Designing an Effective Target Operating Model (TOM)
Strategy Guide
Understand the key components of an effective TOM, why it matters, and how it relates to business strategy.
Overview
Introduction
A business strategy is only as effective as the operating model that supports it. While a business model defines how value is created, delivered, and captured, an operating model determines how an organisation is structured and managed to achieve that value proposition.
Without an effective Target Operating Model (TOM), strategic goals may remain theoretical rather than practical.
A TOM serves as a bridge between an organisation’s strategy and its daily operations. It ensures that the business structure, processes, people, and technology are optimally aligned to achieve strategic goals efficiently and sustainably.
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Table of Contents
In this guide you will learn about:
- What is a Target Operating Model (TOM)?
- Key Components of a Target Operating Model
- The Relationship Between TOM and Business Strategy
- Steps to Design and Implement a Target Operating Model
- Common Challenges in Implementing a TOM
- Best Practices for Effective TOM Execution
- Case Study: Digital Banking Transformation
- Conclusion and Next Steps
- Further Resources
What is a Target Operating Model (TOM)?
A Target Operating Model (TOM) is a structured blueprint that defines how an organisation operates to achieve its strategic objectives. It provides a clear vision of how a business functions, covering aspects such as processes, governance, technology, people, and performance management.
A TOM serves multiple purposes:
- Ensures alignment between strategy and execution
- Optimises workflows and resource allocation for efficiency
- Ensures alignment between strategy and execution
- Enhances customer experience by improving service delivery
- Supports change management initiatives by structuring transitions effectively.
A well-designed TOM provides stability while allowing flexibility for adaptation to market changes.
Key Components of a Target Operating Model
People and Organisational Structure
A TOM defines roles, responsibilities, and reporting lines to ensure operational efficiency. It establishes the leadership structure and outlines how teams collaborate.
Key considerations include:
- Identifying skill gaps and workforce requirements
- Structuring leadership and governance to enable decision-making
- Designing cross-functional collaboration mechanisms.
Business Processes and Workflows
Optimising processes is essential to ensuring that operations run smoothly.
This involves:
- Mapping key business processes and identifying inefficiencies
- Standardising workflows for consistency and scalability
- Leveraging automation to improve productivity.
Technology and Digital Infrastructure
A TOM incorporates the technology systems required to support business processes.
This includes:
- IT architecture, software applications, and digital platforms
- Automation and artificial intelligence to enhance efficiency
- Cybersecurity measures and data management protocols.
Governance and Compliance
A well-defined governance model ensures that:
- Decision-making is structured and transparent
- Compliance with industry regulations is maintained
- Risk management policies are effectively implemented.
Performance Management and Metrics
To track the effectiveness of an operating model, businesses must establish Key Performance Indicators (KPIs). These metrics ensure that strategic objectives are being met.
Some key areas of measurement include:
- Operational efficiency (e.g. process cycle time, cost per transaction)
- Customer satisfaction and service quality metrics
- Employee performance and engagement levels.
Customer and Stakeholder Experience
A TOM should prioritise customer and stakeholder experience to ensure that business operations support strategic growth.
This involves:
- Mapping customer journeys to improve service delivery
- Creating feedback loops for continuous improvement
- Aligning customer experience with business objectives
The Relationship Between TOM and Business Strategy
A TOM translates strategic intent into operational reality. If a strategy defines where a company wants to go, the TOM defines how it will get there.
The alignment between strategy and operating model ensures that:
- Resources are allocated effectively to support business goals
- Processes and technology are designed to scale with growth
- Employees have a clear understanding of their roles and contributions.
Example:
A company shifting from a brick-and-mortar retail model to an e-commerce-driven strategy must redefine its operating model to:
- Digitise supply chain and logistics
- Automate customer service and sales operations
- Train employees in digital marketing and analytics.
A failure to adjust the TOM could result in operational bottlenecks, customer dissatisfaction, and increased costs.
Steps to Design and Implement a Target Operating Model
Define Strategic Objectives
- Clarify business goals and ensure they are measurable
- Identify what needs to change in the current operating structure
- Establish short-term and long-term priorities.
Conduct a Gap Analysis
- Assess the current state of operations
- Identify inefficiencies and improvement areas
- Evaluate technology, workforce capabilities, and processes.
Design the Future-State TOM
- Develop a structured blueprint aligning with business goals
- Redesign workflows for efficiency and customer-centricity
- Define governance, decision-making structures, and reporting lines.
Implement Change Management Strategies
A significant TOM transformation requires structured change management to ensure that employees and stakeholders adapt effectively.
- Engage leadership in championing the change
- Use structured change frameworks like Kotter’s 8-Step Change Model, The Sixsess Consultancy’s PEOPLE Model, and ADKAR to guide implementation
- Ensure transparent communication and employee training.
Execute and Monitor Performance
- Roll out the TOM in phases to test effectiveness
- Measure progress using defined KPIs
- Continuously refine the model based on real-time feedback.
Common Challenges in Implementing a TOM
Resistance to change
Employees may be reluctant to adopt new processes
Lack of alignment
Business strategy and operational capabilities may not be in sync
Ineffective communication
Poor stakeholder engagement can lead to confusion
Failure to integrate technology
Legacy systems may hinder transformation
Addressing these challenges requires a structured approach that combines leadership, agility, and stakeholder collaboration.
Best Practices for Effective TOM Execution
Align the TOM with strategic goals
Ensure that every component supports overall business objectives
Involve key stakeholders
Engage employees, managers, and customers in the transition
Adopt an agile approach
Allow flexibility for adjustments based on feedback and performance data
Leverage technology
Use automation and data analytics to optimise workflows
Monitor and refine continuously
Treat the TOM as a living framework that evolves with business needs
Case Study: Digital Banking Transformation
A traditional bank implementing a TOM for digital banking must:
- Automate loan approvals to reduce processing time
- Redesign customer service models with AI-driven chatbots
- Improve compliance frameworks to meet regulatory standards.
By implementing a structured TOM, the bank ensures faster service delivery, lower operational costs, and improved customer satisfaction.
Conclusion and Next Steps
A Target Operating Model (TOM) provides the structural foundation for executing business strategy effectively. It ensures operational alignment, optimised processes, and improved efficiency. Without a strong TOM, even the most well-defined business strategy can fail in execution.
Visit our guide Strategic Planning and Execution, where we focus on how to translate strategy into measurable, actionable initiatives.
Further Resources
Useful Links
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The Sixsess Consultancy specialises in guiding organisations through complex transformations. Our bespoke consultancy services are designed to empower leaders, optimise processes, and embed sustainable change. With proven strategies and a team-first approach, we help organisations navigate change with confidence.
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