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Transformation Consulting

Operations Pain Points Solved: Establish a Target Operating Model

This blog is part of a series about the operations pain points that many organizations face as they tackle digital transformation and change management. Our experts provide insights and recommendations based on their decades of hands-on experience and tackle some of the most pressing business and technology pain points.

In digital transformations, goals for improvements, efficiencies, and optimizations are a given. So far in this series, we’ve discussed several critical transformation topics: peopleplanningbusiness disruptionsfuture-forward transformation, and customer experience.

Establishing a target operating model is another vital step to ensuring long-term success and encouraging continued innovation. Developing and communicating target states in every area of the business can not only support end goals, but also helps pave the way for decision-making along the transformation journey.

Although continuous evolution is important to every business and “transforming” as an organization is never really finished, defining a steady-state target allows for better implementation and adherence of long-lasting value drivers regardless of future organizational and operations changes.

What is a target operating model?

A target operating model describes the desired state of operations within an entire organization or from a specific transformation effort. Most organizations develop a target operating model that integrates the aspects of people, process, and technology and clearly defines the current “as is” model and the desired “to be” future model.

The target operating model should include a high-level representation of the desired state in different areas of the organization and deliver enough detail that stakeholders in every area can easily interpret and visualize the path to the target state.

What areas should be included in a target operating model?

An example of areas to include for an organization-wide target operating model are:

  • Defining principles, vision, and strategy: Agreement on exactly what an organization stands for and wants to be known for is essential to alignment of goals in every other business area
  • Customer experience: What customers think, feel, and do when interacting with the business 
  • Employee experience: What employees think, feel, and do while employed 
  • Service and product excellence: How these rate against competitor offerings based on value and differentiators
  • Operational design and optimization: How people, process, and technology in an organization work together to meet profit targets as well as industry leadership and reputation goals
  • Governance and reporting: The effectiveness and efficiency when meeting requirements and defining arrangements and automations
  • Security: The state of security and risk management of all control points and access to every part of the IT ecosystem

Within each of these areas, the current and future states of people, process, and technology should be documented along with key performance indicators (KPIs) to measure improvements.

What are some key performance indicators (KPIs) to include in a target operating model?

It’s important to establish key performance indicators (KPIs) to define success and that align directly with the organization’s strategy and vision for their operations. KPIs can be different for every organization, and the following is an example of KPIs used for a specific type of transformation.

A frozen food company was all but forgotten in the public eye and sales were suffering year over year. They felt they had a good line of products but were not growing their customer base. This company decided to transform their public image and started a social media program, which included engaging replies to famous brands and people on Twitter. It wasn’t fast, but after two years they published a post that went viral and found their true social voice. They continued to grow their following (and sales) thanks to regular entertaining posts.

Not only did they grow their social presence, but they also more than quadrupled visits to the company website. In this case, the goal for meeting all their KPIs for reputational transformation was met when they gained and continued to maintain a following of potential new customers from a previously untapped source.

Whether an organization needs a complete operations overhaul or focuses transformation on a particular area, KPIs should be specific, measurable, and sustainable over time. When developing KPIs, remember to customize them to the task at hand from migration to the cloud, integrating automation, or raising brand awareness and reputation to streamlining and optimizing operations.

Are there other factors that affect a target operating model?

In addition to making sure to consider all internal factors and external drivers, some additional areas to consider are core business capabilities, operational levers, and information resources.

When developing a target operating model, core business capabilities may be considered as what a company does now—current state—and how it can better execute these capabilities—future state. But what about considering a different future state? For example, automotive companies long relied on gasoline-powered vehicle development despite the knowledge that they could also manufacture and sell electric-powered vehicles. Now, many of these companies have pivoted to include electric-powered vehicles as part of their profit-generating operations models and continue to work on developing alternatives to gasoline-powered vehicles. They have changed their expectations of what their core business capabilities will be in a future state.

Another consideration is operational levers. What happens if processes shift or evolve from what is true today and how can this be applied to a target operating model? For example, will a newer technology such as 5G, AI, or blockchain be an integral part of the organization’s ability to sustain their business, compete in their industry, or grow? While we can’t tell the future, considering possible implications of developing processes and technologies in your industry is a smart way to stay ahead of your competition when developing a target operating model.

One more factor to contemplate is the ability of an organization to harness information resources. While leaders are often charged with creating a target operating model, they may not be fully aware of or understand all the processes that work or don’t work across business groups or processes that may happen in silos. It’s imperative to create mechanisms for bottom-up transparency of issues that need to be solved if a transformation is to be truly successful.

Start your transformation journey

If you’re wondering where to start, our strategy and roadmap services or professional services for transformation governance can help. For more operations and digital transformation support, read the other blogs in this series:

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