As organizations navigate the complexities of digital transformation, one question repeatedly arises:
“How do we shift from functional design to horizontal design when designing our Operating Model?”
Traditionally, functions like Finance, Procurement, Operations, and Marketing operate within their own silos, each developing its own operating model. However, to drive efficiency and enhance customer experience, organisations must transition to a horizontal, customer-centric design that integrates all functions seamlessly.
This transition is particularly critical as organizations incorporate AI into their end-to-end processes. AI’s potential can only be fully realized if it is embedded in a structure that fosters cross-functional collaboration, data-driven decision-making, and seamless process integration.
Even if different teams work independently, aligning on a shared set of design principles ensures consistency across the organization. This alignment fosters interoperability, clarity in decision-making, and a uniform approach to AI-driven transformation.
To break down silos, organizations need a high-level Operating Model Blueprint—a single-page visual representation of how various functions interact. This helps teams drill down into their specific designs while maintaining a unified, enterprise-wide perspective.
End-to-end processes like Source-to-Pay (S2P) or Order-to-Cash (O2C) serve as the foundation for horizontal design. They ensure visibility across functions, clarify handoffs, and eliminate inefficiencies in workflows spanning multiple departments. This approach forces an organization-wide mindset, promoting AI’s role in optimizing these processes.
Understanding the organization’s core business capabilities—both shared and function-specific—prevents redundant efforts and encourages resource optimization. A well-defined capability model helps leaders identify synergies across teams, ensuring AI investments deliver enterprise-wide benefits.
Governance should be an enabler, not a bottleneck. Establishing a governance framework ensures alignment between teams, facilitates collaboration, and prevents duplication of AI-powered initiatives. It also creates clear communication channels to sustain horizontal integration.
At some stage, all functions must come together—whether at the start of detailed design or during execution. Convergence helps prioritise initiatives based on enterprise-wide value, rather than individual departmental gains. AI implementation particularly benefits from this approach, ensuring resources and technologies are deployed strategically.
Transformational change is most effective when it complements ongoing efforts. Instead of disrupting current initiatives, organizations should focus on enhancing existing processes and integrating AI solutions where they add the most value. This collaborative mindset fosters a smoother transition to a horizontal model.
The shift to a horizontal design is not just a structural change—it’s a strategic necessity in today’s AI-driven world. Organizations that successfully transition can achieve:
With AI at the core, organizations must ensure their operating models evolve to support digital transformation, intelligent automation, and business process optimization. A siloed approach will only limit AI’s impact, while a horizontal, integrated structure will enable long-term, scalable success.
Transitioning from a functional to a horizontal operating model is challenging, particularly in large, complex organizations. However, businesses that embrace a cross-functional, AI-integrated approach will be better positioned to drive operational excellence and unlock future growth.
A common challenge in transformation projects is aligning local autonomy with centralised change. This dynamic often plays out across regions, NHS Trusts, business units, and global operations, where local decision-making power can sometimes conflict with broader organisational goals. Addressing this issue requires a thoughtful and strategic approach.
In decentralised structures, local teams often hold significant decision-making authority and manage their own P&Ls. While this autonomy allows for flexibility, it can lead to resistance when centralised changes are introduced, especially if local priorities seem misaligned with the overarching strategy. Balancing these two forces is essential for successful transformation.
✅ Document Decision-Making Rights
Many organisations lack clarity on who holds decision-making authority at different levels. By mapping these rights, gaps and misalignments can be identified. For example, a Telco aiming to empower Product Owners discovered that authority and accountability were not properly aligned. Addressing these gaps allowed the organisation to design an operating model that facilitated faster and more effective decision-making.
✅ Identify True Influencers
Formal structures don’t always reveal the real decision-makers. Informal influencers often hold significant sway within organisations. In a commercial real estate project, one country head, despite lacking formal authority, consistently influenced the direction of others. Recognising and engaging such individuals is critical to driving alignment and progress.
✅ Tie Outcomes to Incentives
Resistance to change often stems from misaligned incentives. For instance, a system rollout negatively impacted local P&L for two years, leading to pushback from leaders whose bonuses were tied to short-term performance. Aligning incentives with long-term success reduced resistance and supported the transformation.
✅ Co-Create Non-Negotiables
Decision principles provide clarity during transformation, but their strength comes from collective creation. Collaborative workshops ensure that stakeholders agree on non-negotiables. While disagreements are common, these principles anchor decision-making and provide a reference point for resolving future conflicts.
✅ Co-Design the Future State
Stakeholder involvement is crucial during the design phase. In a project with NHS Trusts, CFOs frequently asked, “Who on my team has inputted into this?” Incorporating input from key stakeholders not only ensured alignment but also avoided resistance caused by a lack of ownership. When operating models are designed without collaboration, adoption often fails due to the “not invented here” mindset.
✅ Create a Shared Vision
Communicating the broader impact of change is essential, especially when it seems to negatively affect certain teams. In one instance, a smaller market resisted adopting a system that increased their workload. By showing how their efforts contributed to regional success, alignment was achieved. The key was articulating the shared vision in a way that connected to individual contributions and value.
With the rapid advancements in AI and increasing cost pressures, organisations need to rethink their operating models to remain competitive. Balancing local autonomy with centralised change is rarely a straightforward process. It requires clear strategies, collaboration, and alignment to ensure the organisation is positioned for long-term success.
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Hudson&Hayes partnered with a large media client undergoing a merger to design and deliver a comprehensive operating model for the newly formed agency.
Hudson&Hayes provided expertise in Operating Model Design best practices and collaborated with the client to design a new agency operating model with agency leadership. We helped the client define the capability model and identify new, existing, and overlapping capabilities.
Following the high-level design, we supported the client in understanding implementation considerations for local markets (adapting the model to their local situations) and global teams (creating new global discipline groups and re-framing global enabling functions) as well as alignment with the group/parent company. The challenge was to facilitate the development of the new operating model while refining it to align with the agency's vision and value proposition.
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