Target operating model

Target operating model (TOM) is a description of the desired state of the operating model of an organisation. When working on the operating model, it is normal to define the "as is" model and the "to be" model. The Target Operating Model is the "to be" model. It is possible to produce a Target Operating Model for a business or a function within a business or a government department or a charity.

There are many different frameworks identifying the components of a Target Operating Model. Hence each project to define a Target Operating Model will focus on slightly different aspects depending on the challenge facing the organisation. Some Target Operating Models are created to help with the link between information technology and strategy, others to help with the link between organisation design and strategy, and so on. A Target Operating Model converts strategy ideas into operational plans.

One framework described in the Operating Model definition comes from Ashridge Business School - POLISM []. This stands for P - processes and capabilities; O - the people that are needed to run the processes or deliver the capabilities, and the organisation structure, accountabilities, incentives and culture that will support and nurture these people; L - the locations, buildings, infrastructure and other assets and resources needed inside the organisation to support the processes and capabilities; I - the information systems and other cross-organisation or cross-location links needed to support the processes and capabilities, especially the software applications that are needed to process the information; S - the suppliers and business partners needed outside the organisation to support the processes and capabilities and the types of agreements between this organisation and these partners. M - the management systems and processes for developing strategy, planning, setting targets, managing performance and continuous improvement

A simpler framework is used in the literature on Enterprise Architecture. Strategy is converted into capabilities, using a capability map, and each capability is described in terms of "people", process and technology.

Target operating models provide the vision for organisations undergoing change. The reason for any new TOM is likely to be a new strategy or new business model or a significant failure in the performance of the existing operations for one or more stakeholders. Hence TOM work should be closely linked to strategy work. Form follows function; in other words TOM follows strategy. Typically a TOM project also includes the roadmap over time that specifies what the company needs to do to move from the "as is" to the "to be".

A good place to start is with a value-chain map. First identify the product/market segments that the organisation is serving. Clarify the offer being given to each segment. Then define, for each segment separately, the value chain of activities that is needed to deliver the offer. Different value chains can then be compared side by side in order to identify steps in the chain that can be "aggregated" to gain economies of scale or "standardised" to gain consistency or "separated" to gain local adaptation. These choices then lead directly to organisational implications.

TOM work can be done at different levels of detail. At the highest level is the strategy or the design principles. Then comes a rough sketch, probably in the form of a value chain map or organisational model. Then comes more and more layers of detail arriving finally at job descriptions for every job, floor layouts for offices or factories, KPIs for every department, draft contracts for every supplier, data input and output specifications for every software application, etc.

See also

• Business model
• Operating model
• Business plan
• Business process modeling
• Business reference model
• Strategic management
• Strategic planning
• Strategy dynamics
• The Design of Business
• Enterprise architecture

Further reading

• Fusion Business Solutions - Notre démarche vers la concrétisation des avantages
• Le Blog de la DFCG – La maîtrise des risques liés aux contrats d’externalisation Template:Fr icon
• Defining the business future state – Maddison Ward
• Ashridge Business School blog on operating models