Posted: 23 Nov. 2020 4 min.

Could ‘target operating model’ become the buzz-phrase of 2021?

Topic: Supply Chain

The COVID-19 situation has surely caused many shifts in the competitive landscape: from physical stores to e-commerce, from travelling abroad for adventure to bringing adventure home, from depending on global supply chains to looking for local alternatives, from peripheral technology to technology-first, just to name a few.

But there is a bigger shift, too: The shift of value from manufacturers and distributors to companies that operate end-to-end digital platforms and provide outcomes as-a-service. For many companies, that means constant change and disruption – and a growing threat of market obsolescence as competitors enter the scene with brand new ways of doing business.

One of the solution to this challenges is re-thinking and re-designing the target operating model. And for many companies, the answer is digital transformation. Indeed, 80 percent of CEOs in one study claim to have transformations in place to make their businesses more digital; 87 percent expect to see a change in their operating models within three years[i]. And those numbers were even collected just before the world was hit by the pandemic.

Successfully driving transformation, however, depends on CXOs addressing a range of organisational barriers and risks – particularly functional silos, incomplete enterprise data and a product-out (versus a market-in) philosophy of value creation. 

In our experience, a well-designed and purposefully executed enterprise operating model can help companies balance growth with risk and overcome organisational barriers.

What is a target operating model?

Poll any number of executives, and you’ll likely find yourself with as many definitions of operating model. But most commonly, operating model transformations are associated with cost takeouts or organisational redesigns. In my view, however, the definition should be much broader: An operating model represents how value is created by an organisation – and by whom within the organisation.

Many questions will typically come up when discussing the operating model, for example:

  • How or whether to use centralised strategic planning functions to set a unified direction for the enterprise.
  • How to boost customer experience with consolidated marketing, account management and customer experience functions.
  • The option of moving from an IT project methodology to an IT product management approach in order to completely reshape and re-boost the digital transformation in the organisation.
  • The possibility to separate product and business incubator with end-to-end responsibility and direct access to C-suite.
  • How to build resilience into the supply chain while handling increased risks of supply chain disruptions.
  • The use of new technology such as robotics and AI to drive operational efficiencies in mid- and back-office operations.
  • …and many other operational decisions.
     

Most critically, an organisation’s operating model must be inextricably linked to the corporate and business-unit strategy and varying business models. The operating model is the anchor for the company and is critical to the strategy’s effectiveness and longevity. And understanding how your organisation maps onto the model is key to an effective digital transformation.

The good news for companies born before the digital era is that they often quickly understand the value in transforming to agile, adaptive and responsive organisations because they already have the other intangibles in place: strong brands, an entrenched customer base, established sales methods and partners-suppliers, distributors and technology.

In other words, re-thinking the operating model is not about disowning the past, but about fundamentally pulling the organisation in a different direction to win in the digital economy. And it’s about asking the right kinds of questions – for example how do we…

  • Grow amid increasing market and customer expectations?
  • Respond faster to market and competitive disruptions?
  • Simplify organisational processes, both internal and external?
  • Maximise returns on limited financial and human capital?
  • Incubate and test new products and technologies?
  • Pivot to competitive business models?

While the Christmas lights are switched on around town and chilling winds are blowing through the streets, those are the conversations that fill many executive board rooms. They are difficult and challenging, but necessary to prepare for the spring that will hopefully follow this long winter.

More about the author

Tore Christian Jensen

Tore Christian Jensen

Partner

As a part of the Strategy & Operations practice Tore has worked with analysis, development and implementation of operational strategies. Tore has deep experience with aligning business models to changing market demands through optimisation of business processes and aligning systems, organisation and governance accordingly. He has industry experience from manufacturing, transportation, consumer products and energy. His main focus is on on the operational core processes but he also covers administrative support processes. As a program manager Tore has been leading transformation projects for international clients heading multiple parallel projects and reporting directly to executive committee members. His responsibilities cover everything from initiating assessments, identifying opportunities for improvement to building business cases and following up by designing solutions and driving teams through implementation.