Introducing the Target Operating Model – An Architecture Decision Record for the Organisation

I’ll be presenting a new talk at QCON New York next week titled, “Cultivating High Performing Teams during Hypergrowth.” One of the topics covered will be a tool I introduced as the CTO for N26, called the Target Operating Model (TOM).

In this article, I will share its origins, its purpose and where we found it useful. I plan on sharing some details about our current model in a different post next month.

What’s the problem?

The CTO role is one of the most misnamed roles of all C-level roles. Its responsibility vary across companies and industries. When I first joined N26, I described my role as being the shake-up CTO. Imagine a snow globe where the snow had settled on the ground. The snow represents a company’s habits and processes optimised for finding a product market fit. Super useful abilities in a very early stage start up with lots of unknowns. Pivoting a product until customers rapidly sign up.

A snow globe, ready for shaking (thanks to James Pett under the CC licence)

As more and more customers join, they give feedback. The rest of the business continues to grow as well. More ideas on product enhancements or improvements flow in. During this stage the core business does not change. The biggest challenge at the stage is quickly trying new ideas *whilst* not breaking anything. Growing both speed and stability are key factors here.

Early stage habits and processes break down. Daily changes in direction leads to a lot of activity with few outcomes. Two people making a decision face-to-face excludes gathering input from others. Verbal communication results in missing context for other parts of the organisation.

Imagine a world where customer numbers double every six months. Or where the number of employees doubles every twelve months. Would your organisation be able to sustain that?

What’s the solution?

Our snow globe needed shaking. I wanted to keep useful habits and processes. We also needed to establish other habits and processes that would better scale. I needed to transition our company from startup to scale up.

To do this, we could tackle this one issue at a time. Wait for an issue and react. Or we could copy what other organisations do (e.g. let’s do with Spotify does). I wanted to address our issues and our context. I wanted to do this as intentionally as possible. I also wanted to do this in a way that scaled, not one issue at a time. This gave birth to our Target Operating Model (TOM).

What is the Target Operating Model (TOM)?

The TOM provides a shared view of how Product & Technology (P&T) should work in the next 6-12 months. The name fit well for what I wanted to communicate. Let’s break it down.

I versioned our first Target Operating Model (1.0) as I knew we would want future evolutions. As we evolve our product, we would also evolve our operational model.

Important elements of the TOM

Like a good Architecture Decision Record, the TOM outlines the organisational context. We included the current state of the organisation. We highlighted what’s working well in the organisation (what we should keep). We also summarised current pain points across the organisation. We also included some discussion about where the entire company was heading.

After outlining the situation, our TOM focused on what was next. The TOM introduced a few principles for decisions, not only the decisions themselves. I find articulating principles useful for highlighting why we made certain decisions. The TOM introduced new roles (skills, capabilities and responsibilities). The TOM also set expectations for changes in existing roles. Many people often ask, “What’s in it for me?” or, “What’s changing about my role?” and I wanted to provide people clarity on this.

An important part of the TOM is new terminology about structures. I’m a big fan of DDD and the idea of a ubiquitous language. For example, “Do people have the same mental model when you describe a team?”

The TOM also provided visualisations how how our organisation would “look” different. Visualisations provided a way for people to link different concepts together. Imagine the visualisations as the new patterns that settle, after shaking the snow globe.

We also added gaps and next steps in our TOM. A TOM won’t every be comprehensive. As the old saying goes, “Perfect is the enemy of good.” A TOM cannot address all pain points so we found it useful to acknowledge known gaps. Next steps provided answers to the question, “What will change and when?” and, “How does this impact me?”

What was the result of using the Target Operating Model?

I introduced the first Target Operating Model over 18 months ago. As of this article, we’re now on our third iteration (TOM v1.2) and more than five times the size we were back then. Nothing grows at the same rate in a hypergrowth environment.

Given that, the TOM has been a useful tool. The TOM provided a shared vision about where we were heading. Hypergrowth creates a lot of uncertainty. The TOM created some certainty in a very turbulent environment.

The TOM provided a shared basis to have useful conversations. The TOM set expectations about change, even when you couldn’t predict when change would happen. More importantly, the TOM provided transparency across the entire company. It wasn’t information held by a select few. Everyone had the opportunity to understand, reflect and a chance to demonstrate leadership and a step towards the desired direction.

Find the follow up of applying the TOM in Part 2: From Teams to Groups to Segments – An evolution using the Target Operating Model.

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