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EDITOR’S NOTE: In this Q & A, Derek Miers, a principal analyst at Forrester Research, speaks with ebizQ’s Peter Schooff about how businesses have been using the “target operating model” as a framework for re-inventing themselves. This transcript, excerpted from a longer podcast, has been edited for length, clarity and editorial style.

ebizQ: To kick it off, what is a target operating model and how does it work for business transformation?

Miers: [Let’s start by asking] “What is business transformation?” … I heard the COO of Barclays Wealth speaking a couple weeks back and he was sharp as a tack; really, he hit the nail on the head. He said, “Transformation is changing everything you do, but most importantly, changing how you think.”

And in a way, the target operating model is a way of digging into how to do that. Think of it as a sort of future-state vision of what you want to do and why you want to go there. It can become a bit like a rudder for a set of change programs or projects so that you can refer back to that to get that sort of broad organizational alignment.

Think about it this way: Ask yourself how many change programs or projects are ongoing in your organization. I'm talking more than just in IT or just in business process here. Think about anything that's got a three-letter acronym, or that is some sort of project, or that has something to do with change. Very often, you find that big organizations have hundreds of these.

At the heart of it, this notion of a target operating model is really a fleshing-out of strategic intent; into the purpose of why we exist; the services that we deliver to our customers; the outcomes, if you like. The people that, in the end, help our organization to exist, that we exist for, perhaps--that’s the way to think about it, and then about the processes that we use to do that. If you think about that notion of purpose, you could think about it really as a set of capabilities, as a sort of teasing apart of the value chain.

ebizQ: To drill down even further, how exactly does it help a business?

Miers: Really, what we're talking about here is coming up with a reliable, organized, repeatable approach about the business and its operating models that it can use to support organizational change and the purposes that go with it. And maybe this is the way to think about it: At one level, LEAN Six Sigma programs, continuous improvement, performance improvement initiatives--they ultimately support or report to the COO. Those other folks who are thinking about brand and service and product design, and customer experience improvement--you could say that, ultimately, that responsibility lies with the CMO or chief customer officer or something like that.

And yet in the CIO's world, there's ERP, and SAP in the background, or Oracle, or workflow, rules, events, SOA, master data management. They’ve all got subtly different agendas. And really this whole notion is about giving them something that they can all agree on, that they can all sign up for, so it's not something that's super complicated and super difficult.

Really, you could think about that future-state thing being at one level of teasing apart of strategic intent. Then you're getting into this sort of operating model in terms of, if you like, fleshing it out into [questions such as] “What business are we in?” and “Why are we going to be there?” and “What do we need to do there?”

And then we can use that to support a wide range of different usages, a balanced and consistent view of how to come up with a new program charter that prioritizes a BPM initiative and the embedding of the customer experience and service design. And it becomes like an input into the organizational structure.

It’s a way of thinking “outside in” rather than “inside out.” Most business process initiatives are thinking inside out. They take the organizational structure as a given and then try to work with processes within that. And, really, they're mixing those things up.

ebizQ: We're talking about change, and that sounds big. So when companies are looking at this, are they going to come across people that are resistant to it or departments that are resistant to it? And how do they cope with that?

Miers: Well, the short answer is “yes.” If you think about it, what you end up with in the organizational chart is lots of people who say, “I didn’t get where I was today without stepping on a few toes along the way.” In other words: “This is my fiefdom. Keep out. Change anything you like, but don't change my reporting lines.” What this is about is a way of challenging that status quo without getting involved in the politics.

Now, people do resist it. [He cites the example of a conversation he had with a Forrester customer in a Fortune 100-level company.] There had been a change of leadership at the very top--a new CEO, new C-suite, new head of operations, new head of technology and a new head of HR.

The new head of HR felt that this notion [of the target operating model] was starting to impinge on her toes. Instead of embracing it, she was starting to resist. And the person running the transformation program was having difficulty because there's a powerful and influential person in the executive suite who is feeling threatened by it. But in fact, if you think about it, the operating model becomes a primary input, a great resource for her and her organization.

Now you're probably thinking, “So this is another way of putting lots of models inside a central repository and the many, many years of effort required to create one.” That's not what I'm talking about.

What I'm talking about, at almost the simplest level, is the three or four slides that the C-suite can all agree on, that this is the plan, this is where we're going, this is what we're going to do, these are the capabilities we're going to scale, these are the ones that are core, these are the ones that are critical.

When I say “capability,” that's the purpose concept I was talking about. You’ve got to be careful when you hear the word “capability.” At one level, it's sort of aggregating the issues of IT into buckets so it can be managed.

But really, what I'm talking about here is a teasing apart of the value chain, the very essence of why we exist. And if you took your primary value chain, you'd end up with, I don’t know, 30 to 50 things that you just can't escape from. Now some of those things--maybe three, maybe six, maybe eight--are absolutely key/core/critical to what's going on. Those are the ones that are core to your strategic differentiation. Those are the things that you're not going to put outside, that you're not going to outsource. The other capabilities that may be represented in many different functions and many different service propositions are ones that you're going to keep in-house.

Think of it like this: The capabilities represent the enduring purposes of why we exist. The services that you're really think about are the services that we're using to target different personas that we have that are, if you like, a representation of the brand that we're going to deliver to those services. [For instance:] “Gold customers live in this territory and we're going to sell them this type of product and this type of service.”

Now so you can say that that set of capabilities are configured by processes to deliver that service in that business unit and in that geography. At the same time, those capabilities are going to be implemented by process. Imagine that you’ve got, let’s say, SAP at the back end. That SAP system might be part of the implementation of a set of capabilities, but you need a way of thinking about how you're going to use it to deliver it to this segment of customers in this sort of way.

The operating model itself is really process capabilities and services. But then you get the different realizations of that because you've got this level of abstraction that can allow you to have a very balanced and consistent view about how you're going to structure those responsibilities to deliver that service that's going to give you a way of saying, “What is the impact of this change on that business? Which operations are we going to downsize? Which ones are we going to grow? What capabilities do we need? What partner/suppliers do we need? What’s the customer journey map for the service going to be like and how's that going to manifest itself?” Your operating model becomes the rudder that you can use to guide all those things.

READER FEEDBACK: Is your business using a target operating model? If so, ebizQ editors would like to hear about your experience. Contact Site Editor Anne Stuart at editor@ebizq.net.



About the Author

Peter Schooff is a former contributing editor for ebizQ, where he also managed the ebizQ Forum for several years. Previously, Peter managed the database operations for a major cigar company, served as writer/editor of an early Internet entertainment site and developed a computer accounting system for several retail stores. Peter can be reached at pschooff@techtarget.com.

More by Peter Schooff

About ebizQ

ebizQ is the insider’s guide to next-generation business process management. We offer a growing collection of independent editorial articles on BPM trends, issues, challenges and solutions, all targeted to business and IT BPM professionals.

We cover BPM standards, governance, technology and continuous process improvement, as well as process discovery, modeling, simulation and optimization, among many other areas. We follow case management, decision management, business rules management, operational intelligence, complex event processing and other related topics. We closely track important trends such as the rise of social BPM, mobile BPM and BPM in the cloud. We also explore BPM’s use in functional areas, such as supply chain and customer management, and in key verticals, such as financial services, health care, insurance and government.

ebizQ's other BPM-oriented content includes podcasts, webcasts, webinars, white papers, a variety of expert blogs, a lively online forum and much more.

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