Saturday, 29 December 2012

How to design a Target Operating Model (TOM)

Once you've articulated your strategy, one of the next things to do is to design the organisation to deliver it. This is usually expressed in the form of a Target Operating Model (TOM). A TOM may be a new organisation you're going to set up,or it may be the end state for a change programme to be applied to an existing organisation.

The general approach is to define the people, processes and technology required to deliver the strategy.

The most common approach for identifying the processes is to use Value Chain methodology popularised by Michael Porter. This allows you to identify not only the core processes, such as manufacturing, sales and distribution, but also the supporting functions, such finance, IT and HR, all of which may be essential to the delivery of your strategy. Within each of the process identified, it is important to identify where and how the organisation will deliver the process in a differentiated manner in order to deliver strategic value.

Once you identified and described your processes, it should follow naturally what people and technology the processes will require.

For each process identified, identify the roles, numbers of people in each role, and skills, capabilities and knowledge required by each role. Consider also whether you will need to hire in new or additional people, provide additional training to existing people, or partner with organisations who already have the types of people you need. Finally, consider reporting lines, organisational design (structure - see also Structure Follows Strategy, and On organisation structure, and breaking the rules) and values.

When considering the technology you will need to support the processes, it is important to think not only of computer systems, but also manual systems and any other supporting technologies. Consider also whether these systems and technologies exist and can be bought or rented, or whether you will have to develop bespoke solutions especially for your business. The more differentiated your processes are the more likely it is that you will need bespoke solutions, or that pre-existing solutions will require extensive customisation. Finally it is important to consider how these systems will be integrated and maintained.

You could go beyond the convention of considering just people and processes, and consider all 7 dimensions encapsulated in the McKinsey 7S analysis or which people or Staff and technology or Systems are just two dimensions, but this is usually not necessary.

Your strategy implementation plan needs to consider all of the implications of the above: designing processes, hiring and training staff, acquiring or building up knowledge, and selecting, implementing, customising, building and/or integrating systems.

Designing a TOM is a significant piece of work. However, the real challenge lies in developing and implementing a TOM which actually delivers your strategy and differentiates your organisation from the competition.