Try as I may, I’ll never be able to recreate my wife’s secret sauce. It turns even the plainest dish into a masterpiece. It’s a science – a tried and tested formula that took her years to master… and time well spent, if you ask me!
The great thing about formulas is that they provide us with a starting point – a list of the things we need to consider in order to produce an intended outcome. This very same thinking also applies to Target Operating Model (TOM) design.
With the UK National Government Procurement Awards recently recognising our work in this area, I felt it was time to share some of the know-how that we have accumulated over the past decade. Throughout the following article, I will attempt to layout the ‘secret sauce’ formula that I use to help our clients visualise, design, build and implement their own next-generation TOM’s.
To start there is value in briefly unpacking a premise that runs through the spine of this thought-piece…
The Value Of Meaning
If the purpose of a TOM is to enable an organisation to travel from the current state to an envisaged future state, and as effectively, efficiently and smoothly as possible – then it makes sense that the TOM should be ‘built to be used’. In other words producing a TOM that is fit-for-purpose, accessible, user-friendly and universally understood by everyone. Otherwise, what’s the point?
The ‘Next Generation TOM’ approach described in this article touches on the ingredients required to produce a TOM that is truly capable of connecting corporate vision and strategy to the daily running of the business – and whilst people and teams navigate major change.
A critical component of the following approach involves the introduction of ‘meaning’. Meaning transcends data, information and content. It leads to the kind of clarity and understanding that engages, empowers and energises the work population behind the transformation. Shared meaning in this context of TOM design ensures that everyone from the executive board to the frontline clearly understands where they are heading towards – and why. The adjacent image illustrates this (see Fig. 1 adjacent). For brevity I will focus on four of the design principles that generate meaning for people and teams in the context of TOM execution:
- Organisations need to know ‘where’ they want to get to before they set off on the journey;
- The TOM should model the organisations’ future state from an outcome-based perspective so that everyone can clearly understand what success looks and feels like;
- The TOM should model the organisations’ purpose, nature and maturity in a multi-dimensional way so that people and teams are able to design, plan, build and implement the new direction and way; and
- The TOM should represent a singular shared model of the organisations’ future state, and in a way that is universally understood.
Business Model or Operating Model?
Two terms that are often used interchangeably, but have slightly different definitions. Both are frameworks with similar characteristics and both comprise an intrinsic part of a business strategy. To shed some light in this area I have listed two working definitions that I use:
- A Business Model is a complex design of how an organisation creates, delivers and captures value, through defining and promoting a brand, producing and distributing its products and building or attracting a market.
- An Operating Model is a high-level design of an organisation operating model – the structure and style that enables it to meet its business objectives.
Experience tells us that an effective TOM should incorporate both business and operating model characteristics (see Fig. 2 below).
Put simply, a TOM is a description of the desired state of the operations of a business. It is the operational manifestation of its corporate vision and strategy – what it wants to do, how it wants to do it, where, when, who-with and who-to. It is a high-level representation of how a company can be optimally organised to more effectively and efficiently execute the organisations strategic intent. It provides a practical mechanism for people to visualise the organisation from multiple perspectives (or dimensions), incorporating a shared understanding of how the organisation does business now and in the future, including reflecting how the people will need to operate in the real world.
Every single significant element of business activity is represented; spanning people, structure, processes, systems, technology, information, data, customer segments, channels, products, services and physical location. The TOM includes information specific for roadmap development, specifying what the organisation needs to do to move from the “as is” to the “to be”. Moreover, it provides an understanding of organisation maturity over time – a key component for roadmap production.
A central principle of cybernetics states that in order to control a system you first have to accurately model how it works. Because organisations are complex interconnected systems, this principle applies to TOM design as well. If a TOM should incorporate how the organisation does business now and in the future, as well as accurately reflect how the people operate in the real world, a whole-system approach to TOM design should be pursued.
Because multiple teams will be referring to the TOM to guide design decisions, the TOM needs to be simple in the construct (as much as possible); this, therefore, means the TOM model should ideally be an overarching or generic transformation asset. A complex and overly detailed TOM will be unwieldy hindering clear thinking and effective decision-making.
For an organisation to function, many hundreds of design decisions need to be made. These decisions, the detailed TOM decisions, are better made if there is a high-level overarching visual TOM available to guide and align people and teams behind the new direction.
There are three main objectives of developing a TOM and pursuing its cost-effective and successful realisation:
- To transform an organisation’s current operating state i.e. how it works now, that is described by its current-state operating model – to a future operating state, as described by its target-state operating model.
- To develop an organisation’s change capability so that it can react and adapt to change effectively and efficiently, without detriment to customers, quality of service, profitability, security and competitiveness.
- To develop an organisation’s strategic planning capability so its TOM (informing strategic, project and business plans) can be regularly reviewed to ensure they continue to be aligned and support the organisation’s strategy and direction.
Research published in the Harvard Business Review (HBR) in 2009 resonates with my experiences of the challenges and opportunities my clients regularly face.
“Being forward-looking, envisioning exciting possibilities and enlisting others in a shared view of the future, is the attribute that most distinguishes leaders from non-leaders. We know this because we asked followers.”
Source: To Lead. Create A Shared Vision, HBR 2009.
The HBR research I reference was validated through nearly 1 million responses. Below I have listed a few summary findings as well as my personal notes alongside for good measure. All the findings apply to TOM design.
“People want their leaders to be visionaries that ask the following questions. What’s new? What’s next? What’s better?”
- Side Note: Visionaries that ask these questions tend to be people-oriented leaders, as opposed to task oriented. People-oriented leaders engage, empower, energise, excite and rally (I ran out of e-words!) their people behind a meaningful cause – and compelling story of the future.
“People want a shared vision of the future that reflects the aspirations, dreams and reality of the wider population (not just the personally imposed views of the very few).”
- Side Note: People can feel a sense of powerlessness or isolation and react with fear, hatred or injustice to change occurring around them. In order to engage and galvanise people to the cause, the vision needs to articulate a promise of change that people can relate to. In small measure at least, people need to be able to recognise their own working reality within the image that is being shared.
“Leaders struggle to communicate an image of the future that engages, connects with and draws others in – that speaks to what others see and feel in a meaningful way.”
- Side Note: Too many leaders’ images of the future rely on inaccessible language that is made up of corporate jargon and words that confuse, frustrate and turn people off. The future needs to be crystallised in a plain understandable way – through the articulation of clear meaningful outcomes that everyone can easily visualise and work towards.
This research really connected with what I have personally observed. When I canvass for feedback during change initiatives, common themes of similar nature surfaced repetitively. I found that people wanted to understand:
- What the vision would achieve
- How their leadership got to the vision
- Why the vision initiative was important
- How and where they fitted in the vision
They wanted to connect with the vision on a personal level – to see a reflection of themselves within the vision. They also wanted to walk beside the leadership while the goals and vision were being shaped. Without exception, the only visions that I have seen take hold and deliver meaningful results are visions that were shared visions – and these can only be created when the wider population are listened-to very, very closely.
It is worth re-emphasising that the above learn really does apply to TOM design.
There is currently a good deal of market debate around the merits of embedding specific characteristics to future-proof TOM performance (i.e. lean, agile, customer-centric et al). From experience, the following advice is worth sharing:
- When TOM design fully incorporates the corporate vision and intent, the sought after organisational characteristics tend to naturally surface in the TOM design – so long as the sought after characteristics are clearly described and unpacked within the strategic messaging (see Fig. 4 below); and
- It’s more effective to articulate a clear picture of the future state with clear meaningful outcomes, before switching to the activity detail. Translated, this means clearly understand where you’re heading before commencing the detailed design and planning.
To enable people and teams to make effective design decisions, it is critical that ‘Outcomes’ are described in a meaningful plain language way – articulating what success looks and feels like – and in rich detail so that everyone can clearly understand what he or she are building towards. The outcomes need to be articulated in very specific operational language that can be easily unpacked and explored by design and planning teams.
Working on the adage, what gets measured gets done; as a starting-point, I always conduct an enterprise-wide audit of the metrics that the business currently uses. The metrics gathered then undergo a thorough assessment to understand whether they are applicable in the future state (fit-for-purpose), understand where the gaps are, as well as understand what changes might need to be made. This exercise is a good starting point when developing and honing the outcome-based thinking required for TOM design. To illustrate with a practical Finance example, the success of the Accounts Payable function depends on a handful of metrics such as on-time payments, cost of processing, improving AP days, discounts capture, dynamic discounting and vendor consolidation to name a few examples. This level of granular operational understanding is required on an enterprise-wide scale. The insight gained informs the outcome-based planning process and eventual articulation of the critical ‘Outcomes’ required to deliver a successful and sustainable TOM transformation.
The outcome-based thinking should ideally also include structural elements that inform TOM design. To illustrate with an IT example; it is immensely helpful to understand how IT will structurally connect-with and support the business going forward – and why. Key structural design questions such as will the Digital and Technology Transformation be moving to Generic Platforms? Understanding what a generic platform means from a design, build and operate perspective is really important. Understanding whether this thinking translates to modernising the technology and data estate, moving away from old applications and systems to new integrated systems, understanding if this means increased data integration and online data collection, and understanding how this leads to a more modern mobile workforce and other associated benefits are critical for the TOM transformations success.
Decision Value Chain – Modelling The TOM Operational Reality
As mentioned previously, a central principle of cybernetics states that in order to control a system you first have to accurately model how it works. Because organisations are complex interconnected systems, this principle equally applies to TOM design as well.
Over time I have collected many scars in the pursuit of an effective and accessible (collaborative) way to accurately model organisational behaviour for TOM design.
Through repetition and applying the learns, I have developed a visualisation approach that allows groups and individuals to collaboratively model the organisation in a whole-system way. One of the techniques that I use involves visualising the organisations Decision Value Chain (DVC). A twist on Porters Value Chain thinking, the AllChange DVC visualisation approach enables people and teams to collaboratively explore, map and model how their organisation makes decisions. The insight gained from this exercise then informs TOM design.
DVC is just one of a toolset of techniques that I use to model in an interconnected whole-system way. Creative techniques such as corporate story (aka strategic narrative) and visual thinking are other approaches used that when combined produce a dynamic shared model of an organisation future state that is universally understood (see Fig. 5 below).
People accept ideas more readily when their minds are in ‘story mode’, rather than ‘analytical mode’. The viral marketing of ideas depends first and foremost on stories… for an idea to pass from one person to another it must be contained in something that can be easily transmitted, just as a disease will spread to a human population via a highly contagious virus. A good story is precisely that kind of container.
From extensive experience, I have found the process of developing a strategic narrative the most effective way to get a group of senior leaders working on the same page. The story creation process provides an element of group therapy, providing space and quality airtime for the senior leadership to work through conflicting perspectives – that otherwise might never have been addressed back at work.
I have found strategic narrative a priceless tool for TOM design. It addresses a range of critical elements that need to be tackled when developing a TOM. For brevity reasons I will list the top three benefits gained from a strategic narrative:
- The strategic narrative is a powerful mechanism to generate a shared senior leadership consensus view of the future state. Gaining an on-message senior team always accelerates follow-on TOM design because everyone is working on the same page with a clear agreed mandate to proceed.
- The strategic narrative places a practical container on the strategic intent. Providing clear and meaningful terms of reference wired to inform follow-on TOM visualisation, design, planning and implementation.
- The strategic narrative is capable of articulating the new strategic direction to the wider organisation and key external stakeholders audiences in an accessible, user-friendly and richly meaningful way – connecting the head and heart to the new initiative in equal measure – providing a clear ‘north star’ for everyone to align behind (see Fig 6 above).
TOM Governance & Connecting Strategic Intent To Delivery
To ensure oversight and consistent best practice is applied, a common approach to governance, communications and team ways-of-work needs to be agreed. This includes ensuring the right controls are in place – as well as producing TOM guidance and instructional materials that are both accessible and user-friendly. For example, to avoid teams going native, I ensure that all TOM design documents include relevant strategic messaging alongside an instructional how-to guide and glossary at the front of every document.
To ensure the corporate vision and strategic intent is central to all design, planning, build and implementation activity I simultaneously utilise three transformation tools. The tools provide a practical bridge between strategy and execution and include:
- Strategic Narrative – production of a corporate story wired to engage the organisation as well as inform design, build and delivery of the journey of change. This is also a key mechanism that gains a mandated leadership consensus on the future direction (see Fig 7 below).
- Strategy Framework – produced to explicitly connect strategic intent to project delivery. This ensures intent is front-and-centre of all design and delivery activity.
- Hi-Level Visual TOM – production of a multi-dimensional future state model of the organisation, utilising collaborative visualisation techniques with an emphasis on simplification through visual design.
Alongside the transformation tools, there is a need to provide focused oversight to ensure decision-making aligns with the business direction and strategic imperatives/objectives. To ensure the appropriate oversight is in place with all transformation activity joined-up and aligned with strategic intent, I advise that a special ‘Linking Role’ is put in place. This role typically takes on a TOM Director or Manager title with the responsibility of providing focused support to both the Executive Sponsor and Programme Director, ensuring all design, planning and delivery is fully aligned to the vision and strategic intent. The following governance model illustrates how this approach works (see Fig. 8 below).
The use of visual thinking is an effective way to resolve complexity and confusion in groups that arise from inadequate or conflicting mental models. This is crucial when the models involve our ideas of how work gets done, how teams co-operate, how decisions are made, how people organise and learn.
Much of our understanding of systems and how things work together is represented through visual imagery – this capability is extremely valuable when collaboratively designing and building a Hi-Level TOM. A large amount of time in meetings is spent working out these differences. Using visual thinking techniques accelerate the process of getting the upfront design thinking right, and in a highly collaborative, inclusive and efficient way (see Fig. 9 below).
TOM development is more effective when a broad base of the ‘right’ people is involved in the design and planning of the TOM. Involving key stakeholders who have a clear sight of the business reality will test thinking more robustly and will in-turn connect TOM design to the organisations’ reality. This approach presents the added advantage of providing deeper meaning and what I call ‘recognition factor’ to your people. Removing abstract, ambiguity and misunderstanding with the key stakeholder audiences. By involving key delivery owners in the early TOM development phase will also increase ownership, buy-in and accountability when TOM implementation commences. In short, by getting the right people involved at an early stage means the owners work harder at removing the barriers.
- Click on the following link for Visual Target Operating Model
- Click on the following link for TOM Blueprint Storyboard
Use Common Terms Of Reference, Definitions & Language
When there are varying interpretations or words lack meaning (i.e. are too abstract or ambiguous) this can create confusion and misunderstanding. In a TOM development context, this lack of shared meaning and understanding often leads to the significant risk of failure because design decisions are often based on biased (inaccurate) thinking. Conversely, when people and teams are working on the same page and clearly understand the language used, the task in hand and their role (i.e. where they fit), this leads to profoundly positive action.
As mentioned previously, many hundreds of design decisions need to be made to make an organisation function. These decisions, the detailed TOM decisions are better made when there is a Hi-Level TOM available. Because organisations are dynamic multifaceted systems the TOM should incorporate multi-dimensional information that accurately models how it works – and in an interconnected whole-system way. The TOM should be capable of informing roadmap production for business and project teams. Also, the TOM needs to be simple in construct acting as a generic transformation asset, and one of the key transformation tools that provide directional instruction and guidance to people and teams whilst on the journey of change.
Whether you are in the middle of your TOM transformation or about to commence your journey of change, the best advice that I can share is to remind you that organisations are fundamentally about people. And the best question I encourage you to ask is:
“How do we go about creating a target operating model that incorporates how we do business now and in the future – that most important of all reflects how our people operate in the real world?”