This article provides a detailed response to: How to create an effective target operating model? For a comprehensive understanding of Target Operating Model, we also include relevant case studies for further reading and links to Target Operating Model best practice resources.
TLDR Developing an effective Target Operating Model involves aligning operations with strategic objectives through a structured framework encompassing Strategy, Processes, Organization Structure, Technology, and Change Management.
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Developing an effective Target Operating Model (TOM) is crucial for organizations aiming to align their operations with their strategic objectives. This process involves a comprehensive framework that guides the transformation efforts across various dimensions, including people, processes, technology, and governance. The goal is to create a model that not only supports the current business strategy but also provides the flexibility to adapt to future changes.
When considering how to develop a target operating model, it's essential to start with a clear understanding of the organization's vision and strategic goals. This alignment ensures that the TOM is not just an operational plan but a strategic tool that facilitates the achievement of long-term objectives. Consulting firms often emphasize the importance of this alignment, noting that a well-designed TOM can significantly enhance operational efficiency, customer satisfaction, and competitive positioning.
The development process should be iterative, involving stakeholders from across the organization to ensure buy-in and relevance. A common approach includes conducting a gap analysis to identify the discrepancies between the current operating model and the desired state. This analysis provides a foundation for designing the future state, which should be detailed enough to guide implementation but flexible enough to accommodate unforeseen changes.
Framework for Developing a Target Operating Model
A structured framework is essential for developing a TOM that aligns with strategic objectives and can be implemented effectively. The framework should encompass several key dimensions, including:
- Strategy: Define the strategic objectives that the TOM aims to support.
- Processes: Map out the key processes that will drive operational efficiency and effectiveness.
- Organization Structure: Design an organizational structure that supports the strategic and operational goals.
- Technology: Identify the technology enablers that will support the new processes and organizational structure.
- People and Culture: Outline the changes needed in skills, roles, and culture to support the new operating model.
This framework acts as a template, guiding organizations through the complex process of transforming their operations. It ensures that all critical aspects of the organization are considered and that the resulting model is comprehensive and cohesive. Consulting firms often leverage such frameworks to help clients navigate the intricacies of designing a TOM that is both strategic and operational in nature.
Implementing the TOM requires careful planning and management. Change Management principles should be applied to ensure a smooth transition, with clear communication and training programs to support staff through the change. Performance Management systems should also be adapted to reflect the new priorities and objectives of the TOM.
Real-World Examples and Best Practices
Leading organizations often share their experiences and lessons learned from developing and implementing their TOMs. For instance, a global financial services firm worked with a consulting partner to redesign its operating model in response to digital transformation pressures. The project involved redefining processes and organizational structures to improve agility and customer focus. Key to their success was the early and continuous engagement of stakeholders across the organization, ensuring that the changes were well understood and supported.
Another example comes from the manufacturing sector, where a company implemented a new TOM to better integrate its global supply chain operations. This effort was driven by the need to improve efficiency and reduce costs in a highly competitive market. The company focused on standardizing processes and investing in technology solutions that enhanced visibility and coordination across its supply chain.
Best practices in developing a TOM include starting with a clear and compelling vision, engaging stakeholders early and often, using a structured framework to guide the development process, and applying Change Management practices to support implementation. It's also critical to establish metrics and KPIs to monitor the effectiveness of the new model and make adjustments as needed. Developing an effective Target Operating Model is a complex but essential task for organizations looking to align their operations with their strategic vision. By following a structured framework and incorporating best practices, organizations can design a TOM that supports their current and future objectives, enhancing operational efficiency, customer satisfaction, and overall competitive positioning. Consulting expertise can provide valuable insights and support throughout this process, helping organizations navigate the challenges and achieve their transformation goals.
Best Practices in Target Operating Model
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Target Operating Model Case Studies
For a practical understanding of Target Operating Model, take a look at these case studies.
Target Operating Model Transformation for a Global Financial Services Firm
Scenario: A multinational firm in the financial services industry is grappling with a fragmented Target Operating Model.
Live Events Strategy for Independent Music Venues in Urban Areas
Scenario: An independent music venue located in a major urban area is facing a critical juncture in defining its Target Operating Model to stay competitive and profitable.
Operational Excellence & Target Operating Model (TOM) Design in Specialty Chemicals
Scenario: The organization is a specialty chemicals producer in North America facing challenges in aligning its operations with strategic objectives.
Strategic Target Operating Model Redesign in Telecom
Scenario: The company is a mid-sized telecommunications provider facing significant market pressure due to rapidly changing technology and customer expectations.
Target Operating Model Refinement for Education Sector in Digital Learning
Scenario: The organization is a mid-sized educational institution that has recently transitioned to a hybrid learning model.
Logistics Network Redesign for Forestry & Paper Products
Scenario: The organization is a prominent player in the forestry and paper products industry, grappling with an outdated Target Operating Model that is impeding its ability to scale operations efficiently.
Explore all Flevy Management Case Studies
Related Questions
Here are our additional questions you may be interested in.
Operational Excellence, Management Consulting
This Q&A article was reviewed by Joseph Robinson. Joseph is the VP of Strategy at Flevy with expertise in Corporate Strategy and Operational Excellence. Prior to Flevy, Joseph worked at the Boston Consulting Group. He also has an MBA from MIT Sloan.
To cite this article, please use:
Source: "How to create an effective target operating model?," Flevy Management Insights, Joseph Robinson, 2025
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