Among the challenges faced by businesses today are the pressures of digital transformation, increasing competition, regulatory changes, and shifting customer expectations. To navigate this environment effectively, companies must adopt a strategic and structured approach to their operations. One key tool in this endeavour is the Target Operating Model (TOM).
A TOM provides a clear and structured framework for an organisation’s operation to deliver its strategy and meet its goals. It outlines the essential components of an organisation’s operations, including its people, processes, technology, governance, and information. In essence, a TOM is a blueprint for how a company intends to deliver value to its customers and stakeholders, aligning its resources with its strategic objectives.
This article will explore the importance of the Target Operating Model and its role in driving business success. We will discuss its key components, the benefits it provides, and how organisations can effectively develop and implement a TOM to improve efficiency, agility, and competitiveness.
Defining the Target Operating Model
A Target Operating Model (TOM) is a high-level representation of how a company organises its people, processes, and technology to achieve its strategic objectives. It describes the future state of an organisation and provides a roadmap for moving from the current operating model to the desired state. A well-designed TOM ensures that all elements of the business are aligned to deliver optimal performance.
At its core, a TOM typically includes several key components:
- People: The roles, skills, and organisational structure required to support the business’s strategy.
- Processes: The workflows, procedures, and methods that define how work is performed within the organisation.
- Technology: The tools, platforms, and systems that support the business’s operations.
- Governance: The rules, policies, and decision-making frameworks that guide the organisation.
- Information: The data and insights that are needed to make informed decisions and drive the business forward.
Each of these elements is interdependent, and together they form a comprehensive view of how an organisation should function to deliver its strategy. A TOM is not a static document; it evolves over time as business goals change, new technologies emerge, and market conditions shift.
The Role of a TOM in Strategy Execution
One of the primary reasons why a Target Operating Model is so important is its role in translating business strategy into operational reality. Without a clear and well-structured TOM, companies may struggle to implement their strategic initiatives effectively. A TOM serves as the bridge between strategy and execution, providing a clear roadmap for how resources will be allocated, how processes will be streamlined, and how technology will be leveraged to achieve desired outcomes.
For example, a company looking to expand into new markets might develop a TOM that outlines how its operations will need to change to support this expansion. This could include changes to its supply chain, adjustments to its customer service processes, and investments in new technology platforms.
In addition, a TOM helps to ensure that all parts of the organisation are working towards the same objectives. It provides a common language and framework for discussing operational changes and improvements, reducing silos and promoting cross-functional collaboration. This alignment is critical for businesses looking to achieve sustainable growth and remain competitive in their markets.
Key Benefits of a Target Operating Model
The development and implementation of a TOM offer numerous benefits to organisations. Some of the most significant advantages include:
- Improved Efficiency and Productivity: A TOM helps organisations identify and eliminate inefficiencies in their operations. By standardising processes, optimising the use of technology, and ensuring that roles and responsibilities are clearly defined, businesses can improve their overall productivity. This not only reduces costs but also enables the organisation to respond more quickly to changes in the market.
- Enhanced Agility and Flexibility: In today’s fast-paced business environment, agility is critical. A well-designed TOM enables organisations to adapt quickly to new opportunities and challenges. By having a clear operating model in place, businesses can pivot more easily when needed, whether that means entering a new market, launching a new product, or responding to regulatory changes.
- Alignment with Strategic Objectives: One of the most important functions of a TOM is to ensure that the organisation’s operations are aligned with its strategic objectives. This alignment ensures that resources are being used effectively and that the organisation is focused on activities that will drive the most value. It also helps to avoid the disconnect that can occur between strategy and day-to-day operations.
- Improved Decision-Making: A TOM provides a clear framework for decision-making within the organisation. By outlining how different parts of the business should operate and interact, it creates a more structured and transparent decision-making process. This can help to reduce ambiguity, improve accountability, and ensure that decisions are made in line with the organisation’s overall goals.
- Better Risk Management: A TOM helps organisations identify and mitigate operational risks more effectively. By having a clear understanding of how the business operates and where potential vulnerabilities lie, companies can take proactive steps to reduce risk. This is especially important in highly regulated industries, where compliance and governance are critical to business success.
Developing a Target Operating Model: Key Steps
The process of developing a TOM is a complex undertaking that requires careful planning and consideration. However, with a structured approach, organisations can successfully create and implement a TOM that delivers significant value. The following steps outline the key elements of this process:
1. Define the Strategic Objectives
The first step in developing a TOM is to clearly define the organisation’s strategic objectives. This involves understanding the long-term goals of the business, the key challenges it faces, and the opportunities it seeks to pursue. The TOM must be designed to support these objectives, so it is essential that there is a clear and shared understanding of what the organisation is trying to achieve.
2. Assess the Current Operating Model
Before developing a new TOM, it is important to assess the organisation’s current operating model. This includes reviewing how people, processes, technology, governance, and information are currently structured and identifying any gaps or inefficiencies. A thorough assessment of the current state will provide valuable insights into where improvements are needed and how the new TOM should be designed.
3. Design the Target Operating Model
Once the strategic objectives and current operating model have been defined, the next step is to design the new TOM. This involves developing a high-level blueprint of the desired future state, including the key components of people, processes, technology, governance, and information. Each of these elements should be designed to support the organisation’s strategy and improve operational efficiency.
4. Create a Roadmap for Implementation
After the TOM has been designed, the next step is to create a roadmap for implementation. This involves identifying the specific actions that need to be taken to move from the current state to the target state. The roadmap should include timelines, milestones, and key performance indicators (KPIs) to track progress and ensure that the TOM is being implemented effectively.
5. Communicate and Engage Stakeholders
Successful implementation of a TOM requires the buy-in and engagement of key stakeholders across the organisation. This includes senior leadership, employees, and external partners. Clear and consistent communication is essential to ensure that everyone understands the goals of the TOM and their role in its implementation. Engaging stakeholders early in the process can help to build support and reduce resistance to change.
6. Monitor and Adjust the TOM
A TOM is not a static document; it must be continuously monitored and adjusted as the business environment evolves. Regular reviews of the TOM will ensure that it remains aligned with the organisation’s strategic objectives and that any necessary adjustments are made. This ongoing process of monitoring and refinement is critical to the long-term success of the TOM.
Challenges in Implementing a Target Operating Model
While the benefits of a TOM are clear, implementing one is not without its challenges. Some of the key challenges that organisations may face include:
- Resistance to Change: Implementing a new operating model often requires significant changes to how the organisation functions. Employees may be resistant to these changes, especially if they feel that their roles or responsibilities are being altered. Managing change effectively and engaging employees throughout the process is critical to overcoming this resistance.
- Complexity: Developing and implementing a TOM can be a complex and resource-intensive process. It requires a deep understanding of the organisation’s operations and careful coordination across multiple departments and functions. To manage this complexity, organisations may need to invest in external expertise or use specialised tools and frameworks.
- Balancing Short-Term and Long-Term Priorities: While a TOM is designed to support long-term strategic goals, organisations must also balance these goals with short-term operational priorities. This can be challenging, especially in fast-moving industries where there is constant pressure to deliver results quickly. Maintaining a focus on long-term objectives while addressing immediate needs is critical to the success of the TOM.
- Technology Integration: A key component of any TOM is the technology that supports the organisation’s operations. Integrating new technologies into the existing infrastructure can be challenging, especially if there are legacy systems or outdated processes in place. Organisations must carefully plan their technology investments to ensure that they are aligned with the TOM and provide the necessary support for the business’s operations.
Final Thoughts
A Target Operating Model is an essential tool for organisations – it provides a clear framework for how a business should operate to deliver its strategy and meet its goals. Through an alignment of people, processes, technology, governance, and information, a TOM helps organisations improve efficiency, enhance agility, and drive better decision-making.
While developing and implementing a TOM can be challenging, the benefits far outweigh the challenges. If you’re thinking of how you can implement a TOM, contact our strategy consultants today!
