The use of target operating models contributes significantly to the success of business transformations. A well-defined target operating model aligns business and technology strategy and captures the future state view of how a business would like to operate from several perspectives. It provides a target that can be used for business planning and guides execution of the most complex business transformations.
This article provides four suggestions for how organizations can increase the value they receive from employing target operating models.
Describe the future state from multiple perspectives
Target operating models should be elaborated from multiple perspectives – typically people, process, technology and data. Describing the target state from multiple perspectives strengthens the future state vision by ensuring that the current challenges and desired capabilities are analyzed from different points of view. It also provides the basis for providing more comprehensive effort and cost estimates which consider the work required to implement people, process, technology and data changes.
A people perspective elaborates the future state impacts that affect employees as a result of the capabilities that need to be introduced or matured. This can include describing changes in resourcing, culture, and skills.
A process perspective elaborates the future state impacts to “the way we operate”. This typically includes defining changes to business functions, business processes, and identifies the teams that are impacted. This includes identifying new business functions and processes for new business capabilities.
A technology perspective elaborates the future state impacts on the technology landscape. These changes can be conceptual and indicate where new or modified technology components are required, or can identify specific technologies when known. Target operating models generally don’t identify specific technologies but require sufficient understanding of the required technical capabilities to provide a reasonable estimate for implementation effort and cost.
A data perspective elaborates the future state impacts on existing datasets and elaborates the need for new datasets where it doesn’t exist within the firm. This includes describing changes in terms of integration and can touch all aspects of data governance.
Collectively, all perspectives should provide enough information to improve planning and estimating business transformation initiatives.
Capture sufficient details to make key decisions
Creating a target operating model should not be an arduous exercise that takes significant time to create. A target operating model must provide sufficient information for leadership to make key decisions regarding strategic direction, the number of initiatives, scope, sequencing, effort and cost. Effort should not be spent creating incremental details where it does not inform, or provides little value to, the decision-making process. The details may be relevant but would be fleshed out after initiatives are approved, during execution.
Despite the need for a target operating model to have multiple perspectives, a given perspective should not be unnecessarily created if it doesn’t contribute to the decision-making process. The objective of the target operating model is to create a holistic view of the target state that informs decision-making and provides a common understanding of a strategic future state that can be shared with stakeholders across the organization.
Ensure alignment to business and technology strategy
Target operating models provide a future state view of how a business plans to operate from several perspectives. It is critical that target operating models are driven by business strategy and that it aligns to the business vision set by the organization’s leadership team.
A target operating model that is aligned to business strategy helps the business execute their business vision and does not contradict or enable business capabilities that are unsupported by business strategy. When used for business planning, the target operating model can help identify the initiatives and its dependencies to other programs. Additionally, a target operating model that aligns to business strategy can be used to identify the metrics for measuring the success of those initiatives.
A target operating model’s alignment to technology strategy is important for understanding current technology gaps and for ensuring that envisioned features can be supported by the firm’s technology stance. For example, business teams may assume that cloud capabilities can be introduced and leveraged, whereas technology strategy may dictate that cloud capabilities will not be introduced in the near term. To be clear, selecting technologies is not required in a target operating model, but in some cases the technology or desired technologies may be known. When technologies are known, it should be assessed for alignment to technology strategy. Similarly, if technologies are not known, concepts should be checked for alignment to technology strategy (e.g., sending confidential data outside of the organization’s network).
Leverage during program execution
For program delivery teams to be successful they must understand the business problem they are trying to solve and be provided sufficient details to execute. When initiatives are executed without this information, solutions tend to fall short of business expectations, producing outcomes that don’t meet targeted needs.
The target operating model can be leveraged to help guide and inform program execution. One of the greatest benefits of producing a target operating model is that it describes the target state from the perspective of the business at a strategic level and it decomposes inherently complex concepts into smaller and more easily understood concepts.
As an example, a comprehensive target operating model would identify the business capabilities that are impacted or introduced as part of an initiative and can be used to structure how a program is delivered. A target operating model that is focused on replacing an investment management system would identify capabilities like order entry, order routing, order execution, compliance, etc. These capabilities can be used to structure streams and/or teams that have a limited scope across one or more capabilities. This helps maintain alignment to the target operating model, helps control delivery activities, clarifies and minimizes scope.
A target operating model captures the desired future state that is supported by senior leadership. Capturing the appropriate perspectives and level of detail, aligning it to business and technology strategy, and leveraging it when executing initiatives unlocks significant value that greatly contributes to the delivery success of the most complex business transformations.
How can Shoreline help?
Shoreline is a trusted advisor in the asset and wealth management industry. Our team has deep subject matter expertise in strategy development, operating model design and implementation. We use a top-down design process that leverages target operating models to help organizations develop and implement strategies, and guide business transformation execution.
For more information, please contact us.