TOM / EOM – sounds like a soup you might order. But for the purpose of this discussion, put your appetite to one side, and think about Digital Transformation.
TOM or the Target Operating Model is the staple of the consulting framework in transformation environments. The logic being, you have an initial operating model and you enter a transitional phase, driven by internal and external change, and you emerge with a new “target” operating model. It’s an excellent construct and very useful for delivering change.
In the digital arena, though the idea of the Target Operating Model is challenged because of a number of reasons.
Critically, it assumes that the change is a finite and one time activity. This is no longer true. Consider the landscape today. You enter a phase of virtualisation of your servers and networks, and before you finish that you’re in the middle of the mobility revolution. You combine cloud and mobility to create another transformation and everybody is talking about big data and social analytics. And then there’s the Internet of things, machine two machine and smart environments waiting to happen. So which points do you pick as the start and end of the change? And if you took this whole set as one change, would you even survive it?
And then, if the change is not a finite or a single event, what do you assume as your end state or ‘target’ environment? And if there is no target environment you can define, how can you create a target operating model? Would it not be outdated even as you were implementing it?
There could be an argument that these individual technology waves do not affect the business model and are just technology changes. I would disagree with that. Yes, moving from one vendor to another, or upgrading from version n to n+1 is a technology change, though even those projects need to be seen as business change projects. But the waves of technology I called out earlier – from Cloud, to Mobile, to IOT are all pretty fundamental shifts – often creating deep changes in business models.
To add to these problems, as this article in the Forbes highlights, many organisations undertake digital transformation without actually knowing what it is. Many don’t really understand the transformation, many others just see it as platform upgrades.
So here’s the bad news, your digital transformation project is not a one time exercise, there is no target environment and so your target operating model may be in need of an update by the time it’s bedded in.
The likely scenario is that there will be multiple waves of transformation. And here onwards they will all be digital (or at least until we come up with a new word).
Which leads me to my proposition – that perhaps the right way to think about this is as an Evolving Operating Model, rather than a Target Operating Model.
What would be the key features of an evolving operating model? Here are three key ones, though there may well be more.
Building a change capability – at the core of this is the creation of a Culture of change adaptability. I’ve consulted for many organisations where the smallest change has to be handled with kid-gloves and is a source of anxiety and organisational stress. These are all big changes we’re talking about, so there’s a lot of work to be done to make people change friendly. This should ideally be reflected in contracts with employees. HR needs to take a leading role here and ep build a culture of change through awareness, education, self-empowerment and counselling. At the same time, leadership needs to invest by ensuring the right people are chosen and then given the time to grow into this change culture. Based on my experience, there are parts of the world, such as Europe, where this would be a harder process than, say, in Asia. European business cultures are much more rigid about roles and function, and these are often defended by regulation. Also, in Europe, there is often a much higher premium on matching exact experience to a role, rather than bet on adaptability. One of the ways to address this is to balance the majority of such fixed role people with a handful of adaptors – people who can foster a pro-change environment within the business.
For example, I met a European company in the travel segment who could not even change business rules in their enterprise apps, or implement a mobile app store without validating the decisions with worker councils.
Funding Change: Not a capital expense but the cost of doing business: Build in the cost of change into your cost of running the business. Rather than the one hit capital expense of a digital transformation project, budget for change annually, that LOBs and divisions can draw from, with the right checks and balances to ensure governance is provided. There is every likelihood that each of the next five years will require significant changes to some part of your business or the other. Rather than running it as a giant centralised project, or leaving this to individual departments and LOB’s who may not value this investment, organisations should explore creating an investment bucket which is made available to teams based on their justification, against a stated vision. But this investment is locked down for change efforts and cannot be used for other purposes.
Earlier this year, the BBC announced a program of saving £48m and reinvesting at least £29m of that into Digital Transformation services across channels, mobile and digital journalism. Cooperative Bank had set aside £500m on IT alone, to enable it’s digital transformation. Your budgets may be comparable to BBC, or Cooperative Bank, but in all probability they represent significant amounts of money.
The big bang approach assumes that one large and hugely diverse project is the best way of optimising the way this budget is spent. Reality may be very different.
Instrument your company: Build an instrumented organisation where process change can be systemised easily, using BPM, middleware, SOA, and other architectural approaches. This is fundamental in order to plan, implement and measure change. For example, if you want to change your mobile customer service layer, with new processes without necessarily having to make big changes in your CRM or ERP systems, you need a decoupled approach that will allow you to modify or even replace your mobile front end without always having to change a legacy application. But also, it will be faster and quicker to implement a new process if the systems can change quickly, rather than become a symbol of the organisational inertia.
A good analogy and one you hear often in business discussions is about turning the tanker. We talk about large businesses being like large tankers – hard to turn. But your digital transformation should not be seen as that one awkward turn. It’s more like suddenly being in an environment where you will need to turn and often. The real challenge here is actually, how do you stop behaving like a hard to turn tanker?