by Mike Lee, Edward Dellheim

The practical power of a target operating model

The Challenge

Can we talk about next year?

Many months into the COVID-19 pandemic, financial services companies are looking beyond the steps they’ve already taken to cut costs and preserve cash. Every day makes it increasingly clear that most can’t just wait out this crisis by trimming around the edges.

To compound the challenge, the industry faced gathering headwinds even before the pandemic—mounting pressures to consolidate, gain scale, and meet the evolving expectations of customers and employees. Companies are dealing with heightened regulatory scrutiny, reputation risk, and social and economic change. In this sense, the pandemic is pouring fuel on an existing fire.

At the same time, and at every level, people have been working harder than ever for months and navigating personal lives that have been disrupted, too. While company leaders know something bigger and deeper than short-term cost cuts needs to happen, there may be little appetite for more fundamental change just when companies need it most. Paralysis can set in when the stakes, and the uncertainties, are so high.

Point B’s Perspective

Once a company has done all the relatively easy and obvious things to weather this ongoing crisis, it’s critical to move beyond short-term fixes to long-term sustainability. Point B is helping financial services leaders use this time to improve their businesses—reducing costs, delivering sustainable savings, building resiliency and scaling for healthy growth. We take a longer lens by helping develop a target operating model that gives your organization the vision and direction to move from where you are to where you want to be. Like the blueprint for a house, it gives you the design and the details to start building the future.

Free up your future-state thinking.

Our approach to building a target operating model frees companies to move beyond current-state mindsets to future-state thinking. With this lens, you’ll find ways to streamline or even eliminate work instead of resorting to the diminishing returns and dispiriting morale of layoffs.

We also go beyond high-level recommendations to practical application. Your model should be detailed enough that your organization can choose to implement it with or without us. In addition to delivering long-term improvements, we identify quick wins—rapid cost reductions that can be implemented early on and make these initiatives self-funding. Quick wins also give people the confidence and momentum to deliver on the big, longer-term wins.

We recently helped a global financial services company realize sustained savings of $40 million—nearly 20 percent of OpEx. About 10 weeks into our work together, we delivered two quick wins for savings that exceeded the engagement expense. Another global company is well on its way to cost savings of $50 million in Finance and Procurement, saving $15 million in its first wave of migration to its new model.

Based on the people-centered approach we bring to this work for financial services leaders around the world, here are some tips from the front lines about creating a target operating model for your company.

Build on purpose.

To preface this important work, take a clear-eyed look at where your company is now—its strengths and weaknesses. What’s working? What’s not? Do you have a long-term strategy to inform the model? It’s important to be clear and aligned on your current state.

Next, think forward, and think big. What do you want your business to look like in 2-3 years? Begin with the end in mind to create an organization that’s appropriately designed to take you from where you are to where you want to go. This is a reimagining effort that calls for C-suite sponsorship and the participation of leaders and employees across your organization.

To create a clear vision, we encourage companies to write the story of their company as they want it to be a few years from now. Imagine being interviewed in 2022 by a national business editor who wants to know how you’ve created such a remarkable company. What’s your mission? Who are your customers, and what’s special about their experience with you? What does it feel like to be an employee? How are you using new processes and technology to do exciting things? What’s at the heart of your success? An evocative story gives your company a shared vision of the future you want to move toward together. Based on your vision, what are the “five big things” you need to do to make it come true? Begin by thinking in broad strokes.

Once you have the big picture, you’re ready to dive into the detailed work it takes to design a target operating model you can put into action. This work calls for people who are willing to get in the weeds and look at processes from end to end—what they look like today, and what they’ll look like tomorrow. It may take new technology to enable those processes. You may have manual processes that you want to automate, or even eliminate. You may want to explore advances in AI and robotics. This is critical operational process work. Taking shortcuts now can shortchange you later on.

Put your people at the center of change.

Building a target operating model that works for your company is an inclusive, people-centered process. It takes executive sponsors with the pull to make the initiative matter, and the credibility for people to believe it will really happen. Bring a team of high-potential employees into the effort early on—emerging leaders with strong technical and tactical skills who can rally people at every level across your organization. Back them up with a communications plan that includes diverse ways to keep folks informed and engaged.

Create the resiliency to flex in the future.

A well-conceived target operating model gives you both the strong structure and the flexibility to change over time. It can accommodate the “what if” scenarios and the plans A, B and C you’ve most likely plotted out since the pandemic began. You will probably see many commonalities across all three plans; use them to help inform your model. Then consider the differences—the unique ups and downs each plan addresses—as contingencies you can adopt as needed. You’ll find it much easier to shift gears if and when the time comes.

Even, maybe especially, when so much is changing, it’s essential to hold fast to what shouldn’t. A winning operating model never loses sight of your north star; it helps illuminate your path. Certain non-negotiables should remain present and true in any situation. For example, if you have a mission to anticipate the needs of your customers across the life of your relationship, you’ll be making decisions that organize and empower your people to keep fulfilling that promise.

The Bottom Line

A target operating model is a powerful tool for shifting focus from short-term fixes to long-term cost savings, growth and resiliency. Use this timely opportunity to take leaps forward right now that position you to win the long game. Whatever the future brings.

Interested in learning more?

Join Point B experts Mike Lee and Ed Dellheim this October 28 for a 15-minute webinar, How Financial Services Organizations Can Win the Long Game: Model Today for Future Success, to gain pragmatic advice and tools for developing a target operating model. Register today