Defining the IT Operating

Model

A White Paper by:

Andrew Campbell, Ashridge Executive Education,
Strategic Management Centre (Invited Expert)

Michael Fulton, Nationwide

Mark Smalley, ASL BiSL Foundation

September 2017
Defining the IT Operating Model

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Defining the IT Operating Model

Document No.: W17B

Published by The Open Group, September 2017.

Any comments relating to the material contained in this document may be submitted to:
The Open Group, Apex Plaza, Forbury Road, Reading, Berkshire, RG1 1AX, United Kingdom
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Defining the IT Operating Model

Table of Contents

Executive Summary................................................................... 4

Introduction .............................................................................. 5

IT Operating Model .................................................................. 7

Business Model versus Operating Model versus

IT Operating Model ................................................................ 11

Dual IT Operating Model for the Digital Enterprise ................. 13

Summary ................................................................................ 14

References............................................................................... 15

Acknowledgements .................................................................. 16

About the IT4IT™ Forum ....................................................... 17

About The Open Group IT4IT™ Value Chain and Reference

Architecture Standard ............................................................. 17

About The Open Group ........................................................... 18

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Defining the IT Operating Model

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Executive Summary

Business value from investments in IT are delivered to the enterprise via an IT

operating model.

Delivery of business value can be executed by IT organizations that provide IT

services to other parts of the enterprise as well as by the parts of digital enterprises
that have embedded IT activities into their business processes and products. In this
White Paper, “IT organization” refers to either or both, depending on the context.

While an operating model has a description of activities and processes at its core,
there is no industry consensus about what other components should be included in an
IT operating model. To improve understanding and communication, this White Paper
frames the operating model aspects by defining those components.

The motivation for publishing this White Paper is the belief that a clear understanding
of the elements of an IT operating model is an essential enabler for effective leverage
of new IT paradigms such as DevOps, Agile, Cloud, and Digital Transformation.

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Defining the IT Operating Model

Introduction
A well-documented IT operating model, shared broadly across the enterprise, is an important management
tool and is not optional in today’s digital world. An IT operating model supports key objectives of IT
organizations that provide IT services to other parts of the enterprise, as well as the parts of digital enterprises
that have embedded IT activities into their business processes and products. Organizations seek to create and
communicate IT operating models to support efforts such as:

• Improved understanding

• Efficiency and collaboration

• Strategic change

However, the term “operating model” is often poorly defined and loosely used. Using a vendor-neutral,
research-based starting point can help organizations create specific operating models that are more complete
and robust than might otherwise be the case.

This White Paper thus proposes a standard definition of “IT operating model” derived from established
guidance.

Based on the work of Andrew Campbell et al. on an Operating Model Canvas1, and on Osterwalder’s
Business Model Canvas2, we place the IT operating model in context as the IT organization’s component of
the enterprise operating model, which is in turn a subset of the enterprise business model.

The components of the IT operating model are:

• IT processes (the work flows or value streams that enable IT to deliver value to the enterprise)

• IT organization (the people who execute the IT work, their skills and professional identities, and their
structure, accountabilities, and culture)

• IT locations and assets (where the work is done, the premises, and other assets)

• IT information and IT information solutions that support the IT processes

• IT suppliers and partners

• IT management system (the calendar of IT management meetings and the IT scorecard)

Together these create and deliver the IT value propositions, such as customer engagement automation, data
and analytics, back-office automation, communications capability, digital capabilities, management
information systems, desktop support, etc.

1
Andrew Campbell et al. – see References.
2
Osterwalder – see References.

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Defining the IT Operating Model

In organizations where information solutions are decentralized to operating units (for example, in private
equity), there will be an IT operating model for each operating unit that has an IT organization, as well as a
separate IT operating model for headquarters, assuming headquarters has an IT organization.

In digital enterprises, where IT is a major and often strategic part of the enterprise’s value proposition
delivery, IT activities will be part of the value streams of the enterprise operating model. If these activities
are delivered by the IT organization, they will appear as value propositions of the IT organization, and hence
part of the IT organization’s operating model.

Although this definition of an IT operating model comes from The Open Group IT4IT™ Forum, this White
Paper does not specifically address how the IT4IT standard can be used to transform an IT operating model.
This question will be taken up in other White Papers and elsewhere.

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Defining the IT Operating Model

IT Operating Model
This White Paper derives a definition of “IT operating model” from established guidance, with the intention
of bringing clarity to this topic.

Andrew Campbell defines an operating model as the “back end” of a business model. A business model
describes how an enterprise creates, delivers, and captures value and sustains itself in the process, and the
operating model is the part of the business model that describes the creation and delivery of value.

An operating model is a visual representation (i.e., a model) in the form of a diagram, map, chart, or
collection of diagrams, maps, tables, and charts that illustrates relationships between elements of an
enterprise of the organization – such as activities, people, decision processes, information systems, suppliers,
locations, and assets – that are important for delivering the enterprise’s value proposition(s), and how these
elements combine to successfully deliver the value proposition.

Figure 1: Operating Model Canvas

Campbell endorses Osterwalder’s Business Model Canvas (Figure 2).

The Operating Model Canvas takes the customers and the value propositions as the beneficiaries and
deliverables of an operating model. The left side of the business model is the operating model.

Key Activities, Key Resources, and Key Partners are then replaced with the Operating Model Canvas (Figure
1), comprising six components: processes, organization, locations, information, suppliers, and a management
system (abbreviated as “POLISM”).

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Defining the IT Operating Model

Figure 2: Business Model Canvas3

Processes are how the organization creates and delivers the value propositions to the customers or
beneficiaries. Each value proposition involves completing a number of work steps before the value can be
delivered to the customer.4

A “value stream map” lays out the different value streams needed to deliver the organization’s value
propositions and shows how these different streams can be linked together. Because an organization typically
serves multiple customer segments, each requiring different value propositions, a good value stream map is at
the heart of a good operating model.

“Process” often implies predetermined activities. In this paper, however, it is used in a broader sense to
encompass all work that helps deliver the value proposition, including the execution of predetermined
procedures and project plans, more loosely defined case management, and emergent patterns of activities that
occur in complex adaptive systems.

Organization defines how the people who do the work steps in the value stream map are structured (as a
single value stream, as units each with their own value stream, or as a matrix), and how the supporting
activities, such as finance, HR, and IT are added to the structure. It describes who owns the important
processes that cross multiple parts of the organization, and who owns each. It defines the different types of

3
See https://espriex.co/business-model-canvas and http://diytoolkit.org/tools/business-model-canvas.
4
Campbell calls the sequence of work steps that deliver value a “value delivery chain” or “value chain”. However, this publication adheres to The
Open Group term “value stream”, defined as “a sequence of activities an enterprise undertakes to deliver on a customer request. More broadly, the
sequence of activities required to design, produce, and deliver a good or service to a customer, and it includes the dual flows of information and
material.” See The Open Group O-BA Preliminary Standard; definition derived from the referenced Value Stream Mapping, by Martin and Osterling –
see References.

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Defining the IT Operating Model

people (skill groups) needed to do the work, their accountabilities, decision rights, and the culture that
governs and motivates each skill group.

Locations describe where the work is located and what assets are needed at these locations to support the
work. Locations can include in which city or country to operate. It can also include on which floor of a
building to locate different departments or how to lay out a factory.

Information covers not only the information but also the main information solutions that are needed to
support each process. A “business owner” should be defined for each information solution as well as whether
a solution needs to be part of an integrated enterprise system or can be a stand-alone element, and whether
the solution should be a standard module or a bespoke creation.

Suppliers describe which work steps are done by the organization and which are subcontracted. It also
describes the nature of the relationship with each important supplier: transactional or collaborative.

Management System records the calendar of processes and meetings required to plan, set targets, make
decisions, drive improvement, and manage performance. It includes the scorecard used to measure progress. 5

An operating model works at several different layers of abstraction.

A high-level operating model will describe the four or five main work steps in a process, the lines and boxes
of the organization chart, the main information solutions supporting the work, the important location choices,
and so on. It can be summarized as a canvas on one page or more fully explained in ten or so pages.

A detailed operating model will involve process maps often extending to 20 or 30 steps, job descriptions and
decision rights for every role, all information solutions, floor plans for every building, a complete list of
suppliers with contract information on each supplier, etc. It may be 100 or 1,000 pages.

An operating model can be drawn up for the whole enterprise, for a function or operating unit within the
enterprise (like IT), or for a team within a function or operating unit (like service desk). Applying POLISM
to the IT organization gives the following components:

• IT processes – the workflows or value streams that enable IT to deliver the value propositions

• IT organization – people, their skills, professional identities, roles, responsibilities, and accountabilities;
structure of the value streams and cross-organizational processes; culture

• IT locations – locations (an important aspect to consider is the co-location of IT and business); assets
such as buildings, machinery, and intellectual property

5
Strategy is also addressed in this component, covering strategic planning, business planning, target setting, performance management, continuous
improvement, risk management, and people assessment processes. These management processes are not part of the “Processes” component that
describes the value streams.

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Defining the IT Operating Model

• IT information – information that supports the IT processes; information solutions that provide the
information – IT services, IT systems; e.g., applications, data, infrastructure (hardware including
networks, systems software), facilities (electricity, cooling, etc.)

• IT suppliers (external parties supporting the work of the IT organization) such as product vendors,
partners, and service providers

• IT management system – calendar of processes and meetings for planning, setting targets, making
decisions, driving improvement and managing performance; scorecard for measuring progress including
delivered value (outcome)

Governance of IT6 is addressed in IT organization (accountabilities, decision rights) and IT management

system (decision forums and scorecard).

A well-documented IT operating model, shared broadly across the enterprise, is an important management
tool that supports the key objectives of both IT organizations that provide IT services to other parts of the
enterprise as well as the parts of digital enterprises that have embedded IT activities into their business
processes and products through:

• Improved understanding: it can help managers within IT to understand the whole, to align their activities
more closely with the rest of the IT organization, and to see ways of contributing to improved IT
effectiveness

• Efficiency and collaboration: the IT operating model can help to communicate how IT does its work, thus
weakening the impetus toward organizational silos within IT and reducing inefficiencies between the IT
organization and other parts of the enterprise

• Strategic change: a baseline operating model is essential for planning and managing changes driven by
increasing digital disruption to the enterprise, increasing complexity of IT-based services, and
increasingly integrated IT supplier networks

6
Corporate governance of IT is the system by which the current and future use of IT is directed and controlled, involving the evaluation and direction
of the use of IT to support the organization and monitoring of this use to achieve plans. It includes the strategy and policies for using IT within an
organization (ISO/IEC 38500:2008).

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Defining the IT Operating Model

Business Model versus Operating Model versus IT Operating Model

As previously mentioned, the operating model is the “back end” or “left side” of a business model. This can
be depicted visually by combining the Business Model Canvas and the Operating Model Canvas (see Figure
3), potentially creating an Enhanced Business Model Canvas.

Figure 3: Enhanced Business Model Canvas

An enterprise may have multiple business models: one for each operating unit. As such, it will have multiple
operating models; and hence may, or may not have, multiple IT operating models.

If IT delivery has been decentralized, the enterprise will have multiple IT operating models, including one for
the headquarters or enterprise level. If IT delivery has been centralized, the enterprise may only have one IT
operating model; though, within IT, there may be different sub-operating models for different IT activities,
such as applications development or service desk.

Conceptually, the IT operating model is the model for the “Information” box in the enterprise operating
model, as shown in Figure 4. In practice, however, it is the operating model of the IT organization.

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Figure 4: Enterprise Operating Model and IT Operating Model for “Supporting IT”

The approach in many organizations is to centralize IT as a separate service unit supporting the various lines
of business and functions, and in a demand-supply relationship defined by service-level agreements, etc. This
demand-supply model raises the issue of business-IT alignment: how to ensure that the two separate entities,
business and IT service unit, collaborate as effectively as possible.

Frequently there are negatives from centralization, such as rigidity rather than agility, reduced customer
orientation, and bureaucracy. Offsetting these negatives are economies of scale and skill that can be achieved
with low-variability work and, for instance, by having a critical mass to allow for recruitment of good people
and career paths.

This model can be justified when the positives are expected to be large enough to warrant risking the
negatives; for example, when the positives are sufficient to increase profits or market capitalization by 10% 7
or when security could be compromised by decentralization.

7
To centralize or not to centralize?, by Andrew Campbell et al.

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Defining the IT Operating Model

Dual IT Operating Model for the Digital Enterprise

In a digital enterprise, some information solutions execute part of the value streams (processes) rather than
supporting those who are executing. For instance, a hospital providing customers with an app to make
appointments rather than the customer calling the hospital and the hospital employee using an information
system to make an appointment. Such digital operations may not report to the IT organization; where they do,
the challenge is “business-IT convergence” more than “business-IT alignment”.

This work should be integrated into the lines of business rather than be treated as a service to the lines of
business. This may appear to introduce duplications and inefficiencies, but if the benefits of integration into
the business’s value proposition and agility to adjust to market changes are greater, these apparent
disadvantages can be justified.

In a digital enterprise, there are significant changes for IT people. IT people executing part of the value
streams are not part of a shared service, but are co-workers alongside their “business” co-workers. For IT
people who were used to awaiting “orders” from the business, this entails a non-trivial change of attitude.

There will still be some IT people who provide support to the value streams, such as those working on
management information systems or service desks. So, the IT operating models need to support both IT’s role
in the value delivery chain and IT’s role as a supporting activity for the organization. This dual model is
represented in Figure 5.

Figure 5: Digital Enterprise Operating Model and IT Operating Model for “Supporting IT”

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Defining the IT Operating Model

Summary
An operating model is a critical piece of an organization’s business model. An IT operating model explains
how the IT organization delivers value to the enterprise. Where the IT function is involved in both support
activities and activities that deliver part of the value streams, the operating model needs to accommodate
both. When the IT activities of the enterprise are highly decentralized, it is helpful to create an IT operating
model for each decentralized unit and a separate one for the headquarters.

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Defining the IT Operating Model

References
(Please note that the links below are good at the time of writing but cannot be guaranteed for the future.)

Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Alexander
Osterwalder, Yves Pigneur, John Wiley & Sons, 2010.

DIY Development Impact and You, Business Model Canvas; refer to: http://diytoolkit.org/tools/business-
model-canvas.

Espriex Business Model Competition – Business Model Canvas, 2017; refer to:
www.espriex.co/business-model-canvas.

ISO/IEC 38500:2015: Information Technology – Governance of IT for the Organization; refer to:
www.iso.org/standard/62816.html (updates ISO/IEC 38500:2008).

Open Business Architecture (O-BA) – Part I, an Open Group Preliminary Standard (P161), July 2016,
published by The Open Group; refer to: www.opengroup.org/bookstore/catalog/p161.htm.

Operating Model Canvas, Andrew Campbell, Mikel Gutierrez, Mark Lancelott, Van Haren Publishing, 2017.

Strategic Alignment: A Model for Organizational Transformation via Information Technology, John C.
Henderson, N. Venkatraman, Center for Information Systems Research, Massachusetts Institute of
Technology, Sloan School of Management, 1990; refer to: https://dspace.mit.edu/handle/1721.1/49184.

To centralize or not to centralize?, Andrew Campbell, Sven Kunisch, Günter Müller-Stewens, McKinsey
Quarterly, June 2011; refer to: www.mckinsey.com/business-functions/organization/our-insights/to-
centralize-or-not-to-centralize.

Value Stream Mapping: How to Visualize Work and Align Leadership for Organizational Transformation,
Karen Martin, Mike Osterling, McGraw-Hill Education (2013).

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Defining the IT Operating Model

Acknowledgements
The Open Group gratefully acknowledges the contribution of the following people in the development of this
document:

Authors

• Andrew Campbell, Ashridge Executive Education, Strategic Management Centre (Invited Expert)

• Michael Fulton, Nationwide

• Mark Smalley, ASL BiSL Foundation

Key Contributors

• Rob Akershoek, Logicalis SMC

• Charlie Betz, Forrester

• Sam Courtney, Armstrong Process Group

• Sukumar Daniel, Action Research Foundation

• Anil Lakhan, Capgemini

• Brian Moore, Raytheon

• David Morlitz, IBM

• Dan Warfield, CC and C Solutions

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Defining the IT Operating Model

About the IT4IT™ Forum

The IT4IT Forum, a Forum of The Open Group, enables industry thought leaders to collaborate in the
development of the IT4IT Value Chain and Reference Architecture standard for business benefit.

The mission of this Forum is to create and drive the adoption of the IT4IT Reference Architecture standard to
manage the business of IT, enable business insight across the IT value chain, increase focus on business
outcomes, and improve agility.

Participation in the IT4IT Forum enables IT practitioners, consultants, technology and training vendors,
service providers, business managers, and academics to come together in a technology-agnostic, industry-
agnostic, and vendor-neutral environment to solve shared IT management challenges. Participants in IT4IT
Forum work groups benefit as they:

• Increase their depth of knowledge of the standard and how to use it to benefit their organization

• Gain early access to the latest thinking, before it gets published broadly to the world

• Learn from collaborating with others and networking with industry thought leaders and competitors

• Build personal relationships and contacts that will be of benefit long into the future

• Take advantage of opportunities to build a personal brand and develop professionally

For further information, visit www.opengroup.org/IT4IT.

About The Open Group IT4IT™ Value Chain and Reference

Architecture Standard
The IT4IT Reference Architecture prescribes holistic management of the business of IT with continuous
insight and control, enabling Boundaryless Information Flow™ across the entire IT Value Chain. The IT4IT
Reference Architecture, a standard of The Open Group, comprises an IT reference architecture and a value
chain-based IT operating model reference for managing the business of IT. It provides prescriptive guidance
on how to design, procure, and implement the functionality needed to run IT. The end-to-end, “how to”
emphasis of the IT Value Chain and IT4IT Reference Architecture also enables the state of services that IT
delivers to be systematically tracked across the service lifecycle.

The extended body of knowledge associated with the IT4IT standard includes guidance on using it
strategically to transform your IT operating model as well as operationally to improve the interoperability of
your IT management systems and the flow of IT management data across your organization.

For more information, see www.opengroup.org/IT4IT.

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Defining the IT Operating Model

About The Open Group

The Open Group is a global consortium that enables the achievement of business objectives through IT
standards. With more than 500 member organizations, The Open Group has a diverse membership that spans
all sectors of the IT community – customers, systems and solutions suppliers, tool vendors, integrators, and
consultants, as well as academics and researchers – to:

• Capture, understand, and address current and emerging requirements, establish policies, and share best
practices

• Facilitate interoperability, develop consensus, and evolve and integrate specifications and open source
technologies

• Operate the industry’s premier certification service

Further information on The Open Group is available at www.opengroup.org.

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