What is a Target Operating Model (TOM)?

Austin Merrett
Jan 01, 2024

Target Operating Model (TOM) is a term commonly used in many organisations. It sounds fresh and engaging, and everyone wants to get in on it, but is it clear what it is, how we design one, build, and deliver it? My experience with local, national, and global organisations undertaking business and IT change leads me to conclude that most don’t.

I will highlight several areas that all those involved with operating model change and transition, such as a clear, simple definition of what an operating model is, flowing into how to design it, build and deliver it. Let’s dive in. Let’s start by understanding what an operating model is. OMDDMS®, the Operating Model Design and Development Management Standard, an emerging global standard, defines an operating model as ‘the way in which an organisation conducts its business and achieves its goals’ Using the comprehensive OMDDMS® framework, we outline how an organisation’s resources are defined, structured, managed, and optimised to deliver sustained, measurable benefits.

The operating model is a critical component of an organisation’s strategy. It determines how it will allocate resources, make decisions, and interact with its stakeholders (internal and external) to deliver and sustain its strategy. It needs to be logical, structured, and understandable. Operating models can be complex, so when considering what the TOM (target operating model or future-state operating model) should look like, we need to understand, as a minimum, the capabilities, processes, people, information, technologies, governance structures, obligations, customers, products, services, and organisational structures that are required to support the organisation’s intent and achieve its desired outcomes defined by its strategy.

Figure 1.  Recent research into Operating Model Change Drivers†

There are many drivers for changing the operating model. Recent research found that the current primary driver, ‘Evolving customer expectations,’ will be replaced by ‘Political challenges’ in 2025. At the time of writing, that’s about 14 months.

Regardless of the driver, we must know how to design, build, and deliver the TOM. An operating model can help to streamline processes, enhance efficiency, clarify roles and structures within the organisation. It can facilitate better decision-making, promote consistent service delivery, and ensure adaptability under changing market, regulatory, and geopolitical conditions.

Irrespective of where you want to go, you need to understand where you are and assess what needs to be changed and when you plan for the transformation. ‘Big Bang’ change isn’t always the most suitable course of action and can have negative impacts, such as operational disruptions, cost overruns, staff resistance and reduced morale, customer impact, technical issues, and more.

To address this, the OMDDMS® concept of the Configurable Organisation should be implemented enabling appropriate parts of the transformation to transition in a risk-managed fashion to achieve the target state. A Configurable Organisation is a high-performing organisation that is effective and achieves sustainable results by having a:

  • Clear statement of intent that creates a sense of identity
  • Well-defined design results in a distinctive culture
  • Respect for people as part of the culture
  • Good communication and information-sharing systems
  • Design (workflow, structure, systems) that supports activities
  • High involvement and empowerment of people
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‘The Chief Transformation Officer’ from research conducted by Accenture Research, Brightline Project Management Institute, and Project Management Institute (2022)

How Tesla’s Operating Model Sets It Apart from Traditional Automakers

Don Phillips
Feb 01, 2024

When comparing Tesla to traditional car manufacturers like Ford Motor Company, the differences in operating models are striking and illuminate why Tesla is often seen as a leader in automotive innovation. As a professional keenly observing these industry shifts, here are my thoughts on how Tesla’s operating model differs and excels.

Vertical Integration

Tesla's approach to vertical integration is one of its most significant differentiators. Unlike traditional automakers who rely heavily on suppliers for various components, Tesla designs and manufactures a substantial portion of its parts in-house. This vertical integration extends from battery production to software development, giving Tesla greater control over the quality and cost of its vehicles. This contrasts sharply with Ford, which, while efficient, operates with a more traditional supply chain model

Direct Sales Model

Another critical aspect of Tesla's operating model is its direct-to-consumer sales approach. By bypassing traditional dealerships, Tesla enhances customer experience and maintains direct relationships with its buyers. This model allows for better control over pricing, customer feedback, and brand experience. Ford, on the other hand, still operates through a vast network of third-party dealerships, which can sometimes dilute the brand experience and create variability in customer service.

Software-Driven Innovation

Tesla’s vehicles are often described as ‘computers on wheels’, a testament to their software-driven nature. The company’s focus on over-the-air updates means that Tesla cars continually improve long after they’ve left the factory. This model ensures that customers always have access to the latest features and improvements without needing to visit a service center. Traditional automakers like Ford are only beginning to explore the potential of such software updates, often requiring more physical intervention for upgrades and maintenance.

Agile Product Development

Tesla’s agility in product development allows for rapid innovation and iteration. The company is not constrained by the traditional automotive production cycles that can slow down innovation. Instead, Tesla embraces a more dynamic approach, enabling quicker responses to market demands and technological advancements. Ford, with its established processes and large-scale operations, often faces more significant inertia when attempting to innovate quickly.

Focus on Sustainability

Sustainability is at the core of Tesla’s mission, driving decisions from product design to corporate strategy. Tesla’s emphasis on electric vehicles, renewable energy solutions, and sustainable manufacturing practices sets it apart from many traditional automakers, who are gradually shifting towards greener practices but often have legacy systems and products that slow this transition.

Conclusion

Tesla’s operating model showcases a blend of vertical integration, direct sales, software-driven innovation, agile development, and a focus on sustainability. These elements collectively position Tesla not just as an automotive company, but as a tech-driven innovator. In contrast, traditional automakers like Ford are evolving but must navigate legacy structures and processes. Understanding these operating model differences is crucial for anyone interested in the future of the automotive industry and the broader implications of technological and business model innovations. For more insights into innovative operating models, I recommend exploring frameworks like OMDDMS which provide structured approaches to organisational transformation.

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Aligning Strategy with the Operating Model

Don Phillips
Mar 01, 2024

Connecting a strategic plan with an operating model and planning its transformation involves several key steps:

1. Aligning Strategy with the Operating Model

Define Strategic Objectives

Clearly articulate the strategic objectives that the organisation aims to achieve. These objectives should reflect the long-term vision and mission of the organisation.

Map Strategy to Operating Model Components

Break down the strategic objectives into specific components of the operating model: processes, technology, organisational structure, people, and governance. Determine how each component needs to change to support the strategic goals.

2. Assessing the Current Operating Model

Conduct a Current State Assessment

Evaluate the existing operating model to identify strengths, weaknesses, gaps, and opportunities. This involves analyzing current processes, technologies, organisational structures, and capabilities.

Benchmarking

Compare the current operating model with industry best practices and standards to identify areas for improvement.

3. Designing the Future Operating Model

Define the Future State

Develop a clear vision of the future operating model that aligns with the strategic objectives. This includes detailed descriptions of new processes, technologies, organisational structures, and governance mechanisms.

Develop a Transformation Roadmap

Create a detailed transformation roadmap that outlines the steps needed to move from the current state to the future state. This roadmap should include timelines, milestones, resource requirements, and risk management plans.

4. Implementation and Change Management

Implement Incremental Changes

Break down the transformation into manageable phases or projects. Implement changes incrementally to manage risk and ensure smooth transitions.

Engage Stakeholders

Involve key stakeholders throughout the transformation process to ensure buy-in and support. Effective communication and engagement are crucial for managing resistance to change.

Monitor and Adjust

Continuously monitor progress against the transformation roadmap. Use key performance indicators (KPIs) to measure the effectiveness of changes and make necessary adjustments.

5. Continuous Improvement

Feedback Loops

Establish feedback mechanisms to gather insights from employees, customers, and other stakeholders. Use this feedback to make ongoing improvements to the operating model.

Regular Reviews

Conduct regular reviews of the operating model to ensure it continues to align with the strategic objectives and adapt to changing market conditions and organisational needs.

Conclusion

Connecting a strategic plan with an operating model and planning its transformation requires careful alignment, detailed planning, and continuous monitoring. By following a structured approach, organisations can ensure that their operating model supports their strategic objectives and drives sustainable growth. For further insights and structured approaches, exploring frameworks like OMDDMS can be beneficial.

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The Strategic Edge: Why Your organisation Needs a Permanent Operating Model Transformation Office

Don Phillips
Apr 01, 2024

In today's fast-paced business landscape, staying ahead of the curve requires more than just keeping up with market trends; it demands a fundamental transformation in how organisations operate. This is where the OMDDMS (Operating Model Design and Development Management Standard) comes into play, advocating for a dedicated Operating Model Transformation Office (OMTO) that reports directly to the CEO or Board. Here’s why this approach can be a game-changer for your organisation.

Strategic Alignment and Oversight

Direct Strategic Influence

Having the OMTO report directly to the CEO or Board ensures that transformation efforts are tightly aligned with the organisation’s strategic goals and vision. This direct line of communication helps prioritize initiatives that deliver the most value, ensuring that every step taken is in sync with the broader corporate strategy

Accountability and Governance

A direct reporting structure enhances governance and accountability. It enables the Board to closely monitor progress, swiftly address any issues, and make informed decisions, thereby maintaining a high level of oversight and ensuring that transformation initiatives stay on track

Resource Allocation

When the OMTO is connected to top management, it facilitates better resource allocation. Critical transformation projects receive the necessary funding, personnel, and attention, significantly increasing their chances of success.

Benchmarking

Compare the current operating model with industry best practices and standards to identify areas for improvement.

Operational Benefits

Consistency and Continuity

Transformations often suffer from a start-stop cycle, losing momentum and focus. A permanent OMTO ensures a continuous and consistent approach to transformation efforts, fostering sustained progress and improvement over time.

Coordination and Integration

The OMTO can break down silos, ensuring that transformation efforts are coordinated across different departments and functions. This holistic approach promotes coherence, synergy, and a unified push towards common goals.

Change Management

Managing cultural and operational changes is crucial for successful transformation. A dedicated OMTO provides ongoing support, training, and communication, helping to ease the transition and fostering a culture of innovation and agility.

Innovation and Agility

Proactive Adaptation

In an environment where change is constant, a permanent OMTO enables the organisation to proactively adapt to new challenges and opportunities. This adaptability helps keep the organisation ahead of technological advancements and market trends.

Innovation Hub

The OMTO serves as a central hub for innovation, driving the adoption of new technologies and methodologies. It allows for experimentation with new ideas, piloting projects, and scaling successful initiatives across the organisation.

Risk Management

Migrating Transformation Risks

Transformation projects are inherently risky. A permanent OMTO can continuously identify, assess, and mitigate these risks, reducing the likelihood of project failures and ensuring smoother transitions

Compliance and Standards

The office ensures that transformation efforts comply with relevant standards and regulations, minimizing legal and compliance risks and safeguarding the organisation’s reputation and operational integrity.

Measurable Outcomes

Performance Measurement

A permanent OMTO can establish robust metrics and KPIs to measure the impact of transformation initiatives. Continuous monitoring and reporting provide transparency, enabling data-driven decision-making and demonstrating the value of transformation efforts.

Long-term Value Creation [OMDDMS 'measurable benefit']

By focusing on long-term strategic goals rather than short-term gains, the OMTO drives sustainable value creation. This approach enhances the organisation’s competitive advantage and resilience, positioning it for ongoing success.

Conclusion

The OMDDMS standard’s recommendation for a permanent Operating Model Transformation Office reporting directly to the CEO or Board is rooted in the need for strategic alignment, robust governance, continuous improvement, and proactive adaptation to change. This structure not only helps manage transformation efforts more efficiently but also drives innovation, mitigates risks, and ultimately achieves sustained competitive advantage. Embracing this model can be the key to unlocking your organisation’s full potential in an ever-evolving business landscape.

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Navigating Organisational Transformation: The Crucial Discovery Phase in OMDDMS

Don Phillips
May 02, 2024

In the dynamic landscape of modern business, organisations are constantly seeking ways to evolve and thrive. One such avenue for growth is through the strategic transformation of their operating models. At the heart of this transformation journey lies the pivotal discovery phase within the Operating Model Design Delivery and Management Standard (OMDDMS). Let's delve into why this phase is indispensable and explore the key activities that drive it forward.

Unveiling Organisational Insights

The discovery phase serves as a compass, guiding organisations towards a comprehensive understanding of their current state. It kicks off with stakeholder interviews and workshops, where key players from various levels and functions within the organisation come together to share insights, challenges, and aspirations. These collaborative sessions foster open dialogue and illuminate diverse perspectives, laying the groundwork for informed decision-making.

Mining the Archives: Document Review

A thorough review of existing documentation is the next step in the discovery journey. Organisational charts, policies, procedures, process maps, and performance reports—all undergo scrutiny. This meticulous examination unveils the formal structure, operational processes, and historical performance of the organisation, providing invaluable insights into its inner workings.

Quantitative Insights: Data Analysis

Data emerges as a powerful ally in the discovery phase. Financial performance metrics, operational indicators, customer feedback, employee satisfaction scores, and market trends—all undergo rigorous analysis. This quantitative exploration yields objective insights into the organisation's strengths, weaknesses, opportunities, and threats, guiding strategic decision-making.

Technology Terrain: Assessing the Landscape

In today's digital age, technology is a cornerstone of organisational success. Hence, the discovery phase includes a comprehensive assessment of the organisation's technology landscape. Systems, applications, and infrastructure undergo scrutiny to identify gaps, redundancies, and inefficiencies that may impede the operating model's efficacy.

Cultural Compass: Assessing Change Readiness

Culture plays a pivotal role in shaping organisational dynamics. Thus, the discovery phase includes an assessment of organisational culture—its values, norms, and prevailing behaviors. Understanding the organisation's change readiness is crucial, as it helps identify potential barriers to change that must be addressed during the transformation journey.

Benchmarking Excellence: External Perspectives

Drawing insights from external benchmarks is another vital aspect of the discovery phase. Through benchmarking exercises, organisations compare their performance, practices, and capabilities against industry peers and best-in-class organisations. This external perspective aids in identifying areas of competitive advantage and opportunities for improvement.

Navigating Risks: Identifying Potential Pitfalls

No transformation journey is devoid of risks. Hence, the discovery phase includes a comprehensive risk identification exercise. Internal and external risks—ranging from regulatory compliance to market volatility and technological disruptions—are meticulously assessed. This proactive approach enables organisations to develop robust risk mitigation strategies.

Synthesizing Insights: SWOT Analysis

The culmination of the discovery phase involves synthesizing insights through a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. This holistic assessment integrates findings from stakeholder engagements, data analysis, benchmarking exercises, and risk assessments. The resulting SWOT matrix serves as a strategic compass, guiding organisations towards informed decision-making in subsequent phases of the transformation journey.

In essence, the discovery phase within OMDDMS is akin to laying the groundwork for a monumental architectural masterpiece. By undertaking these activities systematically and comprehensively, organisations gain a holistic understanding of their current state, paving the way for a transformative journey towards operational excellence and sustainable growth.

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