Target Operating Models - Continuous Refinement

One of the more commonly used terms in the sphere of enterprise business process and IT operations is “target operating model.”  In my opinion, one of the better explanations of an operating model was published in a 2008 Harvard Business Review paper entitled “Define Your Operating Model”.

That article defined an operating model as driving the design of the execution of a business strategy.  Thus, the operating model represents choices about what strategies are going to be supported.  The article goes on to build the case that business process standardization and integration are the two seminal dimensions of an operating model.

When companies consider the merits of outsourcing or organizing for shared services operations, they typically look to enable and accelerate the central operating model of the business.  Thus, the strategy for sourcing of services represents the “how” and not the “what” of an operating model.
The operating model concept requires that management put a stake in the ground and declare which business processes will distinguish the company from its competitors.  It’s a holistic articulation of how the business is meant to operate.

In my experience, the refresh of a company’s operating model has typically occurred only in the context of substantial change.  New leadership, new product/service offerings, or new competitive threats have been the impetus for material adjustments to the operating model.  Those changes, in turn, drive adjustments to the services sourcing strategies for front-, middle-, and back-office functions.

Because changes to the operating model happened so infrequently, companies rarely developed the internal competency to drive changes throughout the services ecosystem.  That reality spurred demand for specialized management consultants who are engaged to design the change programs to bring new operating models to reality.  These were expensive and time-consuming undertakings.

Consider the environment of today, however.  The pace of change in virtually every industry’s competitive landscape, and through technological innovations, requires that companies review and refresh their operating models much more frequently.  Innovations in mobility, for example, are one example of an impetus to reconsider how a company plans to serve its markets and enable its employees.  Those changes often lead to substantive adjustment to the operating model.  Further, the services architecture – how internal and external service providers are organized and aligned to the strategy – must similarly be adjusted.

And, the principles of “As a Service” business operations lead companies to reconsider whether build/maintain should be supplanted with subscribe/operate.  New skills and planning practices are emerging to own the responsibility for stewardship of the operating model, and alignment of the services resources employed across the business.

The name of the game is agility, and most companies seek to employ capabilities that can flex with the needs of the business at a pace that is much more dynamic than that which yesterday’s services sourcing techniques provided.  Long-term commitments are fading in favor of service models that can turn with the refresh of operating models. 

These are some of the reasons that companies in the ITO/BPO industry are challenged to redefine their own operating models to ensure continued relevance as their markets seek to leverage best-in-class services without undue drag on the imperative to adjust operating models over time.

Buyers are buying differently, and from different providers.  Providers are selling and delivering differently as well.  All driven by a more frequent, nearly continuous, refinement of operating models. Moving targets, indeed.

Peter