Four Ways in Which a Flawed Target Operating Model (TOM) Could Be Holding Back Your Business

Managed service providers or MSPs have traditionally embraced TOM blueprints as a staple for their operational strategy, guiding how they deliver services and outcomes across business functions, technology, and people.

However, in light of the current dynamic business environment and accelerated digital transformation pace, I would argue that TOM models as we know them are outdated, requiring a dramatic restructure and reimagination. Flaws in your target operating model can severely adversely impact business outcomes unless nipped right at the bud. Before we discuss why you can’t afford to be still working on an outdated TOM and ideas for course correction, let’s look at how to tell if your organisation TOM is broke in the first place.

3 Signs You Might Need to Relook at Your Target Operating Model

Towards the end of its shelf-life, the TOM becomes too rigid to keep up with the organisational mission, leading to severe consequences such as difficulties in scaling, competitive laggardness, lost opportunity costs, and no resilience to stand out to a crisis. For example, technology lets you automate up to 45% of all business activities, but a rigid TOM cannot accommodate automation adoption as fast as the technology landscape matures.

Here are the top three signs that you might be approaching such a tipping point:

● TOM is causing trade-offs in pursuing new growth. While unplanned disruptions may be detrimental to long-term business sustainability, you should in no way indulge in significant exchanges in innovation or customer service agility in a bid to stay with TOM benchmarks.

● The intended transformation planned in silos — TOM does not always consider the inter-disciplinary and inter-departmental. While the business impact of TOM is essentially directed to a specific unit, service delivery must be holistic or be retired in a connected world.

● The executed organisational roadmap exceeds the ambit of TOM. During TOM implementation, technology advancements, new business priorities, and emerging market conditions create a whole new set of expectations. If driven by these factors, you find organisational roadmaps increasingly diverging from the set target operating model, and it is a clear warning sign.

4 Adverse Consequences of Following a Flawed TOM

The target operating mode you are following influences nearly every aspect of your business. It determines your competitive edge, drives efficiency, enables scalability, and builds crisis readiness. Errors in TOM could lead to:

1. Your organisation risks losing out to the competition

In nearly every sector, not even the most dominant player can take their market leadership for granted. Whether it’s Google in the search engine world or Amazon in online retail, they constantly face challenges and innovating. And the cost of losing your leadership position is very high. Data seems to suggest that performers’ top quartile captures over 90% of profits across sectors, which means you need an agile and adaptive TOM to stay ahead. Conversely, a flawed TOM will lead to significant growth/innovation trade-offs (as I’d mentioned earlier), thereby eroding your competitive edge.

2. You might be missing out on potential efficiency gains

One of the key benefits of an efficient and robust TOM is that it guides service optimisation through technology adoption to achieve maximum efficiency. As I write in my recent whitepaper, Advancements in technology allow as much as 45% of business activities to become automated. Moore’s Law (and its equivalents) imply that this number will constantly rise, necessitating an adaptable TOM to gain from it. A flawed TOM will bring down your ability to quickly assimilate such opportunities and unlock efficiency gains, which a competitor may pick up. As a result, your revenue and productivity matrix stands to plateau over time.

3. Growth could become challenging beyond a threshold

Outdated TOMs are, by definition, rigid and designed to ensure adherence to the status quo — instead of balancing process stability with innovation. A model that does not facilitate the incorporation of new trends, opportunities, and market expectations will not support business growth beyond a certain point. However, change is usually inevitable, and in the absence of a structured TOM to guide it, the scaling process would become fragmented across various parts of the enterprise.

4. The organisation may not be able to withstand the buffets of a crisis

Managed service providers tasked with setting an agile TOM vision that can withstand a crisis scenario, adapting as needed, and pivoting nimbly into new areas. It builds preparedness to go through a period of unfavourable market conditions and come out on the winning side. However, a flawed TOM tuned for optimal performance only in a staid set of circumstances and conditions, which turned over during a crisis. It is essential to correct these flaws to minimise your risk exposure.

Tips for Reimagining Target Operating Model for the Digital Era

At its core, having a TOM can lead to several benefits: aligning service decisions with business outcomes, prioritising initiatives, preventing IT service sprawl, etc. However, a few tips to be kept in mind to avoid the risk of rigidity and preemptive obsolescence.

Here are my top 3 recommendations for next-gen TOM design and execution:

● Follow a cyclical approach with value add for every iteration. As TOM execution isn’t a one-off project, customers must look for, and MSPs must strive to deliver demonstrable business value to every iteration of the delivery lifecycle.

● Set down guidelines for TOM objectives — Instead of having an outright purpose in place, it is better to define principles that guide decision-making, laying out the options and specifying what is recommended and why. These guiding principles will amenable agile decision-making without completely veering off-course.

● Accommodate frequent technology interventions — While technologies become more powerful and affordable every two years, meaning that there will be several opportunities for technology intervention across the duration of your multi-year TOM journey. Business data analysis, self-service, artificial intelligence, and the connected enterprise are some of the ways to apply technology resources to achieve and exceed TOM targets.

Ultimately, MSPs must forgo traditional TOM favouring next-gen operations blueprints driven by agile design principles and take advantage of emerging digital infrastructure. I firmly believe that this is key for MSPs to become meaningful partners to customer enterprises and not just “service order takers” where nobody wins.

In the end, any TOM objective has to be around minimising change effort, moving the organisation capability to future state and finally ensuring that cost levels reduced. The three steps are

- COM to TOM: Transform an organisation’s current operating state, i.e. how it works now, which is described by its Current Operating Model (COM), to that described by its TOM; it should be presented not just through systems or service model but to get everyone aligned though a visual or pictorial model. It will make communication and alignment a low effort activity.

- Data collectors design, develop standard data collection and takes on more responsibilities to make data available. Establish a data officer who collects business metrics, operational metrics and technical metrics to understand the impact of change through data.

- Develop an organisation’s change capability and as well implementation of the modernisation strategy. The change capability should show how it supports other strategic targets to react and adapt to change effectively and efficiently. It should help change capability achievement without detriment to customers, quality of service, profitability, security, competitiveness, etc.

- Finally, the organisation’s strategic planning team keep the Target Operating Model objectives as the central theme in its meetings/planning sessions. The review and progress checks of divisional and support teams strategies and annual plans should validate their progress. It is critical to ensure they continue to be aligned and support the organisation’s strategy and direction as the environment is dynamic TOM may be required to be updated/modified.

Watch this space to download my upcoming whitepaper on the target operating models, current practices by Deloitte, ServiceNow, Scale MSP’s, and four components you need to build a resilient TOM. As always, please email me at <Arvind@am-pmassociates.com> to continue the discussion.