In business management, terms like business model and target operating model (TOM) are frequently used to describe a company's structure and operations. While they are closely related, they differ in focus and orientation.
In this blog post, we will explain the difference between these two concepts and highlight their respective importance in the business context.
The Business Model: The Foundation of the Company
A company’s business model describes how it creates value, offers products or services, and generates revenue. It encompasses the strategic decisions made to meet customer needs, gain competitive advantages, and ensure long-term success. The business model defines the resources and activities needed to keep the company running and serves as the foundation for its overall strategy and direction.
Examples of business models include:
B2C Business Model: A company sells directly to consumers.
B2B Business Model: A company sells products or services to other businesses.
Subscription Model: Customers pay regularly for access to products or services.
The Target Operating Model: Implementing the Strategy
The target operating model describes how a company translates its strategic goals into concrete operational actions. It includes the organizational structure, processes, technology, and resources needed to successfully implement the business strategy. In other words, the target operating model is the roadmap that guides the transition from strategy to operational execution.
Elements of a target operating model include:
Goals
Services and Processes
IT
Organization
Suppliers
Governance
Locations
The Difference in Perspective
The main difference between the business model and the target operating model lies in their perspectives. The business model covers the strategic level and describes how a company creates value and positions itself in the market. In contrast, the target operating model focuses on the operational level, detailing how these strategic goals are turned into concrete actions and processes.
Together, the business model and target operating model form the foundation for a company’s success. The business model provides the strategic direction, while the target operating model offers the roadmap for implementing that strategy in practice. A clear understanding of both concepts enables companies to pursue their business goals more effectively and ensure long-term success.
Outlook: In our next article on the topic of Target Operating Model, we will look at how a TOM can help companies with their digital transformation.
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