Call it a bit of a stretch, but rushing off to implement a range of outsourcing or offshoring initiatives without a view of the end game strikes me as trying to build the proverbial dream house without taking the time to first put pencil to paper to develop, in architectural terminology, a schematic or vision.

It is absolutely flummoxing that organizations spend protracted periods of time evaluating services strategies and tactics for individual processes and functions, yet spend virtually no time thinking about what a transformed business in aggregate should look like, complete with a set of blueprints dimensioning each and every aspect of change in order to meet the stated business objectives. Developing a good target operating model requires senior management to invest the time to go back to first principles of organization design, understanding external drivers, evaluating business models and isolating the building blocks from which new options can be constructed.

Yet, a few C-suites start with a blank sheet of paper, seizing the opportunity to be thoughtful about designing a new end-state organization in the light of major shifts in markets, cost structures, competition and technology, and then deploy global services delivery aggressively and in an orchestrated strategy to effect that transformation. Generally, much of the push to adopt global services delivery occurs at the behest of the functional or business line leaders in a drive to cut costs, increase flexibility, or improve quality, not as a response to a proscriptive mandate at the top of the house. While functional- and business-line led initiatives are certainly commendable, without a target operating model, the change that results may not be maximally accretive to overall corporate value, cost too much to implement, not optimally sequenced and results in an inflexible framework.

Major change may be incremental but it is never ad hoc. What should the organization look like in an increasingly global marketplace where goods and services can be sourced from virtually anywhere? Can it be priced transparently and provisioned in nanoseconds via rapidly changing technologies?

Designing the right target operating model. The target operating model is a framework, which comprises a clearly defined operating architecture specifying the relationships between processes, technologies, and people at both the corporate and business line level. Designed on the tenets of expected performance of corporate resources, the model sets forth parameters for such factors as levels of investment, sequencing, location, aggregation of scope and scale, and clearly defines what is deemed core to the company’s business proposition. It also specifies the commitments an organization is willing to make and the ways of working to support implementation.

And how is it designed? At a minimum, any target operating model should be designed to answer several basic questions:

• Does the current model perform in the light of changes related to the customers, suppliers, markets and resources?  What must change in order to gain competitive advantage or positioning?
• What does good performance look like? How should it be measured and what are the options to improve
  performance?
• Implementation of which tools, such as outsourcing or offshoring, will result in a step change in operational and capital performance? Can these tools be implemented in such a way that they are flexible to market changes?
• What organizational changes must be made to effectively incorporate and manage new service strategies? How deep into the organization should change be driven and how fast?

According to which principles? Promulgating a target operating model is not for the faint of heart. A number of critical decisions must be made to affect the pace and extent to which the changes in end state occurs. Here are just a few of them:

Companies must first grapple with the concept of proscription. Is the move to a new model absolute, underpinned by a mandate, which must be complied with by all, or is it an aspiration that implies optionality according to a set of prescribed rules or as  competitive conditions warrant?

Scope is another feature in the blueprint for the new structure. Are all functions/processes targeted to change, or solely those, which are deemed non-core?  Scope’s twin decision is scale; should a company make what it can leverage across the organization, or buy when it benefits from third party scale.

Sequencing decisions have implications for the successful implementation of the target operating model. Moving functions or processes that are more easily adapted to delivery through a global services structure first may speed change.

Will the roof fall in without a target operating model? Certainly not. But the benefits of change will not be realized in full. In simple words, outsourcing and offshoring become the corporate headline rather than a deliberate change in business model. The move to globalization becomes a series of incremental acts of functional optimization rather than part of an orchestrated strategy.

Lack of coordination is the first casualty of change without a framework. Unorchestrated, concurrent changes in service delivery generate chaos as the realities of technology and process change overload the corporate ecosystem.

Another fallout of change without framework is the proliferation of inconsistent policies and procedures. Rules, developed out of individual change initiatives, contradict each other.

Obtaining innovation from global services delivery becomes a pipe dream without a framework. Without the ability to redefine new operating models as conditions change, or identify opportunities to enhance and deepen relationships to drive more value, companies are not able to connect the proverbial dots, and drive performance in new and creative ways.

Without a target operating model, it is hard to document the progress of a range of outsourcing and offshoring initiatives, both singly and in aggregate. There is no credible evidence of the success of any mandate to adopt global services; performance against a plan becomes difficult to measure. Disillusionment sets in, making future initiatives much more difficult to implement.

So why not renovate the old house rather than building a new one?  Certainly, incremental changes in global services strategy made without benefit of a target operating model will accrue to corporate value.  And not all organizations have the luxury of time or the skill to design a target operating model from scratch.

Every once in a while it is time to re-build from scratch. As competition, supply chains and markets evolve, old corporate structures may no longer comfortably accommodate the organization’s activities in the most optimal way. The availability of a range of attractive options for global services delivery may just be that catalyst for many to rebuild.  And the right way to build is with a good blueprint for change.     

Deborah Kops is Chief Marketing Officer of  a leading offshore business-process outsourcer. Formerly a partner at two professional services firms, Managing Director at two global banks and a founding executive at a BPO service provider, she has a unique perspective on an industry that she believes will flourish, often in spite of itself.