44

Target
operating
models

Why is a target operating model important to

your organisation? Kieran O’Brien explains.

T
o succeed in today’s challenging guarantee that it will be successful for Definition
marketplace, organisations the future. Business models need to be Although the term is familiar, there
must be capable of a continual continuously reviewed and refreshed to are various definitions for the target
process of transformation and renewal. deliver on the organisation’s goals. operating model (TOM). We would
To achieve this, an organisation must Technology plays a vital role in characterise it as a representation
have an in-depth understanding of supporting your business model. of the structures needed for an
its existing business operating model However, it is only one of the pillars organisation to create and deliver
and how this model can be changed supporting your business model optimal value for its customers in a
to optimise operations with resulting alongside organisation/people, go-to- repeatable manner while delivering on
increased returns on investments, market approach, and process. the organisation’s vision and growth
better service delivery for customers, as The reality is that many strategy.
well as new offerings. organisations do not fully understand Organisation, market strategy,
Recent studies indicate that the strengths and weaknesses of their process, and technology are the key
optimum business models are most existing business operating model and underlying components of a TOM and
often found in start-up entities. In more are often slow to conduct a deep-dive are critical to its success. Ultimately,
established entities, however, operating analysis and embrace an enhanced the TOM should provide a visual
models are often no longer appropriate operating model. In this article, we look overview of how a business can be
for the business and the challenges at how your organisation might review ideally structured to implement the
the unit is facing. Your organisation’s your current operating model to move to organisation’s strategy by showing how
business model may have served a target operating model that creates a each of the main business activities is
you well in the past, but there is no platform for sustainable future growth. represented.

Accountancy Ireland | June 2020

 TARGET OPERATING MODELS 45

Common issues • Define the existing organisational • The product and service offerings;
In our experience, TOMs can be structure; • Regulated and non-regulated product
ineffective due to several common • Review current role profiles, offerings;
factors. These include: reporting lines and the number of • ‘X as a service’ and pay-per-usage
people in each role; products and services;
• The inflexible nature of historic • Review the type of people in each • Value-added data and customer
business models, which fail to position (full-time, temporary, insights in the customer value
support a business that is evolving its outsourced etc.); proposition;
operations (for example, a financing • Complete a competence, performance • Various product portfolios for cross-
organisation that is moving from and experience audit; selling opportunities;
supporting large/complex transactions • Analyse performance evaluation • The ancillary product offerings
to a flow business operation); methods; including insurance, maintenance
• In financial services, the • Analyse remuneration and incentive and others;
continuation of the historic schemes; • Ancillary product offerings provided
segmentation between ‘front office’ • Analyse decision-making and by associations, partnerships and
and ‘back office’ when it is evident governance structures; joint ventures; and
that both cannot continue to • Analyse the degree of headquarter • The asset management, end-of-lease
operate independently of each other control versus local/regional operations and systems capabilities.
effectively; and autonomy;
• Having an operating model that is • In a banking/leasing entity scenario PROCESS
not aligned to a specific business and where the entity is bank-owned, Organisations must analyse and define
operation, with the consequence determine the level of bank control the optimal business processes that
that the organisation develops versus the lease organisation control support their business objectives. This
functional silos that result in for critical functions (e.g. credit, involves the development of processes
process inefficiencies and poor pricing, asset management etc.); and that are scalable, repeatable and the
communication. • Determine whether the entity is a performance of which is measurable.
functional or a product organisation. An end-to-end ‘as is’ process review
Key elements is recommended to map out the
There can be several aspects to a TOM, GO-TO-MARKET process suppliers, inputs, outputs
but the critical interdependent elements The successful business model should and customers, and detail all critical
we consider to be essential are: have a go-to-market (GTM) strategy dependencies. An essential element
that delivers a range of products and/or of this analysis is the identification of
1. Organisation/people; services to its customers on a profitable the core and non-core processes of the
2. Go-to-market; and cost-effective basis. The various business to determine where value is
3. Process; and GTM channels should be clearly defined added.
4. Technology. and operate effectively. Areas that could be subject for
Let’s take the scenario of reviewing review before deciding on the optimal
We discuss each of these elements the GTM approach for a leasing/ processes include:
in turn below and outline scenarios or financial services provider with a
questions for consideration under each supporting bank branch network. Areas • A review of the existing operational
category. that could be subject for review before model, and determining whether it is
deciding on the optimum GTM include centralised or decentralised;
ORGANISATION/PEOPLE an analysis of: • A review of the organisation’s
The objective of a TOM is the governance and control procedures;
development of an organisation that • The entity’s commercial approach; • Analysis of the processes and
will support the business strategy and • The revenue and profitability model services that are supported in-house
has clear roles and responsibilities with by product and service; versus outsourced along with their
measurable skills and capabilities. The • The sales/operations approach, with interfaces and management;
organisation should have the right a focus on the direct and inside sales • Analysis of the level of outsourcing,
number of people with the appropriate route; including the types of outsourcing
remuneration, expertise and experience • How the supporting bank branch and whether outsourcing is single-
across all functions. Also, the structure network operates and is controlled; vendor or multi-vendor;
should be transparent, easy to • The distribution routes to market • Analysis of any shared service
understand and adaptable to changes through brokers, partnerships and centre(s) supporting the organisation;
that will arise over time. others, and how this operates and is • In a bank-owned leasing entity
Before determining the appropriate controlled; scenario, an analysis of any processes
organisational structure, consider the • The typical customer profile and and services supported centrally by
following elements: segmentation; the bank;

www.accountancyireland.ie
46 TARGET OPERATING MODELS

• A review of any flow business • Analysis of the systems for • SYSTEMS: what operational
processes, mass customised quotation, credit approval and asset procedures and IT systems required
processes, and any bespoke management; to make the structure work
solution processes; and • Analysis of technology capabilities effectively? This is the detailed
• A review of the customer and the technological ecosystem to design and implementation of the
interfaces and aspects of online/ support new products, especially in TOM.
offline elements of the customer the areas of ‘X as a service’, and pay-
journey and their interfaces. per-usage models; and Considering that the TOM is the
• A review of the extent and quality combination of structure and systems,
Technology of both internal and external this approach should ensure that the
The chosen business model must data sources and the analytical TOM is aligned to a specific business
have the necessary technology techniques used to support better model. However, variations of the
infrastructure to support both decision-making, as well as unlocking model may be required within an
people and processes. There is economic value and generating organisation to support individual
a requirement to identify and customer insights. business lines.
implement the technological and
digital systems required for the The ‘Triple S’ approach The benefits
optimum delivery of products and The design of an effective TOM An optimised TOM enables your
services to customers. Areas for that supports your business should business to implement its vision and
consideration include digitalisation, incorporate the essential elements business strategy effectively. Working
data analytics and services described above. At the outset, we towards the right TOM for your
automation. recommend that you consider what we business will identify deficiencies
Taking the scenario of a bank- call the ‘Triple S’ approach. and gaps in your organisation that
owned leasing organisation, areas require remediation, such as redundant
for review before deciding on the • STRATEGY: what is the overall roles and role duplication. It provides
optimal technology platforms business strategy, and what are the an opportunity to optimise your
include: key underlying elements supporting business operations and reduce your
the strategy? These elements operating cost by looking at various
• A review of the core supporting should include the offer (products, insourcing/outsourcing alternatives.
systems/platforms covering front- solutions and services); go-to-market It also provides a significant level
end, back-end, CRM (customer (the segment/category of clients to of internal transparency to your
relationship management) and whom the offer is addressed; and staff, giving clarity around roles and
reporting; channel (the route through which the decision-making and often accelerating
• A review of the level of customer will be serviced); customer outcomes.
integration, if any, of lease entity • STRUCTURE: what organisational Before embarking on a significant
systems with bank systems; and operational structure is required TOM review, it is worth completing
• Analysis of the level of end- to support the strategy? This is the an independent evaluation of the
customer and intermediary framework of the operating model; TOMs employed by your peer entities.
systems linkage and automation; and This can provide invaluable insights
into your competitors’ operations
and allow you to focus on the ‘best in
Figure 1: The target operating model value chain class’ elements for adoption in your
organisation. But beware – making
changes to your organisation’s TOM
can result in major transformational
projects, which requires a robust
Vision / governance structure.
Strategy In summary, designing a new TOM
provides an opportunity to optimise
the size, structure and shape of your
Customer Value business and ultimately, deliver on your
organisation’s strategies.

Kieran O’Brien FCA is

TOM: People / Market Approach / Executive Director at
Process / Technology Invigors EMEA Limited
(part of The Alta Group).

Accountancy Ireland | June 2020