by Kirill Derevenski & David Winders February 2018
An optimal Target Operating Model (TOM) is a representation – and a concrete realisation – of how an organisation is best structured to deliver maximal value to its beneficiaries. It contains a number of clearly defined and described elements – organisational makeup, supplier relationships, location mapping, information flows, decision grids and management systems – all composed in the best way to optimise value delivery chains to intended recipients.
Value delivery chains are quite simply the steps that need to be done by an organisation to deliver its intended proposition to each beneficiary group. This means that value delivery chains are often customer group specific, and therefore one company may have more than one value delivery chain each addressing its unique customer group. For example, a financial institution may have different value delivery chains for its high street and online businesses, and yet another one for serving its private equity clients.
To avoid terminological confusion – for the purposes of the operating model design, value delivery chains cover meanings first expressed by both Porter (as part of the value system to maximise margins for the organisation) and Womack & Jones (as value streams in lean production that take a product or service from their initial inputs all the way to the customer). This understanding is important for optimal operating model development, since while it is true that organisations exist to deliver value to their customers, they must also deliver value to their ownership stakeholders to ensure existence. Of course, this value may not necessarily be financial, as seen in the case of government bodies, but the value must be clearly articulated to ensure continuing investment into the activities that create that value.
As an aside observation, and just to prove that ‘there is no new thing under the sun’, the concept of the value delivery chains (as those of Porter and Womack & Jones before him) is not miles away from the idea of filiere – translated as ‘thread’ from French – developed back in the 1960s to describe the flow of physical inputs and services in the production of a final product.
A value delivery chain today describes the full range of physical and digital activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of associated services), sales, storage and delivery to final beneficiaries. Depending on the industry, final disposal of the used product may also be included as a step (e.g. collection and disposal of radioactive components in medical devices).
When applied to an organisation, its value delivery chain (or chains, if it has more than one beneficiary) will differ depending on the industry, offer proposition and desired outcome.
Below are some examples of value delivery chains; more are available in the recently published Operating Model Canvas.
Mapping value delivery chain for any organisation – existing or envisioned, whether for- or not-for-profit, government or private – does not have to be a rocket science project, it is mostly common sense. However, it does require a great deal of operational experience to understand what is involved and strategic vision to see things from a new angle.
We can offer three best practice hints from our experience of capturing value delivery chains in real world organisations:
- Keep it simple, really simple. Anything between 5 to 10 steps is sufficient in most instances to clearly understand how value is created and delivered. Do not give in to a temptation to add more steps instead of combining them. The shorter your chain is, the more productive and focused subsequent operating model work is going to be.
- Keep it real and consult with people who can add insight, even if you are a CEO and can do anything you want, or you are starting from scratch. It is a classic mistake to come up with an organisational value chain on one’s own and then start building more into it. The value delivery chain is the foundational stone for any organisation so do take care to solicit views of all critical stakeholders. Even if what you thought originally is spot on, by involving others you have successfully started an important change management journey.
- Keep it pragmatic and focus on steps that are important to deliver maximal value to your beneficiaries and your organisation. The value delivery chain is a way of logically organising capabilities (existing and new), so it is best focus on the capabilities that you already have or can realistically acquire that will be critical to crating and/or sustaining your organisation’s competitive advantage.
Remember Peter Drucker’s ‘there is nothing worse than doing the wrong thing well’? Mapping out your organisational value delivery chain (or chains if it has more than one beneficiary) is a major part of doing the right thing very well indeed.
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