Ashridge Business School Target Operating Model
Operating Model is a new bit of management jargon … well it has been around for about ten years but it is gathering momentum. It is a label for the operating engine of a business: the bits that make it possible for a business to deliver good value for money to customers.
Other terms are Enterprise Architecture and/or Business Architecture. These labels emerged from the IT function as IT analysts realised that they needed to get their arms around the business in order to be able to design integrated information systems. Unfortunately the term architecture is not an easy one for managers outside the IT function. Hence these labels have not caught on with a wider audience.
Another term that connects with operating model is business model. I like to think of business model as including operating model. In other words the operating model is one part of the business model. The other parts of a business model are the choice of stakeholder particularly the target customer the value proposition being promised to each stakeholder and the consequential financial model.
A business model is therefore a way of documenting a business strategy. The strategy will define the main elements of the business model … and of course it will also set some goals and ambitions for the future. So strategy is the top concept business model is a sub set of strategy (but at a greater level of detail) and operating model is a subset of business model (at an even lower level of detail).
Target operating model (TOM) is another term that is often used. This has emerged because of the prevalence of legacy IT systems. The target operating model is the vision for how the operations will be set up at some time in the future. The path from the current state to the TOM is achieved through a number of transformation projects and may take a number of years.