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"Leadership is the capacity to translate vision into reality," said Warren Bennis, an American scholar, organizational consultant, and author widely regarded as a pioneer of the contemporary field of Leadership studies. When it comes to the strategic management side of the business, it is the design and implementation of the Target Operating Model (TOM) that truly tests this translation.

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Flevy Management Insights: Target Operating Model


"Leadership is the capacity to translate vision into reality," said Warren Bennis, an American scholar, organizational consultant, and author widely regarded as a pioneer of the contemporary field of Leadership studies. When it comes to the strategic management side of the business, it is the design and implementation of the Target Operating Model (TOM) that truly tests this translation.

Understanding the Target Operating Model

The Target Operating Model is a key element of Organizational Strategy, which provides a clear view and agreement of how the company will operate to achieve its strategic objectives. It is a blueprint that shows the future state of the business operations across multiple dimensions, such as structure, process, technology and people, and establishes the guiding principles for designing the company's operating model.

Best Practices for Defining the TOM

The approach to designing the TOM should begin with a clear understanding of the company's Strategic Intent, and a commitment to pushing the boundaries of traditional Operational Excellence. The following practices have proven to be effective:

  1. Align the TOM closely with enterprise strategy to ensure it is not merely a series of logistical changes but a method of delivering Strategic Value.
  2. Identify differentiating capabilities that will give the company a competitive advantage, and ensure that these are central to the future operating model.
  3. Consider Customer Experience and journey in designing the TOM, to ensure that operational changes enhance, rather than detract from, the customer's perspective.
  4. Use robust Project Management and Change Management processes to manage the transition to the new Operating Model.

Unique Insights into TOM Design

One of the key principles in designing a TOM is to aim for 'fit-for-purpose' rather than 'best-in-class'. A fit-for-purpose operating model does not necessarily copy the best in the industry, but instead is best for the organization's specific strategy and context. Additionally, it’s crucial to recognize that the TOM is a dynamic model and should evolve with the changing needs and strategies of the business.

The Role of Digital Transformation in the TOM

A critical aspect of any Target Operating Model is the role of Digital Transformation. As companies integrate digital technologies into all areas of their business, the TOM must reflect these changes, harnessing the power of technology to improve efficiencies and drive competitive advantage. This includes the integration of Artificial Intelligence and Advanced Analytics into business decision-making processes, and leveraging cloud computing for increased agility and scalability.

Strategic Risk Management in TOM Design

Any change in the operating model of a company entails significant risks, and the design and implementation of a Target Operating Model are no exceptions. Therefore, incorporating Strategic Risk Management into the process of designing a TOM is crucial to anticipate and manage potential risks.

This can include risks related to people—such as resistance to change or loss of key staff; processes—such as business disruption during the transition; technology—such as cyber threats or technology obsolescence; and structural—such as loss of economies of scale or scope with the new model. Thoughtful risk management can not only reduce potential impacts but also create opportunities for Performance Management and competitive advantage.

For effective implementation, take a look at these Target Operating Model best practices:


Explore related management topics: Digital Transformation Operational Excellence Change Management Customer Experience Artificial Intelligence Performance Management Risk Management Competitive Advantage Project Management Continuous Improvement M&A (Mergers & Acquisitions) Kanban Board PMI (Post-merger Integration)




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