Why You Should Consider Developing a Target Operating Model

Regardless of what industry your business is a part of, market change has an important impact on the financial needs of a company. When you are able to align your corporate priorities with your financing, you can develop an effective foundation for operations. However, many companies fail to dedicate enough time to developing this functional process.

How to Define a TOM

The blueprints for a firm’s business vision that takes strategic objectives and operating capacities and provides a general overview of the core capabilities are called target operating models (TOM). This model takes into account internal factors, operational and strategic levers, technology, information resources and external drivers.  The digital influence on businesses makes it imperative that you continually define, then define, the next steps for your business. When you know what you are supposed to be doing, you are able to define your target operational processes and expectations.  However, many people don’t fully understand a TOM and the use of this planning for their business. In essence, you are taking your vision and devising a strategy that includes the current abilities and the need for additional processes to see the vision through.

The Components of a TOM

The are several different factors that go into devising a TOM. While the following are general components, you can create a TOM that will be unique for your company.

1. External Drivers. These components are the bigger trends occurring in geo-politics and the national or global economy. By conducting an analysis of the political, economic, social, technological, legal, and environmental factors, you can get an accurate view of external drivers.
2. Internal Factors. By looking into the current state of your organization, you know the highs and lows of your operations. A typical SWOT analysis (reviewing the strengths, weaknesses, opportunities, threats) will clearly define the state of your company.
3. Competitive Dynamics. You will need to know where you stand with your competitors if you are planning on your move into the future. Use a factor-based analysis for this element, and don’t forget to include upstart startups and other emerging competitors.
4. Culture and Core Values. With a TOM, there are several angles of culture and core values that you need to explore. First of all, you need to take into consideration what the values or culture seem to be in the current state of your company. However, you also need to include the target state culture that you are wanting your company to achieve.
5. Vision and Mission. You don’t want your company to remain stuck in the present and operating at the status quo. By envisioning a future state, you can determine if there are new places to take your company or what kind of future your company will have it continues as normal.
6. Governance Structure. Predicting or planning where your company will be in a few years need to include how your company will be governed. Will there need to a change in the structure to adapt to the future state of operations? You should also attempt to establish the basic foundation for setting rules and enforcing them.
7. Key Performance Indicators. In order for you to know if your company is meeting the metrics and goals you created, you will need a way to measure success. These are referred to as key performance indicators (KPIs).

The Benefits of a TOM

With a TOM, your business is able to make informed decisions about investments or product cancellations. If you have a product that is lagging behind in a category, a TOM lets you know the potential results of dropping the one product in favor of opening a product line in a different category. Your company may have had an analysis already done, but a TOM is more flexible. You can make decisions and implement changes without skewing your other areas of data. With this system, an organization is able to keep its leaders accountable for their decision-making. Instead of keeping an individual accountable for costs and profits, this makes a leader responsible for their whole area of operations.

The Versatility of a TOM

Businesses of all sizes are finding their efficiency through a TOM strategy. With these models, you have a high-level view of the interactions between all the operating divisions, from the top executives down to the part-time employee. When everyone is on the same page with the company vision and knows the future goals of the company, there is a better return on investment both stakeholders and shareholders as everyone is working toward the same end.