• by Vikram Gajjala

Target Operating Model & Business Processes

Target Operating Model refers to a description of the desired state of an organization's operating model. It is normally defined as the "as is" model and the "to be" model when working on the operating model, and the Target Operating Model is the "to be" model.

 

Target Operating Model (TOM) can be viewed as the blueprint of a firm's business vision that effectively aligns its operating capacity and strategic objectives. Target operating model usually provides a vivid overview of the core business capabilities, the internal factors, and external factors. It also highlights the strategic and operational levers, the company's organizational and functional structure, the technology it uses, and the information resources of a company. The current digital space necessitates us to think about what should come next, and therefore, we need to develop a sound target operating model.

To better understand this concept, let’s shed some more light on what a target operating model is by illustrating it with an example of a restaurant.

A restaurant's vision statement maybe something like "introducing the world to the best Mexican cuisines.” The restaurant's main operational strategy may be to sell great Mexican food, provide a good ambience, offer the best customer experience, while "selling" the Mexican culture to their customers. Here, the core capabilities of the restaurant may include service management, food and beverage management, and effective brand management.
Currently, the processes that may best describe how the restaurant operates are ushering the customers to their seats, taking their orders, preparing the orders, billing the orders, and serving their customers. These are the activities that comprise the current operating model.
Therefore, to get a target or desired operating model, you would need to alter any aspect of the current operating model. For example, the restaurant can reduce and change its strategy to only focus on providing great Mexican food and the best customer experience.

Components of a Target Operating Model
A Target Operating Model is made of several elements. Here are the highlights of some of them.

 

1. External Factors:

These refer to the broader trends in the economy and geopolitics. For example, applying a PESTLE Analysis (Political, Economic, Social, Technological, Legal, Environmental Analysis) will help you identify external factors.  
 

2. Internal Factors:

These refer to the current state, conditions, or elements found in the organization. Doing some SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats Analysis) will help you identify the internal factors.  
 

3. Competitive Dynamics:

These refer to the state of current competitors, emerging competitors like upcoming startups, and the general competition in the market. Performing a Factor-based Analysis will give you this information.

 

4. Culture and Core Values:

These refer to the culture, current values of the firm, and the target state culture or values you wish to adopt in the future.

 

5. Vision and Mission:

These are the future vision and missions that the company intends to follow and achieve.

 

6. Strategy and Plan:

These will dictate how your firm will get to your goals.
 

7. Capability Analysis:

This type of analysis entails establishing what new capabilities you should have, the current capabilities that have to evolve, and the ones that may require phasing out.

 

8. Strategic Levers:

Establishing the strategic levers that will help you formulate a good Target Operating Model to achieve success in the future.

 

9. Tactical or Operational Levers:

These refer to factors that will help your future state operations and processes while helping you to shift or evolve your operations.  
 

10. Transformation Roadmap:

This refers to the incremental and sequential evolution (your journey) to your future Target Operating Model.  
 

11. Initiatives, Programs, and Projects:

These are the types of actions, programs, and plans that will help you to get to the target or desired state.

 

12. Governance Structure:

This simply entails how the business will be governed and the leadership structure.

 

13. Key Performance Indicators:

These refer to the metrics you will use to measure success.

 

How To Create a Target Operating Model

Follow the steps below to create an effective Target Operating Model.

 

1. Develop Design Principles

These refer to high-level statements of how an organization should operate. They effectively describe the priorities of the business, the customers, and the experiences that they desire to have. It is essential to remember that these design principles should be consistent with its broader strategic goals. Also, these design principles ought to consider your customers' feedback.  
 

2. Mapping The Customer Journey

These refer to diagrams that vividly show the experiences that your customers have with your company or business and what it offers. All the steps that your customers go through when engaging with your business are documented here. Also, it is important to remember to include the feelings that each step evokes here. If there are any pain points, highlight them.

 

3. Define The Specific Capabilities That Are Required

Here, you need to highlight a list of all the crucial capabilities in helping you deliver your target customer journeys. An example of a question that might guide you is, "what does my business have to be able to do to make this particular step successful?". For example, for a customer to submit their data, your company must have the ability to collect and manage their data.

 

4. Articulate The Exact Changes That Are Needed

An effective way of doing this is to compare and contrast each capability's current and desired (future) states. Then, define the gap that exists between them these two states. This will help you establish what needs to be altered to realize the target customer journeys. Put this down on a change roadmap and let it guide you to a clear customer journey.

 

Final Take Away

A Target Operating Model is the most effective way for a company to be organized to deliver its strategy in the future and provide the desired customer experiences. Is your business ready for a target operating model? Consult our experts to discuss a customized strategy for your unique products and clients. Call or fill out the form below.