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The path to a digital operating model

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Let’s face it, a transformation failure rate of 70% is just no longer acceptable. Especially considering that at this critical point in our industry, it is recognized that a business and IT-driven digital transformation is a clear way to stave off disruptions.

To counter this trend, an enterprise needs to focus on a Target Operating Model approach to transformation. Several factors make this approach different.

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First off, this approach is not primarily based on technology, which once received much of the attention but often failed to deliver significant business benefits when not part of a broader, holistic approach. Yes, technology does play a huge role but analyses have shown that it hasn’t been the best driver of change. At the same time, it’s generally not the reason for transformation failure. In fact, in many cases, smart, well thought out investments were
made in all of the right technologies and yet failures still took place.

All too often, organizations have focused on new business models that take too narrow a view, concentrating only on revenues and profits without considering key customer-driven business objectives. This often leaves the door open to disruptors. It is becoming evident that the best way to avoid this common mistake is to address the “business culture” holistically. To the detriment of the enterprise, words like culture and holistic are taken too lightly. We are not talking here about the culture of a country or region. In this context we are referring to a Business Culture, which is defined by the “habits” of that business – habits that an enterprise exhibits across people, processes, systems, partners, organization and management. This business culture can be documented and addressed as an operating model.

We’ve found that legacy operating models are rife with bad habits. Keep in mind these can be practices that worked well in the past but are now outdated and obsolete. In other words, many of these habits weren’t always bad. Time and market forces have just made them that way. But the truth is, certain legacy habits can be even more detrimental than legacy systems. And a company can have a great vision, a strong business objective and a portfolio of wisely purchased tools and hardware, but can still fail at transformation because they haven’t owned up to their “bad”, outdated corporate habits.

We’ve all seen examples of bad habits that persist during and after a large change program:

  • The CIO/CTO divide: Until recently, the CTO and CIO lived in two different worlds. The CTO was responsible for creating systems to optimize their technology. But the CIO was on a different page – IT should be agile, flexible and cost-effective.
  • Procurement versus Partnering: Procurement’s role was to beat vendors into submission. Today, the battle lines across the supply chain have fallen to ecosystems and partner-based commercial models.
  • Product Management versus Agile Development: In some organizations, Product Management would “throw” output over the fence to Engineering/Design, who in turn throws it over the fence to Operations. Customer and partners now expect products to be developed within their purview.

When it comes to changing bad habits, and therefore the business culture, the challenge seems to be getting everyone on the same page, literally. To map out their desired business culture, an enterprise can turn to a Target Operating Model approach.

A Target Operating Model should address the following attributes of the business culture:

  • Key Performance Indicators (KPIs): including goals, performance, and benefits/realization
  • Technology: addressing business and operations systems, assets, resources and locations
  • Process: including product lifecycle, development, quality, management and assurance processes
  • People Management: addressing leadership, ways of working, skills and capabilities
  • Organization: such as management controls, structure/governance and roles/responsibilities and
  • Partners & Alliances: capturing performance, management tenants, and scorecards.

That exercise is the first step when defining  a Target Operating Model and is the key ingredient to getting transformation off the ground. This is where the organization needs to ask itself: “What is our destination? What do we want to be when we grow up?” The bull’s-eye in this case is the answer to those questions: the vision, the strategic business objective that will need to be presented and championed.

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The next question is, “OK, how do we get there? How do we transform ourselves into a business who can deliver on that strategic objective, that vision?” We begin by defining everyone and everything that will play a part in reaching that Target Operating Model: the success metrics you will be judged by, the technology necessary to achieve the goal, the process that will get you from here to there, the ability to manage those who will drive the change (which is basically everyone in the corporation), the organizational structure, and the outside partners and alliances necessary to deliver success.

Under each of the previously defined components within the model, the transformation program will determine specific requirements, define the proper tools, and establish the best practices and processes. In short, this is where to articulate the paths to our goal. This well-defined and structured digital transformation vision can literally be hung on the walls of the project war rooms and executive offices.

This map creates the “north star” that everyone in the business should be working towards. This is especially important for large-scale, IT-enabled business transformation:  all impacted groups/business units must be engaged early and often to help build the plan to feel a sense of ownership so that they are invested in and supportive of the change. That ownership can come from building a strategic roadmap that aligns aspects of the transformation program with those groups.

The strategic roadmap lays out the plan for achieving the Target Operating Model and the benefits that are expected once it is achieved.

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The roadmap succinctly describes what’s wrong with the current state that is driving the need for change and what’s the desired future state: a narrative of the Target Operating Model, who’s involved in each work stream, what the work stream entails, and what benefits we expect to get from the work stream.

This last one is the key – it’s not about project milestones like, “When release one will go live,” it’s about when the benefit will be achieved because release one went live. Achieving the benefits often requires the completion of multiple milestones across numerous work streams.

In addition, transformation must be supported by organizational change management (OCM), the discipline of assessing the impact on and managing the execution of organization change and people competence. Some of the benefits of OCM are providing management, direction, ownership and coordination of activities, which ensure successful adoption of the transformation program deliverables, and realization of benefits from the digital enterprise’s new capabilities.

Digital transformation presents many challenges. One of the key tasks is to not focus on technology for technology’s sake. To realize successful transformation, an enterprise should start by developing a Target Operating Model.

It should follow every detail of the process, making sure to purge itself of bad habits that are uncovered. It must see to it that there is consensus about the vision; that everyone within the organization is in alignment with the process and in support of transformation. And it should have the support of an organizational change management program. If these guidelines are followed, you will find that you have a much higher likelihood of a successful transformation.



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