about the transition between the current state and the future state, it's definitely possible to achieve both day-one operational readiness and organizational full potential.