What is a Target Operating Model?

Clarify your organisation’s purpose and how it’s delivered

Your organisation’s purpose is important, it’s what gets you up in the morning. But are you clear on what your purpose is, and how your organisation can deliver that purpose? Meet our friend, TOM.

Definition of a Target Operating Model (TOM)

TOM stands for Target Operating Model. It’s a statement of how your organisation will be set up at a point in the future to deliver its vision. Usually, a Target Operating Model is created by your senior team, who come together to agree and articulate the organisation’s purpose and then design how different components of the organisation need to be set up to best enable you to deliver that purpose.  A TOM can also be designed at a function, service or team level.

Six stages for designing an effective Target Operating Model

An effective Target Operating Model (TOM) is essential for delivering organisation-wide change and then to deliver high-quality service. Here are the six stages you need to design an effective Target Operating Model:

  1. Clarify aims & objectives

  2. Understand your current state & identify the changes needed

  3. Create different operating model options and select the best one

  4. Build in the detail for the chosen operating model (create your TOM)

  5. Identify the actions needed to implement the TOM

  6. Create a roadmap

To make the design of your Target Operating Model effective, it needs to be created by the senior leadership team with everyone signed up to the picture it paints of the future. Designing a TOM is just step one; it remains a piece of paper until it is implemented, and it is critical to measure the impact it has to ensure it’s having the desired effect for your customers and staff.

What does a Target Operating Model look like?

The output from this exercise is a document that articulates how the strategy and business will be delivered in the future. Here’s a schematic of a Target Operating Model with the areas that should be included as a minimum.

Business objectives

The starting point for all TOMs is a set of clear business objectives. What do you want to achieve as an organisation? Clarify your aims and objectives. As a senior leadership team, ask yourselves, “Why does the organisation exist?” and “What do we want to achieve?”

Strategy

Once you know your business objectives, think about what you want to achieve as an organisation in the future. To build a strategy for achieving your vision, consider which customer segments you want to target, which products & services you should offer, and which channels are going to be used.

Process, information & analytics

As an organisation, consider what you need to be good at doing to fulfil your business objectives and strategy. Identify the processes that are critical to meet your objectives & customer needs and decide how you’re going to manage these processes. Additionally, determine what information you need to understand your customers and performance.

Capability

Now you know what you want to achieve in the future, how are you practically going to make it happen? Think about what technology is needed to enable your processes and analysis, how you need to be organised, and most importantly, the people, culture, skills & resources you need to operate the business. Also consider what continuous improvement capability your organisation needs.

Location

Thinking about physical locations, where do your people and offices (if necessary) need to be to deliver operations for your customers? What is the scope for virtual working, shared resources between teams, etc.

As you discuss each stage, capture your agreed answers on a document illustrated by the schematic above.

How to practically apply your Target Operating Model

Now you have a model with commentary that clearly sets out your organisation’s shared purpose and how it will be delivered, what happens next?

To implement your new Target Operating Model, you must deliver a transformation to take you from your current operating model to your new TOM. This involves these three stages:

  1. You must clearly understand how you operate now and identify what needs to change (the gap between the current and future operating model)

  2. You need an effective transformation plan to move from your current state to your target state. This must be realistic and consider business-as-usual pressures on your organisation, so consider how you will phase the plan

  3. Lastly, it’s essential to execute your transformation plan in order to achieve the required change

Summary

To recap, a Target Operating Model is a document that articulates your organisation’s purpose and how that purpose will be delivered. This is the basis of your strategy which is then implemented. For help with designing and implementing your TOM, email hello@ad-esse.com.