Whether facing the challenges of austerity measures and regulatory changes, an increasingly dynamic and globalized business environment, or the difficulties posed by an ever more complex digital and data-driven market, defining the right target operating model is crucial for steering the course to profitable growth. As an overall operations and technology ecosystem, a target operating model serves as a company’s blueprint for achieving its strategic vision.
Realizing the full benefits of a target operating model, however, and regularly adapting it to continually shifting business strategies, can pose significant challenges. No single, ideal target operating model exists. Rather, each company’s model design will depend on its starting point, culture and the optimization goals it has prioritized based on its business strategy, market position and areas of competition, and differentiated client value proposition.
SEVEN LAYERS FOR A SUCCESSFUL OPERATING MODEL DESIGN
Business Alignment. Start by appointing a design team that is compact and focused to ensure traction, but keep in mind that the team must have a mandate from the wider group and from senior leadership if the project is to gain momentum. This mandate must be rooted in a clearly articulated business strategy that accounts for near-term and longer-term business goals, market considerations, and the company’s client value proposition. Without this clarity on the business strategy, and its implications on target operating model design, there can be no alignment to shared goals. Open communication among the design team and leadership is also crucial, as the business strategy may change over time.
Architecture Design and Governance. Once a team is in place and aligned to a clearly defined business strategy, define the design principles, scope and content of each component of the operating model. These must be unambiguous, as they will be the reference point for all future design decisions. Using an iterative design process allows priorities to change, but keeps team members aligned to these immovable design principles. It can be helpful to establish a design authority to own these principles and key decisions and to identify and onboard other key players and document their roles and responsibilities. Division or portfolio owners can be empowered to design their own desired organization structures, which can then be integrated into one agreed-upon organization design.
Service Management Alignment. A “service mindset” must be instilled—backed by internal and external service level agreements. Clearly define the service manager’s role and responsibilities in managing supply and demand for services. Further, changes to cost centers and financial processes may be required to enable services and equipment to be charged back to specific departments. Service transparency must also be ensured through appropriate reporting mechanisms.
Delivery Model Strategy. Conduct a rigorous analysis of potential service delivery model options before selecting the most appropriate model. Carefully consider which areas to consolidate or centralize, or which to distribute more broadly, factoring in political and emotional sensitivities around location decisions. This is especially important when developing multicountry target operating models.
Business Case and Benefits. Clearly articulate any investment costs, key dependencies, risks and issues. Simultaneously, identify revenue opportunities to help boost the business case. The business case will be iterative as the design process evolves, building out gradually and in more detail as the target operating model design progresses.
Sourcing Strategy. Third-party resources can be either cost savers or cost centers. In some cases, outsourcing entire functions (including management) may not be prudent, as the marginal labor arbitrage could be outweighed by the loss of control and business intelligence. Understand what needs to be done, and how, before engaging third parties. Establish a strong and fully integrated vendor management function to maintain a consistent framework for sourcing opportunities and to avoid scope creep and loss of control over entire functions.
Transformation Roadmap. Define transitional operating models to break up the target operating model journey and to appropriately balance risks, costs and benefits throughout the process. Incorporating quick wins that demonstrate early success can help the team achieve the critical mass of stakeholder buy-in required to shift into high gear on the transformation. Splitting transformation and implementation plans into short, medium and long phases, with appropriate levels of detail for each phase, can help the team see opportunities to adjust the balance. Once the roadmap is underway, develop target operating model blueprints and implementation handbooks that standardize international rollouts, ensuring that high-value goals are prioritized.
While tangible results must be delivered early on in order to rally support, and the transformation must be aggressive, it should also be realistic. Lay out and follow a series of achievable steps, all championed by leadership at the top, that each deliver clear and tangible benefits to clients, the business and overall financial results. Executing against target operating model transformation is a multiyear journey, not a big-bang, do-it-all-now endeavor, because the reality is that there will be no end to the continual improvement a well-designed target operating model enables.