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

TL;DR

A Target Operating Model (TOM) is a blueprint that defines how a business will operate to achieve its strategy. It bridges the gap between strategy and execution, aligning people, processes, technology, and governance. TOMs are essential during times of change such as digital transformation, mergers and acquisitions, or cost optimisation initiatives.

What is a Target Operating Model

What Is a Target Operating Model (TOM)?

A Target Operating Model (TOM) is the future-state design of a business or function that delivers on strategic goals through optimised structure, processes, technology, and capabilities. It’s the linchpin of effective business transformation—without it, initiatives often become disjointed or fail outright.

In essence, a TOM provides clarity. It answers, “What will this business look like once the change is complete?” Whether you're rolling out an ERP system, shifting to cloud-based infrastructure, or carving out a business unit, the TOM acts as a north star guiding every decision.

Why Is a TOM Critical?

In my 34+ years across sectors including retail, manufacturing, and private equity, I’ve rarely seen transformation succeed without a clearly defined Target Operating Model. Here’s why it’s indispensable:

1. Strategic Alignment

A TOM ensures that operational changes align with corporate strategy. It translates high-level ambitions into tangible activities and metrics.

2. Focus and Clarity

It brings structure to complex programmes. By setting a clear vision, teams understand their role in delivering the future state.

3. Efficiency and Cost Reduction

A well-designed TOM eliminates redundancy, streamlines processes, and aligns resources. I’ve led programmes where TOMs enabled cost savings upwards of £40 million.

4. Change Management

With a clear end-state in sight, it’s easier to gain buy-in across the organisation, measure progress, and manage stakeholder expectations.

Key Components of a Target Operating Model

While models vary by industry and context, most TOMs address six key domains:

1. Processes

How will tasks and operations be executed? Focus on standardisation and automation where possible.

2. Organisation Structure

Define the reporting lines, roles, and responsibilities needed in the future state. I’ve personally overseen restructures involving 600+ global team members.

3. Technology

What systems are required to support the future vision? Cloud migration, AI integration, and ERP consolidation often form the backbone.

4. Data and Information

How will data flow through the organisation? A centralised data strategy and analytics platform is essential.

5. Governance and Risk

Define decision rights, controls, compliance mechanisms, and security posture—especially relevant in regulated sectors.

6. People and Capabilities

Assess required skills and competencies. Upskilling and new talent acquisition plans must be in place.

How to Design a Target Operating Model

The TOM design process is iterative and should be tightly coupled with strategic planning. Here’s a simplified approach I’ve followed across sectors:

Step 1: Define Strategic Objectives

Work closely with the executive board to distil the corporate strategy into clear operational goals.

Step 2: Assess the Current Operating Model

Benchmark the "as-is" state. This includes capability maturity assessments, data audits, and stakeholder mapping.

Step 3: Design the "To-Be" State

Co-create the target model across business functions. It’s critical to involve both IT and business units early—TOMs are not an IT exercise alone.

Step 4: Develop a Transition Roadmap

Define workstreams, milestones, and timelines. Prioritise quick wins to build momentum.

Step 5: Execute and Iterate

Deploy in phases, track KPIs, and adapt as required. Embedding governance frameworks early ensures long-term sustainability.

Common Mistakes to Avoid

• Treating TOM as a one-off projectA Target Operating Model must evolve as business needs change. Make it a living document.

• Underestimating change managementTechnology is only one part. Most friction arises from people-related challenges.

• Lack of executive ownershipWithout board-level sponsorship, TOMs quickly become shelfware.

  
  

FAQs

What is the difference between a Target Operating Model and a business strategy?

A business strategy defines where you want to go; a TOM defines how you’ll get there operationally.

Is a TOM only for large enterprises?

No. Even SMEs benefit from defining their future operating model, particularly during growth, funding rounds, or tech adoption.

How long does it take to implement a TOM?

This varies widely, but initial design typically takes 3–6 months, followed by phased implementation over 1–2 years.

Can a TOM help with mergers and acquisitions?

Absolutely. In M&A, a TOM is critical to integrate entities, systems, and cultures efficiently. I’ve personally used TOMs in over 15 global M&A deals.

Final Thoughts

In today’s environment of accelerating change and disruption, a Target Operating Model is no longer optional—it’s mission-critical. It brings structure, clarity, and alignment to transformation efforts, enabling businesses to move with purpose and precision.

If your organisation is embarking on transformation—be it digital, structural, or strategic—start with a robust TOM. It’s your blueprint for operational excellence and long-term value.

Richard Keenlyside is the Global CIO for the LoneStar Group and a former IT Director for J Sainsbury’s PLC.

Call me on +44(0) 1642 040 268 or email richard@rjk.info.

Follow me on X https://x.com/cioinpractice & LinkedIn https://www.linkedin.com/in/richardkeenlyside/