12 min read
12 min read
A Target Operating Model (TOM) is the blueprint that defines how a company must organize its processes, people, technology and governance to deliver its strategy. Implementing it follows a step-by-step roadmap that moves from strategic objectives and a gap analysis of today's operating model to design, alignment with the business model, piloting, change management and continuous improvement.
Businesses face growing pressure to optimize their operations while delivering superior customer experiences. Achieving this balance requires more than ad hoc improvements to individual processes; it demands a comprehensive framework that aligns operational capabilities with strategic objectives. This is where the Target Operating Model (TOM) becomes critical. A TOM serves as the blueprint for structuring a company's processes, technology, people, and governance to fulfill its strategic ambitions. Implementing a TOM is a transformative endeavor that impacts all facets of the enterprise, from internal workflows to external customer touchpoints.
Consider a scene that plays out in boardrooms every year. The executive committee of a regional insurer approves a strategy to sell more policies through digital channels and to settle simple claims in days rather than weeks. The plan is sound, the board applauds, and the budget is released. Six months later the chief operating officer reviews the numbers and finds that almost nothing has moved. Claims still pass through the same four approval levels, the contact center still follows scripts written for brokers, the CRM does not talk to the policy system, and nobody owns the end-to-end experience of a customer who buys online. The strategy changed. The operating model did not. That gap between what a company decides and how it actually works is the problem a TOM exists to close.
>> Operational Model for Success <<
The necessity of aligning a high-level step-by-step roadmap for TOM implementation with the enterprise's overall business model strategy cannot be overstated. Business models define the strategic objectives and market positioning of a company, while TOM lays the groundwork to achieve these objectives through operational excellence. Misalignment between the TOM and the business model strategy can lead to inefficiencies, unmet customer expectations, and, ultimately, failure to capitalize on market opportunities. This makes it crucial for the TOM to be designed and implemented with a clear focus on supporting and advancing the company's strategic goals.
Moreover, in today's data-rich environment, enterprises have access to vast amounts of performance data from systems such as ERP, CRM, and workflow management platforms. When combined with techniques like event-log analysis, data modeling, and automated learning, this data can be leveraged to continuously refine the TOM and provide real-time insights for performance improvement. The integration of these technologies into the TOM framework not only drives operational efficiency but also enhances customer experiences, fostering long-term engagement and loyalty.
Ultimately, a well-designed and implemented TOM is a powerful enabler of both operational excellence and superior customer experience, which together act as engines for business growth. This article provides a detailed analysis of the high-level step-by-step roadmap for TOM implementation, exploring how it aligns with business model strategies, enhances processes, and delivers a frictionless customer experience that drives competitive advantage. Examples of TOM implementations across sectors illustrate its impact on enterprise performance.
Before discussing the roadmap, it helps to settle the operating model meaning. An operating model describes how a company actually delivers value every day: which processes run, who performs them, which systems support them, how decisions are made and how performance is measured. Jeanne Ross of the MIT Center for Information Systems Research framed it in a way that still resonates with executives, stating that an operating model specifies the level of business process integration and standardization the company needs (MIT CISR, Operating Models). In other words, it forces leaders to decide what must work the same way everywhere and what can vary by market, channel or business unit.
The target operating model is the future version of that description. Where the current operating model explains how the company works today, the TOM explains how it must work for the strategy to succeed. A Target Operating Model (TOM) outlines how a company should structure its operations to achieve its strategic objectives. It provides a clear framework for decision-making and guides the allocation of resources, roles, and responsibilities to ensure efficiency and effectiveness across the organization.
The reason this matters to the C-suite is that operating model change is common and difficult. McKinsey reports that more than half of large companies have tried to modernize their operating models over the past decade, and that while 63 percent of companies met most of their transformation objectives, only 24 percent were highly successful (McKinsey Quarterly, How to get your operating model transformation back on track). The difference between a transformation that merely completes and one that changes performance is usually the discipline of the roadmap.
The roadmap has seven steps. They are sequential in logic, although in practice several overlap, and each one answers a question the executive committee must be able to answer before moving to the next.
The first step is to align the TOM with the company's long-term strategic objectives. This involves defining the business goals, market position, and customer experience outcomes that the TOM will support. At this stage, business leaders must have a clear vision of how the TOM will enhance operational capabilities and deliver value to both the enterprise and its customers. In the insurer from the opening scene, this means translating "grow digital sales" into concrete outcomes, such as the share of policies sold without an agent, the days to settle a simple claim and the cost to serve each segment.
A thorough analysis of the current operating model is essential to identify performance gaps and inefficiencies. This assessment involves evaluating existing processes, technology infrastructure, and organizational structures. By pinpointing areas where the current model falls short, the company can prioritize improvements that align with strategic objectives. The most useful gap analyses are quantified. They show not only that claims approval is slow, but how many days each approval level adds and how much of that time is waiting rather than work.
With a clear understanding of the current state and the strategic objectives, the company can now design the TOM. This design includes mapping out new processes, organizational roles, technology systems, and governance frameworks that will drive efficiency and support the company's goals. It is crucial at this stage to ensure that the TOM is customer-centric, as this will impact the customer experience and, by extension, business growth.
The TOM must be fully integrated with the company's business model to ensure alignment with its strategic objectives. This alignment ensures that the operating model supports long-term growth and market positioning. It also ensures that the TOM is flexible enough to adapt to changes in the business environment, while still driving operational efficiency and customer satisfaction.
Before full-scale implementation, the company should pilot the TOM in a controlled environment. This phase allows for testing of new processes and systems, identifying any issues or potential roadblocks before widespread adoption. The insights gained during this phase are crucial for fine-tuning the TOM. A good pilot is small enough to fail cheaply and large enough to be credible, for example one product line, one region or one customer segment.
Full implementation of the TOM requires a comprehensive change management strategy. This involves communicating the benefits of the new model to employees, providing training on new processes and systems, and ensuring that there is a smooth transition from the old operating model to the new one. Effective change management is essential for minimizing disruptions and ensuring that employees are fully engaged with the new TOM. Incentives deserve particular attention. If commissions, bonuses and performance reviews still reward the old way of working, people will keep working the old way.
The TOM should not be seen as a one-time initiative, but rather as an ongoing process of improvement. By continuously monitoring performance metrics and customer feedback, the company can make incremental improvements to the TOM over time. This ensures that the operating model remains aligned with the company's evolving strategic objectives and market conditions.
One of the key reasons why aligning the TOM roadmap to the business model strategy is essential is that it ensures coherence between the company's operational capabilities and its long-term objectives. A business model outlines how a company creates, delivers, and captures value, while the TOM specifies the processes and systems needed to execute that model. Without alignment, a company risks creating operational inefficiencies that hinder its ability to deliver on its strategic promises.
>> The purpose of an Operating Model from CX perspective <<
For example, a company operating in a fast-paced retail sector that emphasizes quick turnaround times and personalized customer experiences must ensure that its TOM is designed to support these objectives. A TOM that focuses on streamlining supply chain processes, enhancing real-time customer interactions through technology, and reducing time-to-market will be essential for success. Failure to align the TOM with these business model elements could result in poor customer service, missed revenue opportunities, and a weakened competitive position.
Moreover, aligning TOM with the business model strategy enables companies to adapt to changing market conditions while remaining focused on long-term goals. This adaptability is crucial in industries such as telecommunications or fintech, where technological advancements and customer expectations evolve rapidly. A flexible TOM that remains aligned with the strategic vision allows the company to pivot when necessary, without losing sight of its overarching objectives.
Alignment also has a financial dimension that executives sometimes underestimate. A manufacturer that moves from selling equipment to selling uptime under a service contract has changed its business model on paper, but its operating model still plans field technicians around installations rather than preventive visits, and its finance team still recognizes revenue as if each machine were a one-time sale. Until the TOM catches up, the new model looks less profitable than the old one, and the board may abandon a sound strategy for the wrong reason.
Customer experience is increasingly recognized as a critical driver of business success. Companies that prioritize customer-centric processes within their TOM frameworks are more likely to achieve higher levels of customer satisfaction, loyalty, and engagement. The TOM provides a structured approach to embedding customer experience improvements into every aspect of the business.
To optimize business processes for enhanced customer experience, companies can leverage data from ERP, CRM, and service ticketing systems. Event-log techniques, data modeling, and automated learning algorithms allow businesses to identify bottlenecks, inefficiencies, and pain points in real-time. For instance, by analyzing customer service workflows, a company can streamline support processes, reduce response times, and deliver a more seamless customer experience.
In a real-world example, a telecom company using TOM to integrate customer data from multiple channels (call centers, digital platforms, and in-store interactions) was able to create a unified view of the customer journey. By using event-log analysis, the company identified delays in customer resolution times and restructured its service delivery process to ensure quicker issue resolution. As a result, customer satisfaction scores improved significantly, leading to higher retention rates and increased revenue from repeat business.
Customer experience plays a pivotal role in the success of any TOM implementation. A customer-centric TOM ensures that processes are designed with the end-user in mind, reducing friction at every touchpoint and delivering a seamless experience. In today's market, where customers have numerous alternatives, a superior experience can be the difference between loyalty and churn.
A well-designed TOM addresses customer pain points by streamlining interactions, personalizing services, and ensuring timely delivery of products or services. In sectors such as retail, insurance, or utilities, TOM implementations that focus on improving the customer experience have led to increased engagement, higher Net Promoter Scores (NPS), and overall business growth. In retail banking, for instance, the decisive question is often who owns the customer when a mortgage application crosses three departments. A TOM that assigns that ownership explicitly, and gives the owner the data and authority to act, changes the experience more than any new app.
>> 10 key benefits of implementing a TOM and how to measure its success <<
Innovation is at the core of a successful TOM implementation. By continuously refining operational processes based on real-time data, companies can stay ahead of customer expectations and deliver superior experiences. For instance, leveraging artificial intelligence (AI) and machine learning (ML) in TOM can help companies predict customer behavior and personalize their offerings.
A case in point is a retail enterprise that implemented AI-driven TOM enhancements to optimize its supply chain. By using predictive analytics, the company was able to anticipate demand patterns and adjust inventory levels accordingly. This led to a reduction in stockouts and improved customer satisfaction, as customers received their orders faster and more accurately. The seamless integration of AI into the TOM framework allowed the company to innovate its service delivery model and improve overall customer experience.
Several trends are influencing how companies design and implement their target operating models. First, the increased adoption of AI and ML in operational processes continues to drive innovation and efficiency. Companies that integrate these technologies into their TOM are able to offer more personalized and predictive customer experiences, improving engagement and loyalty. The operating model question here is not which tool to buy but which decisions an algorithm may take on its own, which require human review and who is accountable for the outcome.
Another trend is the growing emphasis on sustainability in business operations. TOM frameworks increasingly incorporate sustainable practices, such as reducing energy consumption and minimizing waste, to align with evolving customer expectations and regulatory requirements. This trend is particularly relevant in sectors like utilities, where customer demand for environmentally friendly services is rising.
Lastly, there is a greater focus on real-time analytics and decision-making. TOM implementations that leverage advanced analytics enable companies to make data-driven decisions more quickly, improving agility and responsiveness to market changes. McKinsey's research points in the same direction, recommending that companies tie the transformation to quantified business goals and operating model metrics, plan technology and data changes alongside organizational changes, and align budgeting with the new model.
>> The Critical Alignment of Business and Operating Models <<
For the chief executive, the TOM is the instrument that turns strategy into an operating reality the board can inspect. It answers the question every director eventually asks after approving a plan, which is what will be different on Monday. A CEO who cannot point to the processes, roles, systems and metrics that changed has a strategy document, not a strategy.
For the commercial and customer leaders, the TOM decides whether the company can attract, convert and retain the customers the strategy targets. If the strategy promises a faster onboarding for small business clients, the TOM must specify who owns that journey, what data they need and which approvals disappear. For the chief financial officer, it is the place where efficiency becomes measurable, because a well-defined TOM links each operating change to cost to serve, working capital or revenue per customer. And for the chief operating officer in the opening scene, it is the difference between reporting that the strategy is on track and being able to show it.
There is also a trade-off worth acknowledging. A TOM that tries to redesign everything at once tends to stall under its own weight, while one that is too narrow leaves the old operating model in place around a few modernized islands. The roadmap above mitigates that risk by sequencing the work and piloting before scaling, but the executive committee still has to decide where to concentrate effort first.
An experienced consultant would suggest starting with a single strategic objective rather than the whole strategy. Pick the one the board cares most about, write down the three operational outcomes that would prove it is being achieved, and ask the leaders of every function involved to describe, in their own words, how that outcome is produced today. The inconsistencies in those descriptions are your first gap analysis.
Then select one journey that matters to customers and to the income statement, such as onboarding, claims or order to cash, and map it from end to end with the people who run it. Identify who owns it, which decisions slow it down and which systems hold the data. That map becomes the pilot scope for step five of the roadmap. To structure the exercise, use ICX's Target Operating Model (TOM) toolkit, which guides your team through the design of the future operating model.
ICX Consulting designs and implements target operating models for companies in the United States and Latin America, connecting strategy, customer experience and operations. Our Target Operating Model consulting and operating and business model alignment services define the processes, roles, governance and metrics the strategy requires. The Process Transformation Framework structures the redesign of the critical processes, and our change management practice helps the organization adopt the new way of working, with technology such as CRM implemented as an enabler rather than as the starting point.
The operating model describes how the company works today, including its processes, people, technology and governance. The target operating model describes how it must work in the future to deliver the strategy. The gap between the two defines the transformation roadmap and its priorities.
It depends on scope. A focused redesign of one journey or business unit can show results within months, while an enterprise-wide transformation usually runs in waves over a longer period. McKinsey's research notes that the main phase typically demands sustained, weekly involvement from top-team members.
The executive committee owns the outcome, usually through a sponsor such as the COO or the CEO, with a dedicated transformation office coordinating the work. Each redesigned process needs a business owner who is accountable for its performance once the new model is live.
Measure the operational outcomes defined in the first step, such as cycle times, cost to serve, error rates and customer satisfaction, alongside the strategic results they were meant to produce. If operational metrics improve but revenue, margin or retention do not, the TOM is not aligned with the business model.
The successful implementation of a Target Operating Model (TOM) is a strategic business imperative for enterprises across all sectors. By following a high-level step-by-step roadmap that includes defining strategic objectives, analyzing current operations, designing the TOM, aligning it with the business model strategy, and continuously refining processes, organizations can achieve operational excellence while enhancing customer experiences. The alignment between TOM and the business model strategy ensures that operations are not only efficient but also strategically relevant, driving long-term growth.
The role of customer experience in TOM cannot be understated. A customer-centric TOM enhances every touchpoint in the customer journey, fostering engagement, loyalty, and satisfaction. By leveraging data-driven insights from ERP, CRM, and other systems, companies can optimize processes in real-time and continuously improve service delivery. Companies that integrate AI, analytics and sustainability into their TOM frameworks will be well-positioned to meet evolving customer demands, because a well-implemented TOM is not just a tool for operational efficiency but a driver of business transformation and growth.
If your strategy is clear but your organization still works the way it did before you approved it, request a diagnostic with an ICX consultant and find out which parts of your operating model are holding the strategy back.
Documentary References
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