An Operating Model that Delivers

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:

TOM Methodology
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.

To Conclude

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.

How to Innovate to stay Relevant

Staying relevant! The biggest challenge we all face – staying relevant within our market. Relevance to your customers is what keeps you in business.

With the world changing as rapidly as it does today, mainly due to the profound influence of technology on our lives, the expectations of the consumer is changing at pace. They have access to an increasing array of choice, not just in how they spend their money but also in how they are communicating and interacting – change fueled by a digital revolution. The last thing that anyone can afford, in this fast paced race, is losing relevance – that will cost us customers or worse…

Is what you are selling today, adaptable to the continuous changing ecosystems? Does your strategy reflect that agility? How can you ensure that your business stays relevant in the digital age? We have all heard about digital transformation as a necessity, but even then, how can you ensure that you are evolving as fast as your customers and stay relevant within your market?

Business, who has a culture of continuous evolvement, aligning their products and services with the digital driven customer, is the business that stays relevant. This is the kind of business that does not require a digital transformation to realign with customer’s demand to secure their future. A customer centric focus and a culture of continuous evolution within the business, throughout the business value chain, is what assure relevance. Looking at these businesses, their ability/agility to get innovation into production, rapidly, is a core success criterion.

Not having a strategy to stay relevant is a very high and real risk to business. Traditionally we deal with risk by asking “Why?”. For continuous improvement/evolution and agility, we should instead be asking “Why not?” and by that, introduce opportunities for pilots, prototypes, experimentation and proof of concepts. Use your people as an incubator for innovation.

Sure, you have a R&D team and you are continuously finding new ways to deliver your value proposition – but getting your innovative ideas into production is cumbersome, just to discover that it is already aged and possibly absolute in a year a two. R&D is expensive and time consuming and there are no guarantees that your effort will result in a working product or desired service. Just because you have the ability to build something, does not mean that you have to build something. Focusing the scares and expensive resources on the right initiatives makes sense, right! This is why many firms are shifting from a project-minded (short term) approach to a longer-term product-minded investment and management approach.

So, how do you remain customer centric, use your staff as incubators of innovation, select the ideas that will improve your market relevance and then rapidly develop those ideas into revenue earners while shifting to a product-minded investment approach?

You could combine Design Thinking with Lean Startup and Agile Delivery…

In 2016, I was attending the Gartner Symposium where Gartner brought these concepts together very well in this illustration:

Gartner - Design-Lean-Agile 2

Instead of selecting and religiously follow one specific delivery methodology, use the best of multiple worlds to get the optimum output through the innovation lifecycle.

Design-Lean-Agile 1

Using Design Thinking (Empathise >> Define >> Ideate >> Prototype) puts the customer at the core of customer centric innovation and product/service development. Starting by empathising with the customers and defining their most pressing issues and problems, before coming up with a variety of ideas to potentially solve the problems. Each idea is considered before developing a prototype. This dramatically reduces the risk of innovation initiatives, by engaging with what people (the customer) really need and want before actually investing further in development.

Lean Startup focuses on getting a product-market fit by moving a Prototype or MVP (minimum viable product) through a cycle of Build >> Measure >> Learn. This ensures a thorough knowledge of the user of the product/service is gained through an active and measureable engagement with the customer. Customer experience and feedback is captured and used to learn and adapt resulting in an improved MVP, better aligned to the target market, after every cycle.

Finally Agile Scrum, continuing the customer centric theme, involves multiple stakeholders, especially users (customers), in every step in maturing the MVP to a product they will be happy to use. This engagement enhances transparency, which in turn grow the trust between the business (Development Team) and the customer (user) who are vested in the product’s/service’s success. Through an iterative approach, new features and changes can be delivered in an accurate and predictable timeline quickly and according to stakeholder’s priorities. This continuous product/service evolvement, with full stakeholder engagement, builds brand loyalty and ensures market relevance.

Looking at a typical innovation lifecycle you could identify three distinct stages: Idea, Prototype/MVP (Minimal Viable Product) and Product. Each of these innovation stages are complimented by some key value, gained from one of the three delivery methodologies:

Design-Lean-Agile 2

All of these methodologies, engage the stakeholders (especially the customer & user) in continuous feedback loops, measuring progress and capturing feedback to adapt and continuously improve, so maximum value creation is achieved.

No one wants to spend a lot of resource and time delivering something that adds little value and create no impact. Using this innovation methodology and associated tools, you will be building better products and service, in the eye of the user – and that’s what matters. You’ll be actively building and unlocking the potential of you’re A-team, to be involved in creating impact and value while cultivating a culture of continuous improvement.

The same methodology works very well for digital transformation programmes.

At the very least, you should be experimenting with these delivery approaches to find the sweat spot methodology for you.

Experiment to stay relevant!

Let’s Talk – renierbotha.com – Are you looking to develop an innovation strategy to be more agile and stay relevant? Do you want to achieve your goals faster? Create better business value? Build strategies to improve growth?

We can help – make contact!

Read similar articles for further insight in our Blog.

Business Driven IT KPIs

KPIs (Key Performance Indicators) are a critical management tool to measure the success and progress of effort put in towards achieving goals and targets – to continually improve performance.

Every business set their specific KPIs to measure the criteria that drive the business success – these vary from business to business. One thing every modern business has in common though, is IT – the enabler that underpin operational processes and tools used to commerce daily. Setting KPIs that measure the success of IT operations does not just help IT leadership to continuously improve but also proof the value of IT to the business.

Here are ten IT KPIs that matter most to modern business

1. % of IT investment into business initiative (customer-facing services and business units)
How well does the IT strategy, reflected in the projects it is executing, align with the business strategy? This metrics can help to align IT spend with business strategy and potentially eliminate IT projects for IT that does not align directly with business objectives.

2. % Business/Customer facing Services meeting SLAs (Service Level Agreements)
IT is delivering service to customers; these are internal to the business but can also be delivered external to the business’ client/customers directly. Are these services meeting required expectations and quality – in the eye of the customer? What can be done to improve.

3. IT Spend vs Plan/Budget
Budgets are set for a purpose – it is a financial guideline that indicates the route to success. How is IT performing against budget, against plans? Are you over-spending against the set plans? Why? Is it because of a problem in the planning cycle or something else? If you are over-spending/under-spending, in which areas do this occur?

Knowing this metrics give you the insight to take corrective actions and bring IT spend inline with budgets.

4. IT spend by business unit
IT service consumptione is driven by user demand. How is IT costs affected by the user demands by business unit – are business units responsible to cover their IT cost, hence owning up to the overall business efficiency. This metrics put the spotlight on the fact that IT is not free and give business unit manager visibility of their IT consumption and spend.

5. % Split of IT investment to Run, Grow, Transform the business
This is an interesting one for the CIO. Businesses usually expects IT to spend more money in growing the business but reality is that the IT cost of running the business is driven by the demand from IT users with an increased cost implication. Business transformation, now a key topic in every board meeting, needs a dedicated budget to succeed. How do these three investment compare in comparison with business strategic priorities.

6. Application & Service TCO (Total Cost of Ownership)
What is the real cost of delivering IT services and application. Understanding the facts behind what makes up the total cost of IT and which applications/services are the most expensive, can help to identify initiatives to improve.

7. Infrastructure Unit Cost vs Target & Benchmarks
How do you measure the efficiency of your IT infrastructure and how does this compare with the industry benchmark? This is a powerful metrics to justify ROI (Return on Investment), IT’s value proposition, IT strategy and the associated budget.

8. % Projects on Time, Budget & Spec
Is the project portfolio under control? Which projects need remediation to get back on track and what can be learned from projects that do run smoothly?

9. % Project spend on customer-facing initiatives
How much is invested in IT projects in the business for the business (affecting the bottom line) in comparison with customer-centric projects that impacts the business’ top line.

10. Customer satisfaction scores for business/customer facing services

Measure the satisfaction of not just the internal business units that consume IT services but also the business’ customer’s satisfaction with customer-facing IT services. Understand what the customer wants and make the needed changes to IT operations to continuously improve customer satisfaction.

KPI vs Vision

In the famous words of Peter Drucker “What gets measured gets improved”, KPIs give you the insight to understand:

  • your customer
  • your market
  • your financial performance
  • your internal process efficiency
  • your employee performance

Insight brings understanding that leads to actions driving continuously improve.