Every organisation that I have worked with around the world, whether it is in London, Johannesburg, Sydney, Singapore, Dallas, Kuala Lumpir, Las-Vegas, Nairobi or New York, there was always reference to a Target Operating Model (TOM) when business leaders spoke about business strategy and performance. Yes, the TOM – the ever eluding state of euphoria when all business operations work together in harmony to deliver the business vision… Sometime in the never reaching future.
Most business transformation programmes are focussed to deliver a target operating model – transforming the business by introducing a new way of working that better aligns the business offering with it’s customer’s changing expectation. Millions in business change budgets have been invested in TOM design projects and 1000s of people have worked in these TOM projects of which some have delivered against the promise.
With the TOM as the defined deliverable, the targeted operational state and the outcome of the business transformation programme, it is very important that the designed TOM are actually fit for purpose. The TOM also has to lend itself to be easily adjustable in order to contribute to the agility of an organisation. The way the business is operating must be able to adapt to an ever changing technology driven world. The quick evolving digital world is probably the main catalyst for transformation in organisations today – read “The Digital Transformation Necessity” for further insights…
Operating Model (OM)
The Operating Model uses key inputs from the Business Model and Strategy.
The Business Model focuses on the business’ customers, the associated product and service offerings – how the organisation creates value for it’s cliental – and the commercial proposition. Within the business model the business’s revenue streams and how those are contributing to the business value chain to generate profits, are decried. In other words, the Business Model envisages the What within the organisation.
Within the Business Strategy the plan to achieve specific goals are defined, as well as the metrics required to measure how successfully these are achieved. The business goals are achieved through the daily actions as defined within the Operating Model.
Typically an Operating Model takes the What from the Business Model in conjunction with the business strategy, and defines the Why, What, How, Who and With. It is the way in which the business model and strategy is executed by conducting the day to day business operations. Execution is key as no business can be successful by just having a business strategy, the execution of the operating model delivering the business strategy is the operative ingredient of success.
In order to document and describe how an organisation functions, the Operating model usually includes business capabilities and associated processes, the products and/or services being delivered, the roles and responsibilities of people within the business and how these are organised and governed within the business, the metrics defined to manage, monitor and control the performance of the organisation and then the underpinning Technology, Information Systems and Tools the business uses in delivering it’s services and/or products.
Analogy: A good analogy to describe the Operating Model is to compare it to the engine of F1 car. In 2016 the Mercedes Silver Arrow (the fastest car, driven by Lewis Hamilton (arguably the fastest driver), did not win because of engine and reliability problems. Instead the World Championship was won by Nico Rosberg, who had a better performing engine over the whole season. Nico benefited from a better operating model – he had the processes, data, systems and the people (including himself) to win. The mechanical failures that Lewis suffered, mostly not through fault of his own, were a result of failures somewhere within his operating model.
Target Operating Model (TOM)
The Target Operating Model (TOM) is a future state version of the Operating Model. To derive the TOM, the existing Operating Model is compared with the desired future state keeping the key aspects of an operating model in mind: Why, What, How, Where, Who and With. The TOM also cover two additional key aspects: the When & Where defined within the transformation programme to evolve from current to future states.
The difference between the “as is” Operating Model and the “to be” Target Operating Model, indicates the gap that the business must bridge in the execution of its Transformation Model/Strategy – the When and Where. To achieve the Target Operating Model usually require large transformation effort, executed as change & transformation programmes and projects.
ToBe (TOM) – AsIs (OM) = Transformation Model (TM)
Why >> Business Vision & Mission
What >> Business Model (Revenue channels through Products and Services – the Value Chain)
How >> Business Values & Processes & Metrics
Who >> Roles & Responsibilities (RACI)
With >> Tools, Technology and Information
Where & When >> Transformation Model/Strategy
Defining the TOM
A methodology to compile the Target Operating Model (TOM) is summarised by the three steps shown in the diagram below:
Inputs to the methodology:
- Business Model
- Business Strategy
- Current Operating Model
- Formaly documented information, processes, resource models, strategies, statistics, metrics…
- Information gathered through interviews, meetings, workshops…
Methodology produces TOM Outputs:
- Business capabilities and associated processes
- Clearly defined and monetised catalogue of the products and/or services being delivered
- Organisation structure indicating roles and responsibilities of people within the business and how these are organised and governed
- Metrics specifically defined to manage, monitor and control the performance of the organisation
- Underpinning Technology, Information Systems and Tools the business uses in delivering it’s services and/or products
The outputs from this methodology covers each key aspect needed for a TOM that will deliver on the desired business outcomes. Understanding these desired outcomes and the associated goals and milestones to achieve them, is hence a fundamental prerequisite in compiling a TOM.
An achievable Target Operating Model, that delivers, is dependant on the execution of an overall business transformation strategy that aligns the business’ vision, mission and strategy with a future desired state in which the business should function.
Part of the TOM is this Business Transformation Model that outlines the transformation programme plan, which functionally syncs the current with the future operating states. It also outlines the execution phases required to deliver the desired outcomes, in the right place at the right time, while having the agility to continuously adapt to changes.
Only if an organisation has a strategically aligned and agile Target Operating Model in place that can achieve this, is the business in a position to successfully navigate its journey to the benefits and value growth it desires.
renierbotha Ltd has a demonstrable track record of compiling and delivering visionary Target Operating Models.
If you know that your business has to transform to stay relevant – Get in touch!
Originally written by Renier Botha in 2016 when, as Managing Director, he was pivotal in delivering the TOM for Systems Powering Healthcare Ltd.