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What is the difference between target operating model and organizational design?

In this article, Rupert Morrison looks at what each means, how they relate to each other, and how you should use them.

Published by Rupert Morrison 

[This article was updated on Aug 24, 2023]

Confusion and debate surround these two common industry terms. Is it better to use one and not the other, are they complementary concepts or simply different names for the same things? In this article, Rupert Morrison looks at what each means, how they relate to each other, and how you should use them.

I am often asked what the difference is between target operating model and organizational structure design. I tend to find that while target operating model is generally well understood, there’s a lack of consensus among academics, HR practitioners, HR generalists, and those outside the HR function when it comes to a working definition of organizational design. Many people still think of org design as an exercise in changing the structure of an organizational chart. It’s so much more than that!

Why is it so important to be clear about these definitions? Rhetoric and pedantry aside, confusion in terminology and scope of these two concepts can cause the significant value they promise to deliver to be overlooked.

AspectTarget Operating Model (TOM)Organizational Design (OD)
DefinitionComprehensive model enabling business strategy implementationShaping organizational structure to align with strategy
FocusDelivery blueprint for business modelMicro-level design for achieving strategy and vision
ComponentsPeople, processes, organization, information, technology, customers, channels, products/services, physical locationOrganizing people, work, goals, objectives, competencies, roles
ScopeSpecifies what needs to be done for operating model successFocuses on maximizing goal achievement and strategic alignment
Relationship to StrategyImplements business strategyAligns people, processes, and competencies with strategy
Connection to TransformationPart of the TOM and undertaken concurrentlyPart of the transformation journey alongside TOM
Implementation ComplexityAddresses macro-level elementsAddresses micro-level details for goal achievement
Usage Consistency RecommendationChoose either TOM or OD and use it consistentlyClarity in vision and basics is more important than the route

What is target operating model?

By and large, there is consistency and structure in how target operating model, or TOM, is understood in a business context. KPMG, IBM, and Deloitte all define it as a comprehensive model that enables the implementation of business strategy.

An operating model breaks down the working parts that make up an organizational system and describes how a business delivers value. A commonly used way to describe these components is people, process, and organization. In other words, TOM is the blueprint for how a business will deliver its value proposition and profit model. It specifies what the organization needs to do for the operating model to achieve its objectives.

How to design a target operating model

When designing the target operating model, there are nine constituent parts that must be addressed (see Figure 1). These are:

  • People: your workforce, its competencies and capabilities
  • Processes: value chain and activities
  • Organization: structure, layers, and spans of control
  • Information: workforce, operational, and financial data
  • Technology: software and systems
  • Customers: market segmentation
  • Channels: routes to market
  • Products/services: innovation and time to market
  • Physical location: where you operate offices or facilities

Breaking down a company’s current operating model into these elements makes it easier for business leaders to assess the maturity of their company’s current operation, define their desired future state, and design the roadmap to get to this state. This makes target operating model both a noun and a verb – a desired future state and the process of getting there.

What is organizational structure and design?

By contrast, organizational design (OD) is fundamentally about shaping an organization’s structure to align people, processes, and competencies with business strategy and objectives.

To make the distinction clear, I think about org design as a question: How do we organize people and work to maximise the probability of hitting our goals to deliver the strategy and achieve the organization’s vision.

The target operating model only provides the delivery blueprint for a company’s business model, whereas organizational design deconstructs the model, focusing on the granular level of how to ‘Make it Real’ (see Figure 2 and Figure 3). It gets into the micro-level design that includes goals and objectives as well as competencies and roles.

To understand our thinking on org design in more detail, download this introductory chapter from our book on data-driven organizational design.

Where OD meets TOM

Org design should be thought of as a part of the TOM and should be undertaken at the same time during any transformation project. The diagram below shows the interconnection of an organization’s elements at a micro level.

Choose one and stick with it

Much confusion has been caused by professionals using both TOM and OD in a project. In the academic context, both are simply different pathways to the same end goal: to move the organization to its future state. I would recommend you choose one concept and use it consistently.

Regardless of which you choose, you must be sure to drill down to the micro details and define all elements of the organizational system, so that your company vision is implementable and sustainable.

The ideal transformation journey would address all 11 elements shown on Figure 1. But in practice, you can’t do everything at once without putting your organization into cognitive overload and under unnecessary time pressure. You’ll need to decide which of the 11 elements to prioritize, in what order, and to what level of detail.

In the end, being clear on what you want to achieve with your macro design and getting the basics right is more important than the route you take to get there.


  1. Deloitte (2009) Managing Complex Transformations: Achieving Excellence. Available at: (Accessed: 27 November 2015).
  2. IBM (2012) Target operating model accelerator. Available at: (Accessed: 27 November 2015).
  3. KPMG (2013) Target operating model. Available at: (Accessed: 27 November 2015).

Learn more about organizational design

Continually improve your organizational design through always-on insight into your most valued asset – your people. No more trudging through unwieldy spreadsheets or shuffling boxes around static presentation slides.

Rupert Morrison

Founder and Deputy Chair of Orgvue, Orgvue

Rupert Morrison is the founding pioneer behind Orgvue, the leading organizational design and planning platform, which has won numerous accolades including Gartner’s ‘Cool Vendor’ in human capital management software. Rupert’s aim is to help businesses realize their goals through data and analytics. With over 20+ years of experience in consulting, and 17 years in developing software, he blends a deep understanding of board level business issues with new data driven methodologies to give real and sustainable business impact. Rupert is the author of the industry's foremost thought-leading books, considered to be essential 'must reads' for all org design and workforce planning professionals: "Data-driven Organization Design" (now in it's second edition) and "Organizational Planning and Analysis".

Photograph of Rupert Morrison