Target Operating Models: How Investment Firms Achieve Strategic Objectives

Target Operating Models link strategies to outcomes. Following this blueprint, investment firms can achieve deep-rooted and meaningful change, evaluating their entire operation top to bottom, leaving no stone unturned.

For buy-side investment managers, they want their operation to be as efficient, cost-effective, and scalable as it can possibly be.

The problem is that many firms struggle with rising operational costs, complexity, and inefficiency.

As one example, 73% of asset managers cite the increasing cost of operations as reason to seek solutions that enable scale and efficiency, according to Cerulli Associates.

Clearly there is a need to do better and be better. To reach that optimal state, investment organizations need to know their starting point, and they can do so via Target Operating Models (TOMs).

‍What is a Target Operating Model?

A Target Operating Model is a framework that determines how a business will operate in the future, in line with the organization’s strategic goals and objectives.

By following this model, investment firms will undergo a comprehensive overview of their current setup: people, processes, technology, leadership & governance, service delivery, and performance measurement.

Target Operating Models allow for an honest and unbiased assessment of an organization, determining the starting point and mapping out the journey to achieve the desired optimal setup.

Digital Transformation Is Key in TOMs

Within all assessments, there is a common theme: digital transformation.

Digital transformation is a process by which technology is embedded into all aspects of an organization, making the organization more interconnected, using technology as a driving force and a conduit to carry out the desired change across all sectors.

Digitally transforming is about making the best use of time and money, maximizing productivity and efficiency, getting the most out of people and technology, and eliminating old ways and inefficient practices that hold back an organization.

Following the Target Operating Model approach, digital transformation will shape one’s mindset in mapping out the steps for their end goal.

‍Putting a Target Operating Model into Practice: What Investment Managers Should Think About

Determine Your Goals

Do you want to:

• cut costs by _%  
• grow your business __%
• fully digitize your operation and workflows?
• stop wasting time recruiting, hiring, training, and replacing your staff?
• expand your client base without incurring extra costs?

Be as concrete as you want. A Target Operating Model is meant to address that specificity.

‍Answer the Tough Questions‍

Without bias or reservation, answer the below questions.  

Then honestly ask yourself: are you satisfied with your answers?

People

• How many people does your organization have?
• How effective are your team members? Is everyone pulling their weight?
• What are your hiring and training processes like?
• How often do you replace team members? What are the reasons for replacement?
• What are the costs associated with your team?
• How satisfied are you with the people element of your organization and associated costs?

Process

• How effective are your workflows in delivering results for your team and clients?
• Are there any manual and/or labor-intensive components related to the work?
• Is your team’s time being used most effectively with their work?
• Do you have any documentation? If so, do you follow best practices? What does it look like, and when was it last created?
• How much do the processes cost your organization?
• Have you ever thought or expressed any concerns about processes but weren’t sure where to begin or how to resolve the issue(s)?

Technology

• To what extent do you see technology key to unlocking greater efficiencies within your organization?
• Do you employ automation or machine learning or bots into your processes?
• Does your team operate and collaborate in the cloud?
• How integrated and interconnected are the systems and applications you use?
• How secure is your setup? Have you had security issues before?
• What are the costs associated with your technology?
• Have you ever had challenges with managing your tech stack?

Leadership & Governance

• How effective is your leadership, particularly as it relates to investment operations?
• How are leaders and staff held accountable for their work?
• Are expectations laid out clearly for team members, and are those expectations reasonable and attainable?

Service Delivery

• Are deliverables sent in a timely and consistent manner? If not, why?
• Do you have quality control checklists or other methods to guarantee quality assurance?
• Have you had quality and servicing issues before? What were the reasons for the issues?

Performance Measurement

• Do you measure your team’s performance?
• By what criteria do you measure performance? How effective is it?
• Have you had issues with team performance?
  

How to Take Meaningful Action‍

You might have lofty goals, which are perfectly acceptable.

The challenge is how to attain those goals, especially after your answers might have revealed how hard it is to achieve those outcomes.

The good thing is you’ve determined a starting point, and now a path can be set.

Don’t Do It Alone. You Need a Partner.

When setting up your improvement roadmap, it will require deep-rooted and fundamental change for your operation.  

These changes will undoubtedly deliver excellent results for your organization, but in all likelihood, most investment firms lack the capabilities and resources to implement the changes on their own.

Investment managers are in business to make money for their clients. Every business-related activity beyond that (accounting, taxes, HR, middle- and back-office operations, technology, compliance) is still important, but it’s not core to the business in generating revenue.  

In most cases, these non-core aspects of the business are not as well run. Firms often lack the time, resources, expertise, or even interest in those areas, and their business gets slowed down by inefficiency and ineffectiveness in those processes.

Fixing those areas requires an extra set of expertise beyond your capacities and skill sets. That is why you need a partner in setting up a Target Operating Model.

Empaxis Takes You from the Current State to the Optimal State

At Empaxis, we have years of experience helping investment firms set up Target Operating Models for their middle- and back-offices, overseeing successful delivery of results:

• A fully digitized and hyper-efficient operation
• Significantly lower costs
• Increased scalability and flexibility in your operation
• Freed up time to focus on higher-value activities
• Reduced burdens with hiring and training employees

Through our EDIT (Empaxis Digital Intelligent Transformation) approach, we will do a thorough assessment of your entire investment operation, conducting in-depth interviews with staff and seeing your day-to-day processes.  

Additionally, we will do a comprehensive analysis of the people, processes, technology, leadership & governance, service delivery models, and KPIs (key performance indicators). From there, we’ll evaluate your middle- and back-office strengths and weaknesses, as well as how to improve upon those weaknesses.

Based on our findings, we will build a customized roadmap for your Target Operating Model.

Empaxis will create very specific instructions to carry out the recommendations, as well as develop timelines and milestones for implementation.

We Are Beyond Your Typical Consultants

Most consultants provide advice, get paid, and move on. Rarely do they see their suggestions implemented and the results that follow.

We don’t agree with that approach because it’s too easy for consultants to get paid without being held to account for potentially bad ideas.

Instead, Empaxis provides expert advice, backed by two decades of experience. We are there every step of the way to ensure a successful delivery.

The same solutions we provide to you, we would provide to ourselves if we were in your shoes.

As a few examples:

• If we recommend a new software or system, we will do the implementations, data migrations, custom development, and software QA testing for you.
  
• If we recommend changes to people and talent management, we have a mix of onshore and offshore resources that can service your middle- and back-office, streamline finance and accounting work, and ultimately deliver a digitally transformed investment operation. This will free up your time not having to worry about hiring, training, or replacing people.
  
• If there are manual, repetitive processes or scattered, poor quality data points that are not integrated well with your systems, we have the automation and integration tools in place.

And based on these changes, you will have clear KPIs from which to measure your success and efficacy.  

At Empaxis, we not only advise, we also do.

Investment Firms Must Think About Their Ideal Operating States

Investment firms cannot afford to sit idly by and unprepared for the challenges ahead.

Rising costs, an uncertain market, and increased complexities in running a business are just a few pain points that prevent a business from achieving its goals.

And lack of preparation will set firms back - in some cases beyond repair - if they don’t make the fundamental changes necessary for their organization.

That’s where Target Operating Models come in, providing the framework to get from current state to ideal state.

Empaxis will work with you to deliver that ideal state, putting the Target Operating Model into action.

Our unparalleled experience and expertise, having worked with hundreds of investment firms, puts us in a unique position to provide not only expert and practical advice, but also the ability to deliver the very solutions we recommend to you.

Time is of the essence, and it’s time to act.