Target operating model

Target operating model is a description of the desired state of the operating model of an organisation at a point in time in the future. When working on the operating model, it is normal to define the "as is" model and the "to be" model. The target operating model is the "to be" model. It is possible to produce a target operating model for a business or a function within a business or a government department or a charity. It is also important to consider a Target Operating Model for a service or Service Operating Model as well as focusing on the transformation effort to delivery the required changes across operations end-to-end to achieve the 'to-be' future state of the operating model. Services can include verticals or horizontals.

There are many different frameworks identifying the components of a target operating model. Hence each project to define a target operating model will focus on different problems depending on the challenge facing the organisation. Some target operating models are created to help with the link between information technology and strategy, others to help with the link between organisation design and strategy. In today's rapidly changing business environment and ecosystem, a target operating model is a design that must not only convert strategy ideas into operational plans, but in itself capable of making changes, that is execution of business transformation with agility.

One framework described in the operating model definition comes from Ashridge Executive Education – POLISM.^[1]^[2] This recommend best practice for a high level operating model design stands for

P – processes and capabilities;
O – the organization, i.e. the people that are needed to run the processes or deliver the capabilities, and the organisation structure, accountabilities, incentives and culture that will support and nurture these people;
L – the locations, buildings, infrastructure and other assets and resources needed inside the organisation to support the processes and capabilities;
I – the information systems and other cross-organisation or cross-location links needed to support the processes and capabilities, especially the software applications that are needed to process the information;
S – the suppliers and business partners needed outside the organisation to support the processes and capabilities and the types of agreements between this organisation and these partners.
M – the management systems and processes for developing strategy, planning, setting targets, managing performance and continuous improvement.

A simpler framework is used in the literature on Enterprise Architecture. Strategy is converted into capabilities, using a capability map, and each capability is described in terms of "people", process and technology.

A current operating model can be a one-page document – the operating model Canvas is an example.^[3] It can also be 10 pages or 100 pages.^[4] If the document is more than 100 pages it becomes a manual rather than a model.

A more useful and practical framework for the execution of business and digital transformation with business agility to deliver the Target Operating Model comes from The Strategy Journey Framework as published in the book "THE STRATEGY JOURNEY" "Book Review: The Strategy Journey". Enterprise Architecture Professional Journey. 29 January 2023.</ref>^[5]. The Strategy Journey Framework describes a 5 stage process supported by 5 interconnected models that support the transformation of an enterprise through its service innovations and Service Operating Model that supports business growth, a key component to the survival of a business, and especially when its business model is facing disruption from the fast changing digital economy - with technologies such as AI evolving to replace human capital. The 5 stages and 5 models are:

Motivation & Leadership - supported by the Mission Model and a Mission Model Blueprint canvas
Business Design - supported by the Business Model and a Digital Business Model canvas
Value Design - supported by the Value Model and the Customer Journey Map and Service Value Model canvas
Business Architecture - supported by the Operating Model and the Service Operating Model canvas
Business Transformation - supported by the Transformation Model and the Transformation Roadmap Design canvas as well as Co-creation canvas.

There are 25 extended Strategy Journey canvases^[6] in total in this end-to-end framework that enables the joining of the dots via data to support the transformation journey of an enterprise.

Target operating models provide the vision for organisations undergoing change. The reason for any new model is likely to be a new strategy or new business model or a significant failure in the performance of the existing operations for one or more stakeholders or the need for service innovation in order to combat disruption. Hence work on target operating models should be closely linked to strategy work. Form follows function; in other words target operating models follow strategy. A target operating model project typically also includes the roadmap over time that specifies what the company needs to do to move from the "as is" to the "to be".^[7]

A good place to start is with a value-chain map to review the current operating model.^[8] First identify the value propositions (the products and services) that the organization is offering. Then define, for each value proposition, the value chain of activities that is needed to deliver the proposition. Different value chains can then be present above or underneath each other in a "map", in order to identify steps that can be "aggregated" across chains to gain economies of scale or "standardised" to gain consistency or "kept separate" to gain local adaptation. These choices then lead directly to organisational implications.

A better alternative that is more agile and suited to digital transformation using AI such as the example set by Amazon Web Services (AWS) and Open AI with ChatGPT is to focus on deriving the target state for a Service using the Service Operating Model canvas^[9], and then work backwards through phases including an MVP phase, what can be delivered based on the problem context and in order to achieve the best possible ROI.

Target operating model OM work can be done at different levels of detail. At the highest level is the strategy or the design principles. Then comes a rough sketch, probably in the form of a value chain map or organisational model. Then comes more and more layers of detail arriving finally at job descriptions for every job, floor layouts for offices or factories, KPIs^{[clarification needed]} for every department, draft contracts for every supplier, data input and output specifications for every software application, etc.

Regional target operating model

A regional target operating model is a transformational project with solution covering across regions. It forms regional standards for implementation across regions. This type of model should capture the as-is of the organization design, business capabilities, business processes and supporting technology components. It will define the to-be organization design, business capabilities, business processes and required supporting technology capabilities. The high level business benefits of this model should also be articulated. For identified gaps in the technology capabilities, the business requirements should be captured to facilitate the next phase of work – solution evaluation.

References

^ "What is an operating model? - Operational Excellence Society". Operational Excellence Society. 12 May 2016.
^ "Designing Operating Models".
^ "Home". operatingmodelcanvas.com.
^ Campbell, A, Gutierrez, M, Lancelott, M, "operating model Canvas", Van Haren Publishing, 2017
^ "Home". strategyjourney.com.
^ Choo, J, Christison, G, "the strategy journey", Stratability Academy, 2020
^ Said Business School & University of Oxford – Strategic Consulting Projects – viewed on January 16th 2014 Archived 2014-01-16 at the Wayback Machine
^ "Value Chain Maps". 12 June 2018.
^ "Service Operating Model". 19 December 2020.

Target operating model

See also

References

Further reading