Vishal has recently taken charge of his father’s advertising firm. He finds that while the firm is largely on track with its short-term objectives, there’s no larger vision that guides the employees. Vishal feels this is the reason the organization is not able to rise through the ranks.
Putting together a team of five enterprising managers, Vishal creates a target operating model. His team, however, is confused. What is a target operating model, they ask? Why is one needed at all?
Vishal explains to them why having a target operating model is in the organizations’ best interests. Although initially sceptical, after a couple of quarters, many employees change their minds about the target operating model when the organization begins to reap the benefits of investing in a long-term strategy.
What Is A Target Operating Model?
The definition of what is a target operating model (TOM) is simple. It’s a blueprint of how an organization’s vision is supposed to align with its objectives and capacities. The purpose of a target operating model is to represent the most efficient and effective ways in which an organization can apply its strategy or vision to its operations.
To come up with a target operating model design, an organization has to first understand its current operating model (COM). A COM involves a detailed overview of how an organization functions in the present. Based on the COM, it’s possible to create a TOM that describes how an organization is supposed to function in the future.
Need For A Target Operating Model
Before proceeding to understand target operating model design or looking at a target operating model example, it’s important to know the reasons that make a TOM necessary for an organization:
- It helps provide a foundation for the business architecture and systems architecture at an organization
- It optimizes internal consistency, vertical integrity and horizontal fluidity
- It offers a collective vision across departments of an organization so that everyone can be on the same page
- Work derivatives from a TOM can help in the optimization of resources and create a clear route for organizational growth
- It gives ample attention to both hard and soft skills
Components Of A Target Operating Model
While the specifics of a target operating model design will vary from one organization to another, here’s a list of general components that are found in most TOMs:
This involves a close exploration of the major trends in the industry and markets. For a comprehensive mapping of external drivers, most organizations apply a simple PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analysis.
This involves a detailed assessment of an organization’s own practices, objectives and performances. The preferred option for assessing internal factors tends to be a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.
This involves identifying the most important values and principles that’ll govern an organization’s approach in the future. This is the part of a target operating model that provides a clear organizational identity to the roadmaps for the future.
Arguably the most practical part of any target operating model is analyzing the capabilities of an organization. This includes the capabilities that need to be developed, the ones that need to be retained and the ones that need to be phased out.
Apart from these five components, another useful way to get to grips with the basics of any target operating model design is to look at McKinsey’s 7S framework, the target operating model McKinsey has built for its employees. The 7S framework, outlined as follows, has made the target operating model McKinsey has created one of the most popular in the world:
- Shared Values
Target Operating Model Example
Bibliophile is an organization that wants to start a business aggregating the best romantic novels written in any language that has more than 50 million speakers worldwide. How does Bibliophile become a target operating model example? The following steps explain the process:
- First, Bibliophile considers the best options for collaboration by exploring organizations with similar interests who’ll be interested in realizing their vision
- Second, Bibliophile assesses its core capabilities and resources across key departments: research and accumulation of books, marketing and outreach, distribution and collaborations
- Third, Bibliophile looks at potential competitors who might do something similar and decides on a strategy to protect itself against such competition
- Finally, Bibliophile decides on the processes to execute its idea, from how its stores and app should look to how it will locate its target audience and promote its concept
Hit The Bullseye
How do your employees go about creating the building blocks for a target operating model design? Which precise skills need to be mastered in order to hit the bullseye for a TOM? Harappa’s Impactful Sales Program is here to provide all the answers. With frameworks like Design Thinking, Decoding Model and the Golden Circle, your employees will be able to sharpen value propositions, take ownership of establishing the credibility of your organization and anticipate client needs through human-centered techniques. They will also develop a range of must-have Thrive Skills, such as building partnerships, delivering powerful sales pitches and negotiating judiciously. Sign up your organization for the Impactful Sales Program today and watch your employees come up with the perfect target operating model.
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