Is a Target Operating Model still a valid approach for design?

As an investment industry management consultancy, we have been fortunate to advise many of the leading global investment organisations on uplifting their operating model to enable their investment, client or corporate strategies. This has been a proven way of aligning the organization behind an operational strategy and providing the much-needed long-term vision for achieving a common goal.

With an increasing need for flexibility and agility, and the shortening cycle of tech led innovation, is the concept of a Target Operating Model (TOM) still the way to plan and execute operational change?

1. Potential for Obsolescence – The broad approach for a TOM is to set a ‘vision’ for the operating model that describes the ideal state from a people, process, technology, and data perspective. Typically, this then requires a multi-year program of work to achieve the necessary changes to realise this vision. In this intervening period, changes can occur that either make the vision redundant or alter the way it should be executed. This pace of change is increasing, led in part by rapid technology innovation, so the obsolescence risk of a TOM is very real.

2. Stifles Innovation – The irony of a TOM that is attempting to foster and promote innovation is that it may achieve the opposite effect. By segregating the business into ‘run the business’ and ‘change the business’ capabilities, business teams may not feel accountable or even empowered to deliver ongoing innovation. The phrase that all technology, process, or people uplift will be ‘delivered by the TOM’ is an all too familiar phrase we hear. The result being that the organization is stuck in an ‘innovation paralysis’ whilst the multi-year TOM is delivered. For an investment organisation to remain competitive, innovation needs to be embedded within each business functions’ DNA and so any initiative that stifles this may actually end up doing more damage than good.

3. Isn’t Executable – ‘If only we could run our business on PowerPoint!’ is a familiar inside joke amongst the TOM literate community. As with all inside jokes there is an element of truth here. Whilst TOMs may promise a grand vision that will truly revolutionize the way an investment organization operates, the end delivered result often falls well short of this promise. The causes are many, but it often comes down to the vision not being executable due to real world constraints such as availability of technology or service providers, budget constraints and (most importantly) the ability of the investment organization to deliver large transformational change. What started as an all-encompassing change to people, process and technology often ends up being a technology lead system replacement/upgrade with the business operating fundamentally the same the way they did before, albeit with shinier, but more expensive toys.

Given this, is the case for a TOM still a valid approach to define and execute your operational strategy? Yes, our view is that it is still the most effective way to deliver meaningful and sustained operational change.

If done correctly, a TOM enables:

So how do you ensure that a TOM delivers an effective outcome, bearing in mind the pace of change and need to foster agility and for the design to be implementable? In our view a more agile approach to the design and implementation of TOM’s is required, taking into account the following precursors of success:

In essence, while the TOM provides a structured approach, its design and execution must embrace agility. A blend of strategic vision, continuous feedback, and an iterative mindset can ensure that TOM remains an effective tool even in a dynamic environment.