What Is a Target Operating Model (TOM) and Why Your Company Needs One

The Target Operating Model (TOM) is an aspirational representation of how an organization should operate in the future to achieve its strategic goals. Unlike the current operating model, which reflects the existing structure, the TOM focuses on optimizing processes, people, technology, and systems to create effective alignment between business strategy and operations. This concept becomes fundamental in a changing business environment, where adaptability and agility are key to maintaining a competitive edge. This essay explores when it is necessary to implement a new TOM, its strategic relevance for improving customer experience, and its impact on business performance.

An organization’s ability to adapt and anticipate new market demands is crucial to its success. In this context, the Target Operating Model (TOM) is presented as an essential tool for aligning operations with long-term strategic goals. Unlike a traditional operating model, which reflects how an organization functions in its current state, the TOM is an aspirational vision of how a company should operate in the future to maximize efficiency, agility, and responsiveness.

The TOM becomes a key enabler in industries where digital transformation, customer personalization, and resource optimization are critical to maintaining competitiveness. Beyond simple process improvement, a well-designed TOM enables organizations to structure their operations to deliver better customer experiences, reduce operational costs, and positively impact financial results. However, implementing a new TOM is not a simple process and requires a rigorous assessment of when it is necessary to update or redesign the operating model to meet current challenges.

This essay addresses when it is necessary to implement a new TOM, considering both the internal and external factors that drive this decision. It explores key indicators that signal the need for change, as well as the tools and methodologies that enable the definition and optimization of the TOM. Additionally, it examines the impact of an optimized operating model on customer experience and business performance, focusing on the technological and market trends that will shape the future of business operations.

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The importance of a target operating model (TOM) aligned with business strategy

The Target Operating Model (TOM) is a fundamental tool to ensure that a company’s strategy does not remain merely conceptual but is executed effectively. Essentially, the TOM acts as a bridge connecting strategic vision with daily operations, allowing resources, processes, technologies, and human capabilities to align perfectly with organizational objectives. Without a clear TOM, even the most ambitious or innovative strategy risks not materializing, leaving companies exposed to inefficiency, lack of cohesion, and the inability to respond swiftly to market changes.

The importance of TOM in business alignment lies in its ability to transform a strategic vision into concrete activities that generate tangible results. A well-structured TOM enables business leaders to precisely define how the company should operate to reach its goals, establishing the functions each area must perform, the technologies to be implemented, and the processes to be optimized. This not only improves clarity on what needs to be done but also ensures that all departments and employees work toward a common goal, avoiding silos and uncoordinated efforts.

For any CEO or C-level member, understanding and applying a TOM is crucial for several reasons. First, it allows them to ensure that the strategy is executed efficiently, as it details the structure necessary to achieve this. Second, a TOM provides a framework to optimize resources. Instead of investing time and money in initiatives that do not generate real impact on the company’s goals, the TOM allows those resources to be directed toward the aspects that truly drive growth and competitiveness. This is especially important in medium and large companies, where operational complexity can generate significant inefficiencies if not addressed in a structured way.

The TOM also facilitates organizational agility. In an environment where market conditions change rapidly, companies need to adapt flexibly to remain competitive. A well-designed TOM enables business leaders to adjust operations quickly and effectively when new opportunities or threats arise. For example, during the COVID-19 pandemic, many companies had to pivot quickly toward more digital operations. Those with a clear and flexible TOM were able to make this transition much more smoothly than those lacking a well-defined operating model. The ability to adjust operations and processes in real time is key to surviving and thriving in times of uncertainty.

The TOM also provides a framework to measure and continuously improve performance, which is particularly relevant for CEOs and C-level executives who must make data-driven decisions. A well-structured TOM includes key metrics that allow leaders to assess whether operations are aligned with strategic objectives and take corrective action when necessary. This capability to measure and adjust continuously is an essential component of effective management, as it allows timely reactions to challenges and leverages emerging opportunities. Robert S. Kaplan and David P. Norton, creators of the Balanced Scorecard, argued that measuring performance in multiple areas is essential to ensure that a company not only focuses on its financial results but also maintains the health and efficiency of its operations.

A clear example of the importance of TOM in business alignment can be found in the retail sector. Imagine a chain of physical stores implementing an omnichannel strategy, integrating its online and offline channels to improve the customer experience. Without a clear TOM, this strategy would likely face numerous operational challenges, such as a lack of coordination between technology and logistics teams, problems with real-time inventory management, or failures in customer service for product returns and exchanges. However, with a well-structured TOM, the company can plan and map every aspect of its operation, from the technology needed to unify its inventories to the training of in-store staff to handle returns of online-purchased products. In this way, the TOM serves as an operational roadmap that ensures all company components work in sync to fulfill the omnichannel strategy.

For business leaders, the TOM is also a key enabler of digital transformation. Many organizations are investing significant sums in digital technologies, from process automation to artificial intelligence to personalize customer experiences. However, these investments may not yield expected results if they are not aligned with a clear operating model. The TOM ensures that technology is not just an additional tool but an integral part of daily operations, ensuring its effective use to achieve strategic objectives. In this sense, the TOM becomes a guide for implementing the right technology in the right processes, maximizing the return on investment in digital initiatives.

Furthermore, the TOM has proven to be a tried and effective tool in the hands of leading consulting firms such as ICX Consulting, EY, Boston Consulting Group (BCG), PwC, and many others. These consultancies use the TOM as a working model to help organizations transform their operational structure, optimize resources, and ensure their operations are aligned with strategic objectives. By applying the TOM, these firms guide companies in their transition to more efficient, flexible, and profitable operations, confirming its value as an essential tool for C-level executives seeking sustainable results.

Finally, an effective TOM helps build an organizational culture aligned with business strategy. For CEOs and executives, ensuring employees understand how their roles and daily activities contribute to the company’s overall goals is fundamental. A TOM defines the capabilities the company needs, not only at a technical skills level but also in terms of organizational behavior and culture. This means that, beyond processes and technology, a well-implemented TOM can help organizations create a work environment where culture aligns with the company’s values and strategic vision, facilitating employee engagement and productivity.

When is it necessary to implement a Target Operating Model?

One of the most common errors in business projects is the disconnect between strategic goals and the operational model that supports them. This disconnect is a critical factor in why so many projects fail. Managers often rush to invest in software platforms or products, like CRM systems or automation tools, without thoroughly diagnosing their operational processes or aligning their business goals with their operating model.

The danger of skipping this phase is that project control quickly fades. Without clearly defining objectives or aligning processes with a suitable TOM, control of the project implicitly shifts to the software provider. This leads to situations where providers justify additional charges or changes in project scope because there is no clear definition of expected outcomes or a detailed plan on how to achieve them. In such cases, the company ends up with a system or product that fails to meet its needs and generates unforeseen additional costs.

A Target Operating Model is crucial to avoid this scenario. The TOM ensures that any technological or business solution aligns with the organization’s processes, capabilities, and strategic goals. It provides a framework that enables business leaders to maintain control of the project from the start, clearly defining objectives, establishing roles and responsibilities, and ensuring that selected resources and technologies support the company’s goals.

The importance of aligning the business model, operating model and TOM

One of the most important components of any successful digital transformation is alignment between the Business Model, Operating Model, and Target Operating Model. A well-designed TOM not only translates the company’s strategy into executable processes but also ensures that operations, people, and technology are fully aligned to deliver value. This is especially important in the context of a digital transformation, where integrating new technologies can serve as a catalyst for change, but only if backed by a robust operating structure.

True digital transformation is not merely the adoption of technology; it’s a complete restructuring of how business is conducted. Without a TOM to guide this process, digitalization initiatives become fragmented, operational silos remain, and the expected benefits of technology (automation, efficiency, data analysis) quickly dissipate.

Project control and governance with a TOM

Another fundamental aspect of the TOM is its capacity to provide control and governance for projects. In the absence of a defined TOM, technology projects—such as implementing a CRM or ERP—often fall under the control of providers. As a result, companies lose control over scope, timelines, and costs, leaving them at the mercy of a provider who can justify any project deviation easily due to a lack of clear bases and aligned operational objectives from the start.

When the TOM is in place, the company retains control. The TOM defines not only the objectives but also the key processes, roles, and responsibilities of all parties involved. This establishes a clear framework that limits deviations and ensures that the technology project is firmly aligned with organizational goals. Any decision, whether from the provider or the company, must conform to the TOM specifications, ensuring that the project stays on course.

When is it crucial to implement a TOM?

Implementing a Target Operating Model is particularly important in the following situations:

Digital Transformation Projects: When an organization is migrating to a digital environment, integrating automation, or adopting disruptive technologies, a TOM ensures that the technological infrastructure supports the strategy rather than the other way around. Without a TOM, technology may become a barrier instead of an enabler.

Business Expansion or Globalization: When a company is expanding into new markets, either nationally or globally, it’s essential to have a TOM that ensures scalable operations and adapts to new market demands. The lack of a solid operating model can lead to operational chaos.

Software Implementation or Large-Scale Technology Projects: Implementing systems like ERP or CRM without a TOM is a recipe for failure. The TOM provides the necessary framework to define functional requirements and ensure that technological tools support the business processes and objectives. This prevents loss of control over providers and unforeseen changes in project scope.

Organizational Restructuring or Business Model Change: If a company is restructuring its business model or changing its value proposition, a TOM ensures that operations adjust to the new strategic direction. Without a TOM, these changes may lead to a disconnect between strategy and execution.

Every company should prioritize the implementation of a Target Operating Model in any strategic initiative, especially those related to adopting new technologies or restructuring operational processes. A well-designed TOM not only aligns operations with business objectives but also protects the organization from deviations in critical projects, ensuring long-term success.

Methodology for implementing a Target Operating Model

If you are looking for a summarized roadmap, you can also read our step-by-step guide to implementing a Target Operating Model. Below we detail the phases that ICX Consulting applies.

1. Defining strategy and objectives

The first step in implementing a TOM is ensuring it is fully aligned with the organization's strategic objectives. This phase involves understanding the company’s vision, mission, and long-term goals and how these should be reflected in operations. This step is essential to make the TOM a direct extension of the corporate strategy.

Example: If a company aims to expand its global presence, the TOM must ensure that operations are scalable and flexible to adapt to various markets and international regulations.

2. Analysis of the current state (AS-IS)

This phase involves a comprehensive analysis of the current state of operations, including reviewing processes, technology, organizational structure, human resources, and information systems. This detailed analysis helps identify the gaps between the current state and the target operating model needed to achieve desired results.

Example: An AS-IS analysis of a supply chain might reveal inefficiencies in logistics, bottlenecks in production, or outdated technologies that slow down operations.

3. Designing the future TOM (TO-BE)

Once the current situation is understood, the next step is to design the target TOM (TO-BE), which describes how operations should function to meet strategic goals. The TOM design includes defining optimized processes, required capabilities, enabling technology, organizational structure, and the culture needed to implement the model successfully.

Example: In a financial services company, the TOM might redesign internal workflows to improve the speed and accuracy of transactions while optimizing customer service.

4. Assessment of resources and capabilities

This phase consists of evaluating the organization’s current resources and capabilities to determine if they align with the target TOM. Gaps in talent, technology, infrastructure, and skills are identified, and a plan is developed to address these deficiencies.

Example: If an organization lacks expertise in automation, ICX Consulting might propose training or new hires to build the necessary capabilities.

5. Selection of enabling tools (optional phase)

This phase is crucial for selecting the appropriate technological platform to support the redesigned processes. A comparative analysis is conducted between defined processes and available technology platforms to choose the best tool that optimizes efficiency and automates workflows.

Example: For a company needing to improve customer service, a CRM like HubSpot or Salesforce could be selected to facilitate personalized and automated customer interactions.

6. Efficiency

At ICX Consulting, this phase is an essential part of TOM. Here, costs are reviewed per process and activity—a level of detail that few companies pursue but is key to improving final results. Costs associated with each phase of operational processes are analyzed, enabling optimized operations and reduced unnecessary expenses. Efficiency is measured not only in terms of productivity but also in terms of profitability per activity.

Example: In a manufacturing company, this phase might identify redundant activities that consume resources without adding value, allowing for production cost reductions and improved overall efficiency.

7. Implementation planning

With the TOM design and technology selected, a detailed implementation plan should be developed. This plan includes prioritizing initiatives, phased planning, timelines, and assignment of responsibilities for each team or area involved.

Example: In a technology company, the first phase might focus on migrating to a new project management platform, followed by automating customer support processes.

8. TOM implementation

In this phase, the new TOM is put into action. Technologies are implemented, processes are adjusted, and staff are trained to adapt to the changes. Change management is essential to ensure a smooth transition and that all organization members embrace the new ways of working.

Example: If a new ERP system is introduced, key employees should receive extensive training to use the tool effectively.

How to measure the success of a TOM

The final phases of the methodology are dedicated to measuring performance by industry, department or strategic objective, monitoring it and adjusting the model continuously. We devote a full article to that stage, with the KPIs for the four Balanced Scorecard perspectives, their formulas and OKR examples. You can read it in how to measure TOM success with KPIs, OKRs and formulas.

Conclusion

Implementing a new Target Operating Model (TOM) is not just a matter of modernization but a strategic imperative to ensure efficiency, agility, and competitiveness in a dynamic business environment. A well-designed TOM allows organizations to align their operations with changing customer needs and business strategy, improving both the customer experience and business performance.

Companies that implement a customer-centric TOM, driven by data analysis and powered by advanced technologies, will be better positioned to adapt to market transformations, drive customer loyalty, and ensure long-term success.

The implementation of a new TOM should not be seen as an isolated project or a simple process upgrade. In reality, it is a strategic element that can transform a company’s ability to respond to market demands, improve the customer experience, and strengthen its competitive position. An effective TOM provides the operational foundation needed to support growth, innovation, and business agility, becoming a central pillar for long-term success.

Organizations that prioritize the alignment of their TOM with business strategies are better prepared to face modern market challenges. By integrating advanced technologies such as automation, artificial intelligence, and predictive analytics, companies not only optimize their operations but also create more personalized and efficient customer experiences. This approach not only meets customer expectations but exceeds them, generating loyalty and differentiation in an increasingly competitive environment.

As technological trends and customer expectations evolve, it is crucial for organizations to constantly review their operating model to ensure it remains relevant and effective. Digital transformation, operational sustainability, and customer personalization are key areas where the TOM will play a crucial role in the coming years. Companies that anticipate these changes and adjust their TOM accordingly will be better positioned to capitalize on market opportunities and minimize risks.

In summary, the TOM not only defines how an organization operates but also determines its ability to adapt and thrive in a dynamic business world. Implementing a new TOM at the right time can be the difference between success and stagnation. Therefore, it is essential for organizations to continuously evaluate their operating model and make the necessary decisions to maintain their relevance and competitiveness over the long term.

If your organization is evaluating a new operating model, learn about our target operating model service and how we align it with each company's strategy, processes and technology.

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