Written by This is Part 2 of 3 in the series: How to Build a Target Operating Model. (Part 1 can be found here)
Deciding How You Will Win
Strategy, simply defined, is a collection of the high-level decisions on how you plan to win. For your operating model, winning means delivering the best possible value to your customers/clients, stakeholders, and the overall business. While your operating model is distinct from your organization’s overall business strategy, both are strategic views of your organization and have similar construction steps.
In this article we continue the journey started in Part 1 to guide you through these construction steps by making a series of three strategic decisions to build your target operating model: 1) decide your changes, 2) decide your target states, and 3) decide your transitions (projects and actions).
Step 3: Decide Your Changes
Note: Step 3 builds on Steps 1 and 2 found in the first article.
The Changes Canvas
Using the canvas below, review your Drivers to Change Canvas from the first article and identify deliverables and improvements you wish to have in your future operating model–this is the first list of goals towards your target state.
Tip 1: When assessing your drivers, it is important to translate the items into specific changes. For example, Long delivery cycle may be a weaknesses, but it is not yet actionable until translated into items such as Implement DevOps for daily/weekly deployments and Increase data feed frequency from suppliers from weekly to daily.
Tip 2: To map the items from your Drivers to Change Canvas:
- Translate the Mandatory items into the appropriate goals/actions
- Map the Strengths-No Action box into the Continue column
- Map the Improve column into appropriate goals/actions
- Map the Action column into appropriate goals/actions
Tip 3: A single new change will frequently impact multiple areas of your canvas; therefore you will need to also map additional downstream/dependent changes in other areas in order to see the scope of change in total. An example would be migrating to an Agile approach to product development in order to deliver to your customers more frequently and allow faster feedback.
Agile itself is a change in your core Processes category, but also impacts other areas. People will need training, new skill sets, and depending on the flavor of Agile you implement (e.g. Scrum, Kanban, etc), your organization structure may also need to change. Hence you need to assess the Culture changes which come with the increased autonomy of working teams rather than a top-down chain of command. Your Technology and Tools will also need to be updated. These changes may be all positive, but need to be considered in your overall plan.
Tip 4: It is normal to create a list that exceeds what you will be able to implement. You will likely need multiple iterations with your core team to decide on a realistic and agreed set of goals.
Prioritizing with the Impact-Effort Canvas
The Impact-Effort Canvas is a standard product planning tool that allows you to visualize all of your proposed changes together on a page to assess what goals are right for you based on the impact to your organization and the effort you will need to give to see the results.
Impact can be measured in many ways: financial, delivery time, quality, reputation, customer joy/frustration, Net Promoter Score (NPS), etc. Effort is typically measured by cost and/or duration.
Using the canvas above, you can map your list of proposed changes into several categories:
- High Impact, Low Effort: These are easy wins and should be prioritized.
- Negative Impact: These should be discarded. The negative impact of these changes is usually revealed by detailed planning and uncovering hidden costs and other unwanted dependencies and complexities. You can also label items as postponed–what might be a negative impact now, may not be later.
- Low Impact, High Effort: Don’t do–you will not get a return on your investment.
- Medium to High Impact, Medium to High Effort: You will need to individually prioritize these items based on your preference, appetite for risk, and patience to maintain effort over a longer period of time. These items are typically larger programs and transformation efforts. The opportunity cost of an item needs to be considered against doing other activities.
- Low to Medium Impact, Low to Medium Effort: You will still get benefits by making these changes but they need to be prioritized against the category above.
The Planning Fallacy
It turns out that we are not very objective when assessing impact and effort. Daniel Kahneman and Amos Tversky published a research paper on a phenomenon called The Planning Fallacy that reveals people are overly optimistic when assessing the effort required for a new endeavor, including ignoring data that was available from similar past projects.
Famous examples of the Fallacy include the 2014 Winter Olympics in Sochi where $12 billion in expected cost resulted in a $51 billion final bill, and the Sydney Opera House with a planned cost of $14 million, which ballooned to $102 million and a decade of delay to open. 50 years later, most people would agree the Opera House was worth the investment; however, not every project is a Sydney Opera House.
Step 4: Decide your Target State(s)
States and Transitions
We introduced in Part 1 that a operating model canvas represents a snapshot, or a state, in time. The transition between states is where you implement your changes via programs, projects, and actions.
In the final two strategic decisions, we define one or multiple future operating models and the programs/projects/actions you need to get there.
One or Multiple Target States?
The state of your organization’s operations is perpetually changing, and based on your list of initiatives, you can decide to have one or multiple target states. Some examples include:
One Year Ahead Approach:
- The Annual Operating Model: This approach is useful if you have a steady list of improvements each year, but no major or long-term changes. Capturing your operating model at the end of each year can highlight steady enhancements and the effort to plan one year ahead is simpler and has more certainty than multi-year changes.
Multiple Year/Period Approach:
- The Strategy Lockstep and The Major Regulatory Deadline: New organizational strategies and large regulatory initiatives are usually longer-term efforts with fixed deadlines and deliverables. Defining a future operating model for the deadline allows you to consider all the elements you will need in your transition including budget. The defined target state also communicates to sponsors that your organization is in line with the future strategy or regulatory mandate. You may choose to still have annual operating model updates to reduce risk and assess progress along the way.
- The Digital Transformation: Large transformations may not appear to be much different to the updated strategy or regulatory deliveries above (in fact often such efforts are used to fund digital innovations), but you may have additional risks on specific delivery dates due to introducing new and high complex technologies as well as potential new ways of working and collaborating. In the case of multi-year efforts, you are also not able to predict up front what new innovations will come in the middle of your transformation efforts.
Decide Your Target State and Link Your Dependencies
Now we return to the Operating Model Canvas introduced in Part 1 and populate it as your Target Operating Model. Start with your key changes, then add supporting/dependent goals.
Now link the goals to your overall benefits to visualize how you the work you are doing is ultimately impacting your business, customers/clients, and key stakeholders. You should see a clear flow of changes/goals to overall benefits as well as improvements from your original “as-is” Operating Model Canvas.
Create Snapshots of Progress
If you have multiple steps/years to get to your target state, the Evolution Canvas is a tool to capture decisions on how your operating model will evolve along the journey. This is especially helpful if you have a high risk technology journey or have a major deadline mid-way and need to ensure certain components are in place. Remember that items on this canvas capture how your operating model is working at various time points and not the work in progress.
Tip: Always put a date or year along with your operating model title (e.g. Operating Model 20xx). Using a generic Target Operating Model or 3-Year Operating Model label does not carry the same urgency to make decisions and start initiatives with your stakeholders and sponsors.
Step 5: Decide your Transitions
Define Your High-Level Book of Work
Whether you have one step or five to get to your target state, there will be many options (and order of options) to get to your goals. The last set of strategic choices is related to the decisions you will make on how you will transition from today’s operating model to your target state by choosing the specific work that needs to be done as well as the order of the work. Your book of work includes:
- Programs and Projects: Larger delivery initiatives where funding, planning, resources, and governance is needed. You may or may not yet be able to detail costs for these deliverables at this point. Expectations should be that estimates are high-level and you can refine costs with higher granularity along the journey as part of your regular governance review.
- Actions: Smaller activities (but still potentially large impact, e.g., org. chart update) where an explicit project and/or funding is not needed
The Transition Canvas below helps to capture your book of work between each year/period of your operating model.
Step 6: Summarize the Plan
You have now mapped the evolution of your operating model and defined the transition steps to get there, including details for each area. Now you need to prepare to communicate and sell your plan for the future to your sponsors, stakeholders and wider teams, and creating a summary view will allow others to understand your plan as quickly and clearly as possible.
Identify Three to Five Themes
Consolidating your analysis, choices, and building blocks into a few themes will help communicate with others through a quicker understanding what you are planning to do, and a clearer understanding of the “why” behind the many decisions you have made.
Some examples of themes include:
- Deliver faster to our customers by leveraging Agile and DevOps,
- Meet the regulator’s Go Live date with minimal manual workarounds,
- Hit our cost targets to support the overall 20xx strategy,
- Consolidate horizontal and/or vertical layers to reduce complexity and speed up decision making
- Increase service teams to 3 regions to provide 24-hour service,
- Reduce product development teams to 2 regions to increase collaboration during common working hours,
- Leverage cloud solutions to take advantage of innovation and focus on our core business,
- Quicker and better decision making with improved MI, etc.
Create a Summary View
The Roadmap Summary Canvas below allows you to capture a concise view of your themes, your target operating model, and the work to do. (In the downloadable pdf, canvases with and without a theme section are included.)
A Review of the Journey So Far
In these first two articles, we have outlined the major building blocks to build your new future state starting from where you are today. The diagram below summarizes the six major steps so far in the journey:
In Part 3, the last article in this series, we will outline how to bring your operating model to life with with a focus on governance, stakeholders, execution, and keeping your target operating model relevant.
If you have questions, please reach out to me at: scott.herrick@capturedvalue.com