The term “Target Operating Model” (TOM) is currently on everyone’s lips – especially in the HR departments of large corporations. The discussion is usually conducted from a corporate perspective. But what does this concept actually mean for industrial SMEs? Is it even applicable to them? A critical examination from the field shows: it depends.
What does Target Operating Model actually mean?
First of all, we need to take a closer look, because the term “Target Operating Model” is used ambiguously. Essentially, two dominant interpretations have emerged, shaped by different schools of thought.
The first interpretation sees TOM as a methodological approach that aims to systematically link business strategy and operational processes. This approach is strongly driven by the digitalization perspective. The initial focus is on a clear representation of all HR processes. On this basis, automation potential is then identified – whether through classic digitalization or the use of artificial intelligence. Only in the next step is an ideal organizational blueprint developed from this. The end result is the definition of clearly priceable HR products that can be offered to the business.
The second interpretation, which has been shaped primarily by large consulting firms, understands TOM as an idealized organizational model. Here, the focus is on a consistent understanding of services such as HR. The organization is managed in a budget-driven manner – whether as a cost center or even as a profit-oriented unit. This often results in the establishment of a separate legal entity that is linked to the company by service level agreements. Market comparisons and benchmarking play a central role here.
What both approaches have in common is that they aim to strengthen entrepreneurial thinking in the HR function. However, they differ fundamentally in their approach and the resulting consequences for the organization.
The medium-sized company perspective – a different reality
If we want to transfer these corporate models to medium-sized companies, we quickly encounter characteristic challenges. Unlike in corporations, many medium-sized companies – especially as suppliers – do not have a fully autonomous strategy development process. They are often dependent on the strategic decisions of their large customers.
Added to this is the question of resources: the digital transformation, which is a key driver of the TOM concept, requires considerable investment. SMEs often have limited access to these funds.
The structural peculiarities of the SME sector also play an important role. Often, the organizations tend to be understaffed and the employees are overburdened as a result. The strong division of labor that is common in large corporations does not exist here – what is needed are HR generalists rather than specialists. Many structures have grown historically and subsidiaries are only partially integrated.
Another important aspect is digital fragmentation: where corporations can rely on large, integrated software suites, medium-sized companies often use “best of breed” approaches. This means that different specialized solutions are used alongside each other, which makes it difficult to automate processes consistently.
A differentiated recommendation
Does this mean that the Target Operating Model is unsuitable for medium-sized companies? Not at all. But it needs to be considered in a differentiated way and, above all, an implementation strategy adapted to the needs of medium-sized companies.
As a model for thought, the methodical TOM approach also offers important opportunities for industrial SMEs. It is ideally suited for the structured planning of digitization and for the strategic alignment of the HR function. It also makes the value contribution of individual HR services clearer.
However, the organization’s level of maturity is crucial. Before a Target Operating Model can be implemented, more fundamental tasks often have to be accomplished first. These include sound strategic human resources planning, clear process descriptions and defined role descriptions. Basic “maps” of the organization must also be available.
Conclusion: evolution instead of revolution
The path to a Target Operating Model in medium-sized companies should be evolutionary, not revolutionary. The concept can serve as a strategic compass, but the implementation must be based on the maturity and specific conditions of the organization.
The real skill lies in identifying the elements of the Target Operating Model that are appropriate for one’s own organization and implementing them step by step but consistently. Only in this way can medium-sized companies benefit from the advantages of the concept without getting lost in overly complex transformation projects.
It is therefore important to find a pragmatic middle way: to use the Target Operating Model as an orientation framework without getting caught up in the complexity of corporate-driven approaches. Each company has to find its own way that fits its size, maturity and specific challenges.
What is your experience with the Target Operation Model? I look forward to your comments and thoughts on this topic.
