Target operating model definition

Defining the business future state
Version 1.3 (April 2016)
First published - February 2009
Target Operating Model

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Copyright © 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.

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What are the major components of a T.O.M?
PROCESSPEOPLE
TECHNOLOGY
Procedures
KPI’s
Volumetrics
Business Rules
Management Information
Culture
Behaviours
Leadership
Training
Incentives/Reward
Peer Reviews
Monitoring
Environment
Customer online
CRM
Order Management
Financial systems
What should these
look like in the future
state?
Customers
Products
Markets

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What is aTarget Operating Model
Defining a target operating model, aligned to the Strategic Aims / Vision
Potential InitiativesPotential Initiatives Compliance / Regulatory
Framework
Compliance / Regulatory
Framework
The Business Strategic
Aims / Vision
The Business Strategic
Aims / Vision
Target MarketTarget Market
Product / PropositionProduct / Proposition Sales / Fulfilment /
Service (GTM)
Sales / Fulfilment /
Service (GTM)CustomerCustomer Brand / MarketingBrand / Marketing
ProcessesProcesses PeoplePeople TechnologyTechnology
ImplementationImplementation Benefits RealisationBenefits Realisation
How do we deliver our ambitions?How do we deliver our ambitions?
DataData
What do we want to be?What do we want to be?
How do we execute?How do we execute?
Value Proposition
Capabilities
Implementation

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InitiativesInitiatives
• ERP Consolidation
• Inside Sales Model
• Channel Re-engineering
• ERP Consolidation
• Inside Sales Model
• Channel Re-engineering
ProcessesProcesses
• CRM
• Configure, Price, Quote
• Order Management
• Fulfilment
• Accounts Receivable
• General Ledger
• Procure to Pay
• [SKU / Pricing]
• CRM
• Configure, Price, Quote
• Order Management
• Fulfilment
• Accounts Receivable
• General Ledger
• Procure to Pay
• [SKU / Pricing]
PeoplePeople
• Target Organisational Design (incl.
volumetrics & KPI’s)
• Skills & Competencies Assessment / Gap
Analysis
• Target Remuneration Model
• Incentives, Rewards & Recognition Model
• Recruitment Model
• Target Organisational Design (incl.
volumetrics & KPI’s)
• Skills & Competencies Assessment / Gap
Analysis
• Target Remuneration Model
• Incentives, Rewards & Recognition Model
• Recruitment Model
TechnologyTechnology
• CRM enhancements
• Quoting capability enhancements(CPQ)
• Implementation of new ERP and
consolidation from legacy
• Infrastructure / Hosting re-engineering (to
cloud)
• CRM enhancements
• Quoting capability enhancements(CPQ)
• Implementation of new ERP and
consolidation from legacy
• Infrastructure / Hosting re-engineering (to
cloud)
ImplementationImplementation
• Current approach through lines-of-business• Current approach through lines-of-business
Benefits RealisationBenefits Realisation
• Benefits aligned to license savings and cost savings
through headcount reduction or increased
headcount avoidance.
• Benefits aligned to license savings and cost savings
through headcount reduction or increased
headcount avoidance.
The Compliance /
Regulatory Framework
The Compliance /
Regulatory Framework
Strategy has to be mindful of
•Foreign Ownership Controlling Interest (US
Federal Government)
•Passive Foreign Investment Company (PFIC)
•BPEL rules
Strategy has to be mindful of
•Foreign Ownership Controlling Interest (US
Federal Government)
•Passive Foreign Investment Company (PFIC)
•BPEL rules
The Business Strategy /
Vision
The Business Strategy /
Vision
• Simplify processes
• Improve data quality & reporting
• Simplify platforms
• Integrate acquisitions
• Simplify processes
• Improve data quality & reporting
• Simplify platforms
• Integrate acquisitions
Business CapabilitiesBusiness Capabilities
MarketMarket
• Deeper Penetration into Asian markets
• Consolidation of US market
• Stabilisation of revenue leakage in EMEA
• Deeper Penetration into Asian markets
• Consolidation of US market
• Stabilisation of revenue leakage in EMEA
Product / PropositionProduct / Proposition
• Simplification of SKU model
• Rationalising our pricing model
• Changes to licensing model
• Simplification of SKU model
• Rationalising our pricing model
• Changes to licensing model
Go-To Market
(Sales / Fulfilment / Service)
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
• Simplification of channel strategy
• Cross-portfolio selling
• Enhancements to our fulfilment
• Rebalancing of direct sales force vs inside
selling
CustomerCustomer
• Enhancing the customer experience
• Changes to contact strategy
• Implementation of tighter customer
segmentation model
• Single view of the customer
• Enhancing the customer experience
• Changes to contact strategy
• Implementation of tighter customer
segmentation model
• Single view of the customer
Brand / MarketingBrand / Marketing
• Consolidating the brand proposition into a
single brand across all existing lines of
business
• Consolidating the brand proposition into a
single brand across all existing lines of
business
Data / InformationData / Information
• Reporting – Financial
• Reporting toolsets (e.g. Hyperion)
• ETL toolsets
• Data Governance, Data Definitions, Data
Mastering, Analytics toolsets,
• Reporting – Financial
• Reporting toolsets (e.g. Hyperion)
• ETL toolsets
• Data Governance, Data Definitions, Data
Mastering, Analytics toolsets,
Value PropositionValue Proposition
ExecutionExecution
Target Operating Model – Example
Supply ChainSupply Chain
• Contract with suppliers / partners
• Implement supply-chain logistics
• Contract with suppliers / partners
• Implement supply-chain logistics

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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

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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 offering
At what pricing / margin
What revenue and profitability targets should we have, over the next 5 years
What cost base can we / should we support for the above
What is our anticipated cost of sale
What is our predicted cashflow
How 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

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The first challenge is to define the “end-state”
People
What 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)
Process
What 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 run
What are the business rules for each process
What triggers a business process (event, time, volume etc).
What are the process hand-offs, and how does the organisation map to the process
What 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 process
Technology
What systems do our colleagues need to support the business processes we’re asking them to do
How do our customers interact with us through technology
What 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:-

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Where do we begin?
Customer Principles
What products/services do we want to offer our customers
How do we want to interact with our customers
How much do we want them to do for themselves
Do we want their online and offline experiences to be similar
How do we contact our customers
How often to we proactively communicate with our customers
How much do we spend on each customer, and how much is the customer worth to us
What do we want our overall customer satisfaction target to be, as a result?
Customer Journeys (I wants)
What segmentation of customers do we have
How do we want to treat each segment
How much value do we get from each segment
Will the customer journey be the same for each segment
What 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).
Strategies
Customer Segmentation Model
Customer Contact Strategy
Call-centre Strategy
Online / Social Media Strategy
Customer 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

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Process
Level 0, 1 & 2 Process Maps & KPIs
Business Rules Specifications
Workflow
Archiving
Physical Security
Interim processes (transitional state)
Manual procedures (for non-automated processes)
Technology
Systems requirements specification
User Stories
Wireframes
MI Requirements
Lists of Values specification
User Roles & Permissions
Data Requirements & Ownership (including retention)
Help Requirements
Scripting Requirements
Environment Requirements
System Service Level Requirements
From which we can derive a set of Colleague Journeys “I needs”.
This, then, can be further decomposed into:-
People
Organisation Design
Remuneration / Compensation / Reward model
Organisation Volumetrics
Estates Plan
Skills / Competencies Assessment
Organisational Change Readiness Assessment
Job Descriptions
Employee Contracts
Relocation / Recruitment / Redundancy Plans
Training Plans

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Business capabilities will have different focus
Call Centre
channel
PROCESS
PEOPLE
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

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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

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Example checklist

Target operating model definition

Target operating model definition

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Target operating model definition