How to effectively design, implement, and evolve a Target Operating Model
A Target Operating Model (TOM) serves as the blueprint for how an organisation should function to achieve its goals. This article explores key elements such as strategy, value chains, enterprise architecture, roles, culture, and performance. It provides practical insights on how to effectively design, implement, and evolve a TOM.
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You may well have come across the phrase ‘Target Operating Model’ or ‘TOM’ and wondered exactly what is meant by this. In some ways it does what it says on the tin, it’s the blueprint for how an organisation should operate. But what does that mean in practice? And what elements need to be fully addressed to ensure it doesn’t just end up as a nice picture in a slide deck somewhere?
Strategy
To know what car to build, you need to know roughly where you’re going. Yes, you want something versatile that can take on different situations but driving in the desert is very different to driving through a dense jungle. Your strategy roughly lays out the requirements for your target operating model. It answers questions like what high-level capabilities will you need and what markets are you going to operate in?
Value chains
A well-defined value chain turns strategy into more tangible activities and processes that enable effective planning and TOM definition. It enables you to determine what capabilities you will need so you can then make decisions about where you will get them. When we refer to ‘capabilities’ we are talking about people, technology, or a combination of the two. The broad choices facing organisations with regards to sourcing capabilities are:
- Build – in many cases, it makes sense to develop existing capability. This is particularly true if the foundations are in place and the barriers are not prohibitive because it can help to flatten the change curve and allows an organisation to evolve more organically.
- Buy – it may be that going to market for a new capability is the best choice, whether that be through outsourcing, engaging a partner, acquiring a business or even just hiring people with new skillsets.
- Automate – whilst automating entire capabilities is still a way off in most circumstances there are increasingly a number of activities that do not have to be done by humans, freeing up capacity to be used elsewhere.
Enterprise architecture
Simply having a set of capabilities does not result in a well-functioning organisation. How they fit together is incredibly important and whilst this is in part down to the humans involved, having the right systems and processes in place is the key to success.
For example, much of Amazon’s success (and the subsequent success of Amazon Web Services) can be attributed to the open architecture that was mandated in 2002. This required all teams to make all their data and functionality visible to everyone else through service interfaces. Now clearly there is a heavy technology aspect here but this approach meant there is really no excuse for siloing as everyone should be able to see everything.
This may or may not work for your organisation but defining the way in which work gets done is critical to ensuring everything is pushing in the same direction.
Roles & responsibilities
People ultimately underpin an operating model so getting clear on roles and responsibilities ensures everyone is accountable for a piece of the puzzle. Well-defined roles ensure a consistent approach can be taken to things like training and workforce/succession planning. A clear organisation structure will also help determine how performance is rolled up from the individual level to the business-level so everyone is swimming in the same direction.
Culture & values
Even the most fail-safe operating models will depend on people behaving a certain way when they are faced with challenges. This is where culture and values come into play – they ensure that whatever the scenario there is an expectation about how people will act. Organisations with a culture that works for them usually go to great lengths to ensure it is clearly defined and baked into how the work gets done.
Roadmap
Change does not happen overnight and however radical your strategy, there will generally be an existing book of business that needs to be managed. Large organisations generally don’t have the luxury of starting from a blank slate. As a result, you’ll need to lay out clearly what the roadmap is for implementing your TOM.
Performance
An operating model is not a static thing, so every component will require constant monitoring and improvement to ensure it is supporting the wider enterprise. Performance will look different for all the components of your operating model which is why it is important to start with a top-down definition of the objectives. This enables you to define metrics for all the constituent parts of your TOM.
Conclusion
Target Operating Models are complex systems which are comprised of everything from human emotions to lines of code. They are the systems by which work gets done and as a result are critical for all organisations to define and manage well, in order to get to where they are trying to go.
If you would like to find out more about how we can help you to develop a TOM using a combination of human-centred design and bespoke tooling then please get in touch via analytics@q5partners.com.
We are all about organisational health, which separates good organisations from the great. Whether our clients are at the top of their game (and want to remain there) or are in ‘turnaround’ mode, we all need to work on our organisational health.
Whatever the situation, be it a strategic conundrum, a market opportunity, or an operational gripe, we combine the art and science of organisational health to help our clients improve and excel.
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