Target Operating Model: on the importance of customer engagement
With many organisations looking at the future state of their operations, Target Operating Model (TOM) design is a very hot topic across all industries at the moment. A Target Operating Model is a description of the desired state of the operating model of an organisation, the definition of its future state as opposed to its ‘as is’ state. As someone who has been involved in many projects, I have seen the issues close up, supporting clients with the design, development and implementation of their new operating model.
The drivers, and sometimes the approaches, to undertake this large-scale activity generally vary from one organisation to another, but regardless of these drivers, I have come to realise that the success of a Target Operating Model lies in the organisation’s ability to listen to the 'Voice of the Customer' and the 'Voice of the Business' before undertaking any design or development work.
It occurs to me that many businesses fail to lay the groundwork and invest sufficiently in finding out what their current customer satisfaction levels are, and what their future ‘wants’ and ‘needs’ will be.
There are many reasons why an organisation would choose to over-look this aspect of a TOM. In this article I would like to take you through some of these reasons; explain why not going back to basics by investing enough time and effort into consulting your customers at this crucial stage would be a missed opportunity; and finally how to best engage with them throughout the development of your TOM.
Why do organisations often over-look the need for customer engagement in Target Operating Model design?
#1 Internally-focussed Target Operating Model needs
Often, the necessity to design and implement a new Operating Model is born out of a single over-arching need, such as the reduction of costs. So, it can be no surprise then that this becomes the dominating factor that drives the entire design process, creating a perception that there is little scope for anything else, to be explored beyond this single purpose.
#2 No time allowed
Linking in with the above, any extensive stakeholder engagement activity can be seen as a large time overhead which has not been budgeted for, particularly if the perception is that the bulk of time should be focussed on issues, such as re-defining contractual or outsourcing arrangements. At best, this mentality can result in tokenism, for example sending out random customer surveys that are not scrutinised; and at worst no effort is afforded at all.
#3 Who are our customers?
There are a (surprizingly large) number of organisations that have a very limited view of who their customers are. Is yours one of them? If you don't know who your customer is, it can make any form of outreach difficult.
#4 Scared to engage with customers
For organisations that do have a good view of who their customers are, there can often be a fear of what feedback their customers will provide. Will they have anything nice to say about us, or will it all be bad news? And what if they make a lot of demands that we simply cannot deliver within the constraints we are working to on the design of our Target Operating Model? This can be a major factor in deciding whether to engage with customers, or not.
Why can the lack of meaningful customer engagement early on represent a significant missed opportunity in the development of your Target Operating Model?
#1 Not understanding what your customers really want
This has potential for both under and over-delivery of services. The first part of this statement is quite obvious, so let’s focus on over-delivery. As mentioned earlier, a key driver for Target Operating Model development in many organisations is to explore opportunities to reduce cost. Consider this: many legacy operating model designs, if they were even ever considered at this strategic level, are based on needs that were considered years, if not decades, ago. So, isn’t there a possibility that these needs, which were perhaps considered fundamental many years ago are no longer relevant? And, if so, it is likely that we are wasting a lot of time, effort and cost on delivering services that are now surplus to requirements.
#2 No true perspective of what is really important
How did we develop our sense of what is of the utmost importance to our customers? Did we ever ask them, or was it all based on assumptions? In many organisations, particularly those with high skills or technical subject matter expertise, we can often jump to the conclusion that we know best, when the opposite can often be true.
#3 The majority of Target Operating Model designs result in the implementation of structural and / or process changes
Change often has a direct material impact on how customers consume your services. Although early customer engagement is done on the premise of understanding their requirements to inform the change, this activity can also serve as a kick-off to manage the change process itself, specifically in terms of managing your customer’s expectations.
How can you engage with your customers, at the beginning and throughout Target Operating Model development?
Here are some simple steps to get you started:
- Identify who your customers are, and prioritise your engagement activities
The interest vs. influence matrix is a good starting point for this. Look to segment your customers based on those that you need to directly seek input from, versus those who simply need to be kept informed – and don’t confuse the two.
- Use tools, such as the Kano Model, to simplify your prioritisation of customer wants and needs
This is a great way to engage with your customers in a constructive way, while at the same time getting them (unwittingly) involved in the prioritisation process. They can ask for the world, but if they then themselves deem that this is not a priority, it shouldn’t be a priority for your organisation.
- Articulate customer requirements in a meaningful way, with focus on understanding the value that they are looking to gain from the service aspect, rather than just a technical need
This can allow greater scope for innovation on service delivery. A great way to ensure that customer requirements are developed in this way is to use Mike Cohn’s famous user story structure: "As a customer, I want to do this, so that I can get this benefit”. By structuring your customer requirements in this way, and focusing on the value element, you can better understand the outcomes that your customers are trying to achieve, and work out innovative ways to deliver them, rather than being constrained by old methods or mentalities.
In conclusion - a word of caution
We have outlined above some approaches that you can take to better engage with customers during the formative phases of Target Operating Model design, and the benefits of doing so. In many organisations that have never engaged with their customers on this scale, this can be quite exciting for the customers involved, as they now have a voice that they may not have ever had before. However, at the same time, this can raise expectations with your customers of how great the change will be, and there are naturally many trade-offs that need to be made with the design of a Target Operating Model.
This initial engagement activity, whilst highly beneficial as an input into the design and optioneering process, should only ever be seen as your opening gambit for wider customer dialogue, and should continue into options selection, ratification and eventual implementation.
Finally one shouldn’t under-estimate the importance of listening to the voice of the business as only listening to your customers means that you will miss out on vital information that could help you improve your processes, products and services whilst giving your teams the opportunity to change things for the best; a very important stage that will help you achieve widespread acceptance and sustainability of your proposed transformation later down the line.
Find out more about our consultative approach to Target Operating Model design.