In financial services, creating an effective Target Operating Model (TOM) is essential to the success of any business TOM refers to the operational design of an organization that outlines the responsibilities, communication channels, and decision-making processes This model is the blueprint guiding a firm’s structure, activities, and processes.
A well-crafted TOM sets the foundation for a financially viable operation, enabling the organization to create value while optimizing the cost of resources In this article, we’ll explore the importance of a viable TOM and the necessary steps that organizations need to take in the process.
Why is a Target Operating Model essential in financial services?
A TOM is necessary for businesses operating in financial services to streamline operations, enhance efficiency, and ensure adherence to regulatory requirements The design should be informed by organizational strategy, goals, policies, and processes.
Financial institutions, such as banks and insurance companies, are incredibly complex and have to deal with a variety of regulations such as the General Data Protection Regulation (GDPR) and the Payment Services Directive (PSD2) A well-crafted TOM will help a company manage all these processes and streamline communication channels within the company.
By creating a TOM, companies get a comprehensive understanding of how they work, and this understanding helps control costs and improve customer service As a result, management can take calculated risks, execute initiatives effectively, and take proactive steps towards daily business challenges, ultimately leading to an improved bottom line.
Steps in the creation of a Target Operating Model
Creating a TOM needed in a financial service entails a series of procedures that allow businesses to design and execute optimal strategies The following are steps businesses must take:
Step 1: Create a baseline assessment
Before anything else, the organization needs to assess the current state of the organization’s operations The assessment defines the state of operations, identifies the problems, and highlights where improvements are needed before creating the TOM The current operational state analysis will give the business the data needed to see the organization’s improvement areas.
Step 2: Develop the Target Operating Model Strategy
Creating the TOM strategy is the first step in developing a workable TOM, which will encompass all operational changes needed to achieve your objectives In this phase, the TOM team needs to define the organization’s vision, objectives, operating principles, and business priorities The strategy outlines the design of the operating model for the organization It needs to be aligned with the customer’s needs and expectations and the business’s overall strategy.
Step 3: Develop the Target Operating Model Design
In the TOM design phase, the organization needs to focus on outlining staffing, processes, technology, and governance Target Operating Model Design for Financial Services. The design should promote efficient processes and procedures Assessment of any existing processes, whether they need to be updated or abandoned, is vital In the process design phase, the company will need to outline the current goals and how the operating model will achieve them.
Step 4: Develop an Implementation Plan
The critical action item that follows the TOM Development phase is to develop an implementation plan The plan should succinctly outline the steps, resources, tasks, and estimated timelines needed to implement the TOM This plan should have targeted performance metrics that measure the success of the TOM implementation.
Step 5: Develop the Monitoring and Governance Program
An essential element of any operating model is governance It provides the framework for accountability, compliance, and decision-making processes Governance should be put in place to ensure that the organizational operating model performs as expected and the TOM consultants meet the desired outcomes Companies are encouraged to develop Key Performance Indicators (KPIs) that are linked to the organization’s objectives to better monitor performance.
Conclusion
Creating a TOM for financial service providers is not an ad-hoc activity; it is the blueprint for an effective operation A TOM creates an organization-wide vision that guides operations, enabling businesses to adapt quickly to change and promote growth Proper implementation of a TOM helps improve efficiencies, reduce costs, and promote a transparent and accountable working process throughout the organization A structured and flexible approach is requisite to identify gaps, align activities, and ultimately provide the organization with a much-needed roadmap to achieving desired outcomes.