AN AGILE OPERATING MODEL

FOR THE DIGITAL AGE

NICHOLAS BAYLEY | DIANA BERSOHN | AAMER CHAUDHRY | STEVE PONIATOWSKI
ORGANIZATION
TO ORGANISM

Digital disruptors are masters of

rapid adaptation. It is part of their
genetic code. They align fit-for-
purpose digital operating models
to support changing business needs.
Their speed and agility are paying off.
Traditional enterprises lag digital high
performers by nearly 25 percent
for expected future growth.1

With growth elusive across industries and digital

disruptors biting at their heels, traditional players
are developing disruptive business models to
compete. Insurers are selling direct to consumers.
Bricks-and-mortar retailers are launching curated
subscription services. Banks are providing value
beyond financial transactions. Consumer goods
giants are exploring auto-replenishment via IoT.

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Yet many struggle because they do not fully align their operating
models with these new disruptive business models. The alignment
of the operating model to the business model is critical to creating
this adaptable approach (see Figure 1). Unlike the disruptors they
emulate, incumbents frequently fail to achieve the flexibility to pivot
fast with changing customer needs, markets and technologies.
Without digital operating models that support agility at speed,
companies risk losing 10 to 20 percent revenue growth.2

Figure 1. Strategy execution is driven by successful alignment of the business and

operating models

Business Strategy & Vision

The strategic intent and goals of the company

Business Model
How the company captures value and goes to market

Operating Model
How the company constructs and operates the right capabilities
to deliver the business strategy and business model

Governance Process Organization and

Workforce

Technology Culture Metrics &

Incentives

Execution

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OPERATING MODELS
MUST CHANGE

81%
High-performing companies frequently adapt
multiple business models simultaneously to
protect and grow their market position amid
disruption. They defend and strengthen their
core business to stake their claim as industry of executives expect
survivors while introducing new disruptive to manage multiple
business models to leverage new value operating models in
propositions and elevate customer interest.3 parallel in the future

75%
These new business models call for capabilities
that radically change operating model
requirements. Most leaders acknowledge that
the business, IT and operations must work
together in very different ways to support them. acknowledge that
digital operating
Eighty-one percent of executives expect to
models must be
manage multiple operating models in parallel
flexible, dynamic and
in the future, and 75 percent acknowledge
customer centered
that digital operating models must be
flexible, dynamic and customer centered.4

A European retailer developed this kind of operating model in

response to the “Amazonification” of the industry. The company
redefined its business strategy from catalog focused to digitally-
enabled, transforming the operating model to put muscle behind
the new digital customer-led strategy.
This meant integrating digital services, the supply chain and

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 57%
store network to enhance the customer
experience with greater speed,
convenience, value and choice.5

Such an operating model revolution is the of executives say

exception rather than the rule for traditional digital transformation
enterprises facing massive disruption. Many will drive important
can’t get out from under legacy debt—such changes in their
as physical stores, cumbersome supply business model
chains and aging technology systems—that

62%
disruptors do not have. Less than a quarter of
incumbent executives think their operating
model can respond to changing market
conditions and drive value. Only 22 percent
say digital will drive
say it is aligned to growth initiatives.6
this same level of
change in their
operating model

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ANATOMY OF
A DOMAIN
The European retailer referenced
previously is also an outlier because of how To become more agile,
leadership changed the operating model. The traditional enterprises need
company created an agile, digital operating digital operating models
model organized around vertical “slices” that integrate business,
of the enterprise that were laser focused operations and technology
on the desired customer experience into autonomous
in target departments like consumer businesses-within-the-
electronics. These small, cross-functional business called domains.
and innately nimble teams make up what These domains boost
we call domains. agility so companies
can be truly disruptive
Domains are the new value driver for in one area while also
traditional enterprises. Think of them supporting traditional
like independent lines of business. businesses. It is a

They design, deploy and support a fluid, living model

that is essential for
given product, service or customer journey,
the digital age.
drawing resources, assets and capabilities
from across business, operations and
technology (see Figure 2). Domains are of
sufficient size to provide end-to-end delivery
with full accountability without relying on
other areas of the business.

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Figure 2. Domains bring together business, technology and operations,
addressing the unique needs of different customers, channels, products
and revenue models
P&L P&L

Customer Experience
Channels Products

Mature/Traditional

Growth/Digital
Product Development
Products

Operations
Supply Chain

Technology
Apps Architecture

Domain Domain

Our analysis shows that companies adopting digital operating models

organized into domains can realize significant financial value. These
digital operating models can improve incremental growth in revenue
between 10 to 20 percent, average consumer spend by an average
of 10 percent, and income by 15 percent7, with slight variation due to
industry dynamics.

Selecting and structuring domains well is critical to realize this

value. Companies must consider the combinations of customers,
channels, products and services, and revenue models in the
enterprise. These combinations produce different requirements
for speed, agility, security, skills, technology and cost that must be
addressed. Domains are ideal for initiatives that cut new ground.

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When an entertainment company wanted
to improve the guest experience with new
technology, leadership decided not to build
the solution on legacy systems. Instead,
the company stood up a separate digital
business consisting of a set of domains that
worked solely on this program. Vertical teams Analysis indicates

consisted of a cross section of operations, that digital operating

models can improve
business and technology personnel and
incremental revenue
assets. Each domain was organized around
growth revenue by 10-
a specific product or customer experience.
20%, average consumer
For this new digital business, the company
spend by 10% and
met its three-year performance goal for
income by 15%.
consumer adoption in less than six months. It
gained more than $200 million in additional
revenue and about $64 million in additional
EBIT in the first year thanks to a pivot to this
digital operating model.8

A global technology conglomerate also

wanted to reorient the business around the customer—to become
a customer-driven, product-aligned health technology company.
Recognizing that the existing operating model could not support this
transition, the company organized into domains to move at speed.
Domains were created with a business-led, technology-enabled
mindset. Domains were defined as independent P&L entities with
business, technology and operational expertise to drive outcomes
fast and drive end-to-end accountability. This operating model
transformation was a critical part of the company’s success in
changing its customer value proposition in a short time.9

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SCALE IS THE
LINK
Think back to that European retailer that
transformed the operating model to take on
Amazon. This digital transformation was a
matter of life or death in a David meets Goliath
battle. The company’s ability to scale the
domain structure literally helped it to survive
in a rapidly-changing industry landscape. In
fact, the approach contributed to the company Structure, hierarchical
delivering its strongest sales performance operating models
in nearly ten quarters, with the new mobile and culture impede

commerce business model and operating agility at scale in large,

functionally siloed
model domain contributing 30 percent
organizations
of total sales, according to the Financial
Times. A remarkable achievement over a
relatively short period of time.

Domains make traditional players more agile and competitive

in markets dominated by disruption. But only if companies go
beyond organizing and implementing domains in select pockets
of the business. To realize lasting benefits—and to become wholly
agile—companies must scale domains within the business.

In large, functionally siloed organizations, structure,

hierarchical operating models and culture impede agility at
scale. Most traditional companies implement agile operating
models in less than five percent of their operations or business,
limiting success in new markets, customer engagements and

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channels.10 Some resist investing to scale because leadership and
shareholders lack the patience to wait for results and organic change.
This is why the ready-made scale that comes from acquisitions is
often so attractive.

Our client experience suggests that traditional enterprises should

scale domains to at least 25 percent of business units, products
and services, or customers to achieve the full benefits of digital
transformation and avoid stalling at the pilot stage.11 They can do
this by decoupling architectures and using data insight to fuel
customer-first design. Senior leaders’ involvement in planning
the elements of the domains and determining the minimum
viable experience that must be delivered is key.

Domains make traditional players more agile and

competitive in markets dominated by disruption.

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SURVIVAL OF
THE FITTEST
A digital operating model with domains brings companies the
adaptability digital disruptors are known for. To move from old to
new, companies must make changes in governance, process, culture
and workforce, along with organization.

DEFINE DOMAINS WITH PRECISION.

Guided by the business strategy, business model
and customer expectations, companies must have
a comprehensive view of how to bring together
capabilities, assets and authority from across
a disconnected enterprise. This is not merely
changing the organizational structure.
It is changing the entire operating model.

BE DELIBERATE ABOUT LEADERSHIP.

Companies should appoint a new role, a domain owner,
who is responsible for the end-to-end functioning of
the domain. This leader understands the intersection
of business, operational and technology interests, and
oversees new financial and investment models related
to the domain as well as having P&L accountability.

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 DIFFUSE CULTURE SHOCK.
Domains bring different groups together for the first
time. Culture shock can occur without actions to unlock
entrenched thinking and support open dialogues and
difficult conversations, new forms of collaboration,
and agile ways of working with small, nimble teams
empowered to make decisions.

BUILD THE WORKFORCE OF THE FUTURE.

The interplay between business, technology and
operations across domains calls for new digital skills.
These will require upskilling of current employees as
well as gathering new talent via today’s workforce.
This will allow organizations to access individuals with
blended skills and harder-to-find digital technology
expertise, often for specific projects, in a labor-on-
demand model.

To survive, traditional enterprises must act as

living businesses with the flexibility at speed
and scale to remain relevant no matter what
disruptions await. Lasting success depends on the
right agile and adaptable operating model.

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JOIN THE CONVERSATION

@AccentureStrat

www.linkedin.com/company/
accenture-strategy

CONTACT THE AUTHORS

Nicholas Bayley
Toronto, Canada
nicholas.p.bayley@accenture.com

Diana Bersohn
San Francisco, CA, United States
diana.bersohn@accenture.com

Aamer Chaudhry
Manchester, United Kingdom
aamer.a.chaudhry@accenture.com

Steve Poniatowski
Minneapolis, MN, United States
steven.j.poniatowski@accenture.com

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NOTES ABOUT ACCENTURE
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ABOUT ACCENTURE STRATEGY

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