Target Operating Model

A target operating model, often shortened to TOM, describes the future shape of an organization. It sets out how work will be organized, who will do it, where it will be done, which processes and technology will support it and how decisions will be made. It is usually developed when an organization undergoes a major change, such as a new strategy, a merger, a shift to digital channels or a large cost reduction program, and needs a clear picture of where it is heading before deciding how to get there.

The target operating model links strategy to execution. A strategy may say the company will become more customer-focused or more efficient, but the operating model shows what that means for teams, roles, processes and systems. For enterprise architecture and IT finance, the TOM provides the business direction that architecture and technology plans must support, and it shapes where the organization will invest and where it will reduce spending.

Definition of Target Operating Model

A target operating model is a future-state design of an organization's operating model, describing how it will create and deliver value once a planned transformation is complete. It is compared with the current operating model to identify the changes required.

It is closely related to business architecture, which provides capability and value stream models, and to the IT operating model, which describes how the technology function itself will work.

Common Components

Capabilities and value streams describe what the organization must be able to do and how value flows to customers.

Processes and ways of working describe how work will be carried out, including which activities are standardized, automated or outsourced.

Organization and people cover structure, roles, skills, reporting lines and culture, while locations cover where work is done, such as shared service centers or regional hubs.

Technology and data describe the systems and information that support the model, and governance describes how decisions are made and performance is managed.

Current and Target Operating Models

The current operating model describes how the organization works today, including its strengths, weaknesses and costs. An honest current view is essential, since every estimate of change depends on it.

The target operating model describes the intended future state. Comparing the two identifies gaps in capabilities, processes, structure and technology.

A transition plan sets out how and when the organization will move from one to the other, often through intermediate stages that each deliver benefits. Staged transitions also let leaders adjust the design as they learn.

Importance of Target Operating Models in Enterprise Architecture

The TOM gives architecture its business direction. A target architecture for technology should support the operating model the organization is moving toward.

It ensures that changes to structure, process and technology are designed together. Changing systems without changing ways of working, or the reverse, rarely delivers the expected benefits. New systems built for old processes often reproduce the problems they were meant to solve.

It also provides a shared reference for leaders, helping them agree on what the organization will look like and how progress will be measured.

Financial Implications

Target operating models often have explicit financial goals, such as reducing operating costs, improving margins or freeing investment for growth.

The design determines where costs will sit, for example by consolidating functions into shared services, automating processes or changing the mix of internal and external staff.

Technology costs are a significant part of most operating model changes, including new platforms, integration and the retirement of old systems. Linking the TOM to the technology roadmap ensures these costs are planned and funded.

Tracking costs and benefits against the business case as the transition proceeds helps leaders confirm that the new model is delivering what was promised.

Common Challenges

Target operating models are sometimes designed at a high level without enough detail to guide implementation. Teams are then left to interpret the model themselves, which leads to inconsistent results.

Transitions take longer than planned, especially when they involve changes to roles and culture, and benefits arrive later than expected. Realistic timelines and early wins help maintain support.

Without strong governance, parts of the organization may continue working in old ways, leaving the model only partly implemented. Clear ownership for each part of the transition helps prevent this.