Target operating model (TOM)
A target operating model describes how an organisation, function or business line should work in the future to deliver its strategy: its processes, people and organisation, technology, data, locations, governance and suppliers. It is compared with the current model to plan the change.
Roles that need it
What it is
An operating model is the description of how a business actually delivers what it offers. A target operating model (TOM) is the version the organisation wants to reach. Frameworks differ, but most cover the same layers:
- Processes: what work is done and in which sequence.
- People and organisation: roles, reporting lines, skills, headcount.
- Technology and data: systems, data flows, ownership.
- Locations and sourcing: which work is done where, in-house or by suppliers.
- Governance: committees, decision rights, controls and performance measures.
A TOM is usually built after a current state assessment, then compared with it in a gap analysis, which feeds a roadmap and a business case.
Why it matters
Large changes in finance, such as a new regulation, a merger, a cost programme or a move to a shared service centre, change several layers at once. Without a TOM, each workstream optimises its own part and the pieces do not fit. In banking, sourcing choices in the TOM also have regulatory consequences: outsourcing critical or important functions requires due diligence, contracts with specific clauses and exit strategies under the EBA outsourcing guidelines and DORA.
Worked example
Illustrative numbers. A finance function has 300 staff in 12 countries, each with its own close process and ledger instance. The TOM proposes one standard close process, a single ledger, transactional accounting moved to a shared service centre, and local teams focused on statutory and tax work. Headcount target is 240: 110 in the service centre, 100 in local teams, 30 in a group centre of expertise. Close time is planned to fall from 10 working days to 6. The gap analysis lists 45 changes, grouped into 8 projects over three years.
Who uses it
Management and finance transformation consultants design TOMs and run the workshops that agree them. Financial services consultants adapt them to regulatory constraints. Transformation programme managers turn the TOM into a roadmap and track delivery. Change managers in banking plan the people side: role changes, training and communication. Business analysts detail the future processes and system requirements that make the TOM real.
Common confusions
A TOM is often confused with an organisation chart. The org chart is only the people layer; a TOM also covers processes, technology, data, sourcing and governance. Another confusion is to treat the TOM as fixed: it should be revisited as strategy, regulation or technology change. Finally, a TOM describes the end state; the transition plan, with its phases and interim states, is a separate deliverable.