The benefits of using target operating models in your business

Advantages of using Target Operating Models to drive transformation

You’re helping to run a steadily expanding business that has a new and bigger vision for growth and transformation. As you assist with creating the plan for implementing and achieving this vision, you begin to recognise gaps in the businesses’ knowledge about its existing systems, processes and people.

You’re uncertain as to the best starting point for change. You also realise it would be beneficial to gather supporting evidence for the business process changes you feel are required.

This is especially important, as some of your senior colleagues, when asked to consider new approaches and tools for enhancing business processes, have started to dig in their heels.

So you begin to look for tools, concepts and models that can help. It’s hopefully at this point that you remember or are introduced to the concept of a target operating model.

What is a Target Operating Model?

A target operating model helps drive and steer business to a new and optimised way of working. It offers a structured approach that supports a better understanding of your organisation and creates a methodology for change.

A target operating model functions as a type of bridge, or path, between the daily running of a business (i.e. its operations and existing operating model) and the company’s strategic vision for growth and transformation. Businesses can follow the structured approach provided by a target operating model to understand their business processes and better prioritise their business needs or requirements.

In this way, they can design a unique, effective and enterprise-wide methodology for change and move away from a more piecemeal construction of business transformation.

To ensure the best outcomes for the business, Target Operating Models require effective governance in the form of:

  • The right configuration of process owners and stakeholders to monitor performance, resolve issues and maintain accountability.
  • The right mandate for process drivers and governance teams to own and take responsibility,decision making while maintaining accountability for all process decisions.
  • The right people with the right talent requirements to ask the right questions, raise the right objections and to be involved with informed, joint decision making processes.
  • The right tools to visualise and measure key performance activities

How do you upgrade your operating model?

A business first needs to begin with capturing and documenting its existing operating model to better understand its current position and the requirements for change. This is a team activity, involving as many stakeholders as is necessary.

Here the current operating model is described in layers, or through a framework diagram, using existing maps, process and materials that are centrally stored for transparency and accessibility.

The operating model’s description includes high and low level details about business unit and directorate functions, the activities performed by each function, business operation processes and guiding policies and procedures.

With a more structured picture of the operating model in hand, decision making around change is easier and new ways of working can be explored, automated, integrated and tracked.

What are the overall benefits of using target operating models?

The benefits of using target operating models, as listed by Gary Shub and colleagues in their article Differentiation Begins With a Target Operating Model, include:

  • Shorter time-to-market cycles due to greater agility in launching new businesses and trading new products;
  • Better ability to ramp up volume quickly at minimum marginal cost;
  • Increased client satisfaction due to a more transparent and compliant operating model;
  • Superior investment performance, from focusing investment management resources on priority growth areas and supporting them with tools, data, and insight;
  • Reduced risk from a more controlled and stable operating environment;
  • Greater long-term cost-effectiveness.

Companies that have aspirations to deliver business transformation strategies would benefit from creating a basic yet strategic, target operating model to better understand the system, process and people requirements across their key business areas.