What is a Target Operating Model (TOM)?

Written by Daniya B. Soomro | Aug 15, 2023 12:56:55 PM

As organizations grow and adapt to changing markets, they often find that their current operating models don't serve their evolving needs. This is where the concept of a "Target Operating Model" or TOM comes into play. In this article, we will delve into what a Target Operating Model is, its key components, and how businesses can go about building one.

What Is a Target Operating Model?

A Target Operating Model (TOM) is essentially a clear and detailed description of a company’s desired end state of its operational capabilities. It outlines how an organization needs to operate to achieve its business strategy and meet its objectives, given the changing dynamics of the environment it operates in. In simpler terms, if the business strategy is about where an organization wants to go, the TOM describes how it intends to get there.

The TOM serves multiple purposes:

Vision Realization: It translates strategic intentions into a practical blueprint for change.
Optimization: It pinpoints inefficiencies in current operations and highlights areas for improvement.
Alignment: It ensures that every component of an organization is aligned with its strategic goals.
Guidance: It provides a roadmap for transformation projects, ensuring they steer the business towards its desired end state.

Key Components of a Target Operating Model

While the exact components can vary depending on the organization's nature and needs, a TOM typically encompasses the following elements:

1. Processes: The workflows, procedures, and standards the organization follows to deliver its services or products.
2. Organization Structure: How people and responsibilities are organized, which includes defining roles, responsibilities, and reporting relationships.
3. Technology: The IT systems and solutions supporting the business processes.
4. Information: How data and information flow within the organization, and how they're used to make decisions.
5. People & Skills: The competencies, capabilities, and culture of the workforce.
6. Performance Metrics: The measures and KPIs used to track performance and outcomes.
7. Governance: The decision-making structures, policies, and controls that guide the organization.
8. Culture & Behavior: The intrinsic values, behaviors, and principles that drive the organization.

How To Build a Target Operating Model?

Building a TOM is a strategic initiative that demands careful planning and execution. Here’s a step-by-step guide to help you on this journey:

1. Establish Clear Objectives: Define what you hope to achieve with your TOM. Are you looking to expand into new markets, improve efficiency, or foster innovation? Your objectives will guide the model's development.
2. Understand the Current State: Conduct a thorough assessment of your current operating model. Identify gaps, inefficiencies, and areas of improvement. This can be achieved through workshops, stakeholder interviews, and process mapping.
3. Engage Stakeholders: The TOM impacts various parts of the organization. Engage stakeholders from different departments to get their insights, concerns, and suggestions. This ensures broader buy-in and reduces resistance during the implementation phase.
4. Design the New Model: Based on your objectives and the current state analysis, design your TOM. Remember to align it with the organization’s strategic goals. This involves detailing out the key components as mentioned above.
5. Identify Capabilities Needed: Determine what capabilities (technological, human, or process-related) you need to achieve the TOM. This will guide investments and talent acquisition.
6. Develop an Implementation Plan: The TOM is a vision. To bring it to life, you need a step-by-step plan. This should include a clear timeline, milestones, resource allocation, and potential challenges and mitigations.
7. Pilot and Refine: Before a full-scale rollout, test your TOM in one department or function. This will give you insights into any unforeseen challenges and areas of improvement.
8. Roll Out and Monitor: Implement the TOM across the organization. Regularly monitor its performance using the defined metrics and make necessary adjustments.
9. Continuous Improvement: The business environment is dynamic. As such, the TOM should be periodically reviewed and refined to ensure its relevance and effectiveness.

Conclusion

A Target Operating Model (TOM) is more than just fancy business talk. When done right, it's a practical guide that helps companies achieve their goals. As business becomes more complex, a strong TOM is vital for long-term success. Think of TOM as a flexible map that adjusts as the business world evolves.

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