How to Define a Future State Operating Model in Digital Transformations and ERP Implementations

defining a future State operating model is one of the most important parts in foundational aspects of a digital transformation but what exactly is an operating model and how does it apply to our digital transformation that's what I want to talk about here today my name is Eric Kimberling I'm the CEO of third stage Consulting we're an independent consulting firm that helps clients throughout the world reach their third stage of digital transformation success and defining an operating model in a future state vision for what your organization is going to look like as part of your digital transformation is one of the most important foundational blueprint sorts of activities that you can do for your digital transformation it's a lot like building a house you would never start building a house without having a clear architectural blueprint and vision for what the house is going to look like and how it's going to be constructed along the way however a lot of organizations have a tendency to just jump right into an implementation and start building stuff and hoping that the technology will help answer the questions of what do we want to be when we grow up but instead what organization should be doing in the most effective organizations do this is they will Define a Clear Vision in Blueprint and a operating model for what it is they want to be when they grow up this operating model provides a direction and sort of guidance during the implementation it ensures we stay on track and ensures that we get the business value we expect to get out of the digital transformation so what I want to talk about today is what is an operating model what are the different components and how does it apply to our overall digital transformation now for more lessons and best practices to help make your digital transformation successful I encourage you to buy my new book called The Final Countdown it's a book that provides a number of best practices to help you define the digital strategy that makes the most sense for your organization you can buy that on Amazon and other outlets by scanning the QR code right here I've also included a link to that in the description field below the first important component of an operating model is the overall value stream and a value stream is essentially an end-to-end business process that focuses on where you're adding value throughout an organization and what the different competencies of your organization are a lot of times organization will think of an end in business process like order to cash or procure to pay or hire to retire different macro processes within an organization that cover the entire end-end process of different aspects of your business and generally what organizations do as part of their operating model is they assess the current situation by doing a current state assessment of their value stream but then they Define the future State value stream in terms of defining where the areas of improvement might be and what they want the future state to look like so where you might have manual processes or multiple steps in a process that could be streamlined we now start to define a future State value stream that defines those end-to-end processes in the way we'd like it to look if we weren't constrained by our current systems and processes that we have today so the value stream is one of the most important starting points and one of the most important components of an overall operating model [Music] once we've defined the current state value stream as well as the future State value stream now we reconcile those two things and really hone in on and prioritize what the business process improvements are and will be so this is where we look to eliminate steps in a process or to streamline a process or to provide better tools and capabilities to our team to be able to do their jobs more effectively and generally when organizations go through this exercise they end up with a laundry list of hundreds or maybe even thousands of potential process improvements looking at every different part of their organization and the reality is you can't boil the ocean and you're not going to be effective in a digital transformation if you try to improve every single thing at least in the first round of your digital transformation so what's important to do here is also to prioritize those process improvements and really look at where are those areas of improvement that are going to potentially add the most business value and have the most immediate impact on our organization another way to look at it is which business processes are the ones that are most likely to relieve pain in the short term the biggest pains in the short term so those pain points we have as an organization that are really hindering our ability to grow or making our jobs a lot more difficult than it needs to be what are the process improvements that are going to most enable those issues and challenges and opportunities so that's the key here is to really understand what are those areas of improvement how do we prioritize those and how can we build that into our overall process Improvement plan and ultimately that process Improvement plan becomes a foundation for our future State operating model [Music] foreign to looking at our overall business processes our value stream and our process improvements we also want to look at the organization itself how we structure what skills do we have what are the reporting relationships how consistent is the organization across multiple locations those are some of the things we need to answer and understand as part of defining our future State operating model despite the name operating model it's also an organizational model too if we're for example going to consolidate our operations in our accounting department into one Global Center of Excellence one Global Department that handles accounting processes for the entire organization across multiple countries and locations then we need to Define what that looks like going forward if we're going to streamline our org chart or consolidate different business functions those are the types of things we need to understand and Define as part of our organizational structure component of the operating model and finally we also need to look at the capabilities and the maturity of different skills that we need to run our business there might be certain skills that we have on staff that we want to preserve and build on but there might be other skills that we don't have that we know we need to build and to deploy throughout our organization so that's all within the scope of defining what the organizational state is going to be like going forward and then finally within the world of organizational change and the organizational component of the operating model we also need to understand culture so we look at culture to understand what it is today and what we want our culture to be in the future and how we want to start to bend that culture to support our longer term goals and objectives via our digital transformation so as we're going through the exercise of defining our future State operating model we need to make sure that we not only focus on business processes and process improvements but also the organizational components of that operating model if you're looking for more best practices and guidance on how to define an organizational structure going forward I encourage you to read our guide to organizational change management it's a book that covers best practices and lessons learned from having helped hundreds of organizations through their organizational change initiatives and you can read that guide by scanning the QR code in front of you or you can use the links in the description field below [Music] once we've defined the operational and business process components of the operating model as well as the organizational components now we need to look at the technology components what technology or tools do we need to enable that future State operating model and the future State operating model should Define how technology is going to enable some of those operational and organizational improvements so here's where we Define the opportunities for technology to improve our business it's where we Define our overall digital strategy and we start to define the roadmap for how we're going to get there it's also important to prioritize your technological opportunities because every organization has a lot of different options and different types of Technologies they could be deploying but they usually can't do it all at once realistically so they need to focus on the things they're going to add the most value or at least prioritize and phase the technology in a way that makes sense now at this point when you're defining your operating model you don't necessarily need to define specific vendors or specific Solutions but instead you want to start defining categories of solutions or the type of solutions that might enable some of the process and organizational improvements you've defined as part of your operating model for example if your assessment of your current state value stream identify Supply Chain management is a big pain point or opportunity area within your organization it may be that we're going to look for technological tools that address some of the process improvements we've defined in our supply chain management functions if we've identified issues with our Finance and Accounting processes and we've defined a need for technology to help us in that area we might Define Finance and Accounting systems or Erp systems as a way to help automate and enable well some of those operational improvements that we've defined as our operating model now if you're looking for examples of different types of technologies that are out there and even independent reviews and rankings of different types of software Solutions in the marketplace I encourage you to read our digital transformation report it's a report we publish each year that highlights some of the best software in the industry as well as provides comparisons and reviews and rankings of that technology and this could be a great resource for you if you're looking for specific technologies that will best enable your future State operating model now finally a well-defined operating model should also contain performance measures it should Define specifically where the business benefits are and where the value creation is going to come from as part of that future State operating model in other words we don't want to change things or add things just to change we want to do it because it's adding business value and it's helping us create value within an organization so here's where we need to measure and Define what the target levels of improvement are not only to help us maximize long-term business value but even shorter terms so that we can focus our efforts during the digital transformation now we can prioritize better and focus on those areas that deliver the highest Roi within our future State operating model and that operating model ends up being a blueprint to allow us to prioritize the different phases or the different iterations of digital transformation that we might undertake over time so it's important not only to look at process improvements and organizational improvements and technological improvements but arguably it's just as important if not more important to look at the business results and the business benefits you expect to get out of that future State operating model so I hope this has provided you some guidance on what an operating model is and what the different components are and how that operating model enables a digital transformation for more best practices around digital strategies and digital Transformations I encourage you to read my new book called The Final Countdown you can learn more about that book by going to the final countdown.com or you can scan the QR code in front of you to learn more about it and also order the book on Amazon so I encourage you to check that out I've also included links to other resources in the description field below so be sure to check that out as well I hope you found this information useful and hope you have a great day but instead water Runners how do we prioritize though though oh my gosh those but instead what and said it's not a word change in how can sport man I cannot talk I'm just making up words

Channel: Digital Transformation with Eric Kimberling

Views: 3,401

Keywords: Value Stream, Business Process Improvements, Future State, Operating Model

Id: fVFpj4QlAbk

Length: 10min 54sec (654 seconds)

Published: Thu Sep 14 2023