target operating model definition

Defining the business future state

Version 1.3 (April 2016)

First published - February 2009

Target Operating Model

2Copyright © Maddison Ward 2006

What is a target operating model

A definition of the future state of an organisation People Process Technology Customers Markets / Geographies Products

How do I get a target operating model No prescriptive approach to delivering a T.O.M. No commonly agreed principles as to what goes into a T.O.M. Each organisation will have different needs and different focus.


What are the major components of a T.O.M?

PROCESSPEOPLE

TECHNOLOGY

ProceduresKPI’s

VolumetricsBusiness Rules

Management Information

CultureBehavioursLeadershipTrainingIncentives/RewardPeer ReviewsMonitoringEnvironment

Customer onlineCRM

Order ManagementFinancial systems

What should these look like in the future state?

Customers

Products

Markets


What is aTarget Operating ModelDefining a target operating model, aligned to the Strategic Aims / Vision

Potential InitiativesCompliance / Regulatory Framework

The Business Strategic Aims / Vision

Target Market

Product / Proposition

Sales / Fulfilment / Service (GTM)Customer Brand / Marketing

Processes People Technology

Implementation Benefits Realisation

How do we deliver our ambitions?

Data

What do we want to be?

How do we execute?

Value Proposition

Capabilities

Implementation


5

Initiatives

• ERP Consolidation• Inside Sales Model• Channel Re-engineering

Processes

• CRM• Configure, Price, Quote• Order Management• Fulfilment• Accounts Receivable• General Ledger• Procure to Pay• [SKU / Pricing]

People• Target Organisational Design (incl.

volumetrics & KPI’s)• Skills & Competencies Assessment /

Gap Analysis• Target Remuneration Model• Incentives, Rewards & Recognition

Model• Recruitment Model

Technology

• CRM enhancements• Quoting capability

enhancements(CPQ)• Implementation of new ERP and

consolidation from legacy• Infrastructure / Hosting re-

engineering (to cloud)

Implementation

• Current approach through lines-of-business

Benefits Realisation

• Benefits aligned to license savings and cost savings through headcount reduction or increased headcount avoidance.

The Compliance / Regulatory Framework

Strategy has to be mindful of•Foreign Ownership Controlling Interest (US Federal Government)•Passive Foreign Investment Company (PFIC)•BPEL rules

The Business Strategy / Vision

• Simplify processes• Improve data quality & reporting• Simplify platforms• Integrate acquisitions

Business Capabilities

Market

• Deeper Penetration into Asian markets

• Consolidation of US market• Stabilisation of revenue leakage in

EMEA

Product / Proposition

• Simplification of SKU model• Rationalising our pricing model• Changes to licensing model

Go-To Market (Sales / Fulfilment / Service)

• Simplification of channel strategy• Cross-portfolio selling• Enhancements to our fulfilment• Rebalancing of direct sales force vs

inside selling

Customer

• Enhancing the customer experience• Changes to contact strategy• Implementation of tighter customer

segmentation model• Single view of the customer

Brand / Marketing

• Consolidating the brand proposition into a single brand across all existing lines of business

Data / Information

• Reporting – Financial • Reporting toolsets (e.g. Hyperion)• ETL toolsets• Data Governance, Data Definitions,

Data Mastering, Analytics toolsets,

Value Proposition

Execution

Target Operating Model – Example

Supply Chain

• Contract with suppliers / partners• Implement supply-chain logistics


Target Operating Model Attribute

Change Impact

(H, M, L)

Outline Volumetric

change

Impact Areas impacted (Depts, Geographies etc)

Business Owner

Customer

People

Process

Technology

Data

Go-to-Market

Product

Supply Chain

Brand

Compliance

Cost

Benefit (P&L impact)

Risk

Initiative: Sales Force Effectiveness

Hypothesis: By improving the effectiveness of the sales force through the use of cross-portfolio selling and revising the sales model, we improve profitability per customer from x to y


The first challenge is to define the target

What kind of business do we want to be / what is our “vision”?What is our value proposition (ie, why are we here?)What products / services should we be offeringAt what pricing / marginWhat revenue and profitability targets should we have, over the next 5 yearsWhat cost base can we / should we support for the aboveWhat is our anticipated cost of saleWhat is our predicted cashflowHow do we present ourselves to our market and what do we stand for? (What is our brand strategy and value)How do we make our customers aware of what we offer (What is our marketing strategy (ALT / BTL))How do we sell to our customers (What is our sales strategy (online / direct to consumer))How do we handle partner organisations (B2B)How do we provide our customers with customer service (how do we handle their enquiries / complaints)From whom do we source our raw materials (What is our supplier strategy)How do we distribute our products to our customers (What is our logistics / supply chain strategy)How to we utilise IT to support our business (What is our IT strategy (insource / outsource))What financial / governance processes and controls do we need

In defining our target operating model, we’re trying to answer the questions:-

What business do we want to be in, and how is that changing from the business we’re in today


The first challenge is to define the “end-state”

PeopleWhat kind of people do we need?How many of them?How are they organised?Where do they sit?How do we measure them?What rewards / incentives do we have to put in place for them?What training do they need?What career / promotion prospects will we put in place for them?How do we deal with performance issues?How do we recruit them (or make them redundant from current state)ProcessWhat are our macro business processes (level 0)How do they decompose into units of work (level 1+)How do we measure their efficiency (KPI’s)What volumetrics do we believe each process will have (how often will the process be used)How much will each process cost to runWhat are the business rules for each processWhat triggers a business process (event, time, volume etc).What are the process hand-offs, and how does the organisation map to the processWhat systematic technology do we want to put in place to support each process (and how much value or cost saving does that bring compared to the technology total-cost-of-ownership – ie, do the volumetrics stack up to the cost?)What management information do we need to measure the processTechnologyWhat systems do our colleagues need to support the business processes we’re asking them to doHow do our customers interact with us through technologyWhat level of automation do we want through the various channels/segments/touchpoints!

We can then start to decompose these into models about how our business should look:-


Where do we begin?

Customer PrinciplesWhat products/services do we want to offer our customersHow do we want to interact with our customersHow much do we want them to do for themselvesDo we want their online and offline experiences to be similarHow do we contact our customersHow often to we proactively communicate with our customersHow much do we spend on each customer, and how much is the customer worth to usWhat do we want our overall customer satisfaction target to be, as a result?Customer Journeys (I wants)What segmentation of customers do we haveHow do we want to treat each segmentHow much value do we get from each segmentWill the customer journey be the same for each segmentWhat are the steps through the journey, what are the inputs and what do we expect the customer to do / feel at the end of each step.Who, in our organisation is the touch-point for the customer through each of the journey steps?How do we measure customer satisfaction across each segment / journey (customer KPI’s).StrategiesCustomer Segmentation ModelCustomer Contact StrategyCall-centre StrategyOnline / Social Media StrategyCustomer Value Proposition (s)

The commonly recognised starting point is the “customer experience”

This tries the articulate the “Customer I Wants, and the overall approach to how those I Wants might be addressed within the cost/revenue parameters of the overall business



Process Level 0, 1 & 2 Process Maps & KPIsBusiness Rules SpecificationsWorkflowArchivingPhysical SecurityInterim processes (transitional state)Manual procedures (for non-automated processes)

TechnologySystems requirements specificationUser StoriesWireframesMI RequirementsLists of Values specificationUser Roles & PermissionsData Requirements & Ownership (including retention)Help RequirementsScripting RequirementsEnvironment Requirements System Service Level Requirements

From which we can derive a set of Colleague Journeys “I needs”.This, then, can be further decomposed into:-

PeopleOrganisation DesignRemuneration / Compensation / Reward modelOrganisation VolumetricsEstates PlanSkills / Competencies AssessmentOrganisational Change Readiness AssessmentJob DescriptionsEmployee ContractsRelocation / Recruitment / Redundancy PlansTraining Plans


Business capabilities will have different focus

Call Centre channel

PROCESSPEOPLE

TECHNOLOGY

Online channel

PROCESS

PEOPLE

TECHNOLOGY

… but the overall design needs to be holistic, or consciously not (based on the business strategy and/or customer principles

For example, different emphasis on channels – call-centre design vs online design

Knowledge

Collateral

CUSTOMERS


Summary

Business Strategy+underpinning strategies

… what do we want to be?

Customer Design

Process Design

People Design Technology Design

transition states (releases) | implementation plans | pilots | launch plans | marketing plans etc

BUSINESS PROGRAMMES

… Customer Principles

… I wants

… I needs

Compliance / Regulatory Framework

Products Design



Example checklist

target operating model definition

Leadership & Management