Target Operating Model combines the north star with a compass for an enterprise.
If you don’t know where you are going, any road will get you there.
- Lewis Carroll
Defining Target Operating Model
Consultants tend to use the word Target Operating Model (TOM ) quite frequently, but even has a different concept and definition of what it constitutes. Some think TOM is synonymous with a process model and yet others think of it as a drill-down of Corporate Strategy into projects. We beg to differ that neither construct captures the essence of a target operating model.
Target Operating Model Definition: A Target operating model (TOM) is a blueprint of a firm’s business vision that aligns operating capacities and strategic objectives and provides an overview of the core business capabilities, internal factors, and external drivers, strategic and operational levers, organizational and functional structure, and technology information resources of a company
TOM and Strategic Plan: Same or Different?
It may be best to think of one as the north star and the other as a roadmap to get there. Business strategy and priorities change frequently based on external factors, whereas a TOM provides the foundation and flexibility required to execute the firm’s initiatives. A strategy is an integral part of helping achieve the target operating model, and the TOM, in turn, influences the strategies. Of course, a target operating model evolves and sometimes a radical rethinking may be essential.
Elements of a Target Operating Model
Broadly, a target operating model constitutes the following elements. Based on the state of the industry, the competitive factors, the pace of change, and the maturity of your firm, you can pick and choose and if necessary, add another element or two.
- External Drivers and Internal Factors
- Competitive Dynamics
- Culture and Core Values
- Vision and Mission
- Strategy and Plan
- Foundational Business Architecture Elements (Capabilities, Value Streams, Business Flows, Data Entities, Business Structure, et al.)
- Initiatives, programs, and projects
- Key performance indicators
Reasons why your enterprise needs an Operating Model
- Paints a big picture of what the future steady-state business may look like across business and technology domains
- Emphasis on both hard and soft skills – structures, systems, staffing, style, and shared values
- Demonstrates how an organization or a business unit can deliver value and the value drivers thereof
- Provides the building blocks from which to define business architecture and systems architecture
Value of a Target Operating Model
- A vision can be a nebulous dream, whereas a target operating model is a concrete construct of a future steady-state business model and value drivers.
- A TOM can be used for multiple purposes – to assess internal consistency, structural l integrity, and horizontal fluidity.
- TOM brings everyone on the team to the same page and will engender a sense of purpose and a joint mission.
- Further drilling down the components of TOM can help optimize resources, maximize effectiveness and accelerate the transformation path forward.
Developing a Target Operating Model
- In general, a TOM results from several weeks/months of bottom-up effort of data gathering, analysis, interviews, workshops, and envisioning sessions. However, in the interest of time, one may want to adopt an accelerated and simplified methodology to design the TOM.
- The team should collect existing information from the envisioning sessions, business cases for crucial programs, and other enterprise strategy and planning artifacts to compile a straw model.
- Key executives from different functions must validate the straw model
- After a straw model is defined, conduct facilitated workshops to refine the straw model to build the final operating model