Navigating Complexity: How a strategic Target Operating Model drives success in modern Investment Management

In the increasingly complex and demanding world of investment management, a well-defined and strategic Target Operating Model (TOM) is essential for firms to maintain a competitive edge. A strong TOM is built of different components, covering different aspects within the organisation, such as processes, technology, governance, and human capital.

This blogpost outlines the key components in the transformation of their TOM by investment management firms. By following a structured framework, firms can better navigate industry challenges, close capability gaps, and position themselves for sustained success.

Target Operating Model: Strategic overview

For investment managers today, a TOM must be an essential artefact to define the strategic direction of the organisation, with a focus on:

• Governance
• Clients and distribution channels
• Products
• Processes
• Human capital
• Technology and data

In a strong TOM, these elements must be closely interconnected and configured in an optimal way. A robust (interconnected and optimised) TOM is crucial for allocating the firm’s resources to those key areas that will drive the firm’s growth and underpin its stability. By defining a firm's future operating vision, the TOM identifies performance gaps and areas for improvement. Importantly, TOMs are not “one size fits all”: boutique firms may focus on talent and niche client relationships, while large global managers might prioritise scalability and cost efficiency. Regardless of scale, the TOM ensures coherence, fostering competitiveness and adaptability.

TOM core components

To remain effective, the TOM must be reviewed regularly to maintain alignment with the firm’s strategic goals. Components contributing to operational excellence include:

1. Governance: Governance provides the framework for decision-making, risk management, and compliance. Strong governance also builds transparency and accountability, fostering trust with clients and other stakeholders. Policies and oversight tshould ensure alignment with long-term objectives.
2. Clients and distribution channels: A client-focused TOM addresses the needs of differing client segments and their distribution channels. Customised solutions, responsive service, and transparent communication are critically important. Many firms now use technology to enhance client engagement, employing data analytics to refine services and improve experiences. Real-time reporting further empowers clients, building trust and facilitating better decision-making.
3. Products: The product component of the TOM consists of a range of investment solutions—mandates, mutual funds, ETFs, and alternative investments—tailored to diverse risk profiles and market needs. Firms must prioritise innovation and responsiveness, ensuring that product offerings remain in alignment with changing client preferences and regulatory standards.
4. Processes: Efficient processes drive daily operations, from trade execution to portfolio rebalancing and compliance. Streamlining and automating workflows with best practices reduces errors, supports compliance, and enhances flexibility to respond to market changes. Clear processes also improve client satisfaction and operational agility.
5. Human capital: Talent and structure are critical to effective execution of the TOM. Attracting skilled investment professionals and providing ongoing training ensures teams meet industry demands. A collaborative culture allows firms to balance risk management with innovation, fostering resilience in a volatile market.
6. Technology and data: Technology underpins an efficient TOM, optimising trading, portfolio management, risk management, and client engagement. Integrated platforms enhance front-to-back operations, ensuring seamless data flow, and reducing operational silos. Advanced tools like AI and data analytics support better decision-making, compliance, and client service, providing firms with a competitive advantage.

Each TOM component contributes to structured and resilient investment management. While aspects like processes or client engagement can often yield quick results when optimised, broader transformations—especially in technology and product offerings—demand extensive planning and investment, reinforcing long-term competitiveness.

Transformation stages: Building a future-proof TOM

Transforming a firm’s TOM can be simplified through five manageable stages, each building on the last to align with strategic goals. Not all stages require completion every time; firms can assess their TOM periodically to identify any need for adjustments, enabling a flexible path to sustained competitiveness:

1. Diagnostic phase: Assess the current TOM to identify strengths and weaknesses in processes, technology, and metrics. This stage provides insights to guide resource allocation and improvement strategies.
2. Target state definition: Define the ideal TOM, specifying objectives and outcomes. Aligning stakeholders here ensures the vision is both realistic and goal-oriented.
3. Roadmap definition: Create a detailed action plan with initiatives, resources, timelines, and milestones. This roadmap serves as a guide to achieving the desired TOM.
4. Implementation: Execute planned initiatives like technology upgrades and process refinements. Change management is vital here to support smooth transitions and readiness.
5. Transition to Business as Usual (BAU): Integrate the new TOM into daily operations with ongoing monitoring and refinement. This crucial final stage ensures the TOM’s successful adoption within BAU, positioning the firm for sustained success.
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By implementing this framework, investment firms can systematically achieve operational goals and build a foundation for long-term success. A well-designed TOM supports not just immediate targets but fosters an agile, client-centric organisation able to adapt to market and competitive changes.

Conclusion: The strategic value of a robust TOM

In an industry grappling with unprecedented market volatility and regulatory scrutiny, a robust and adaptable TOM is of vital importance for investment management firms. Regularly refining and aligning the TOM with strategic goals is not a one-time exercise but an ongoing process that keeps firms responsive to industry shifts. Firms that proactively engage in this continuous TOM assessment will be better positioned to lead in client service, operational efficiency, and innovation.

Bringing in external expertise for TOM transformation adds significant value by providing an outside-in perspective, identifying best practices, and drawing on industry benchmarks. By making TOM transformation a central aspect of strategic planning, firms not only enhance their operational capabilities but also future-proof their business, creating lasting value for clients, shareholders, and other stakeholders alike.

Authors

• Daniel Hirs, Partner
• Ueli Preisig, Director, Investment Management Sector Lead Switzerland
• Felix Gieske, Senior Manager
• Michiel Simonis, Manager