Operating Model VS Business Model Full Guide

The business model defines the overarching strategy and revenue-generating approach of the organization. In contrast, the operating model specifies the internal mechanisms and capabilities required to implement that strategy and deliver value to stakeholders. 

Both models are interconnected and essential for understanding and managing the complexities of modern business environments.

What Is A Operating Model?

An operating model is a framework that defines how an organization operates and delivers value to its stakeholders. It encompasses the structure, processes, capabilities, technologies, and governance mechanisms that enable an organization to execute its strategy effectively. 

Operating models vary depending on factors such as industry, size, complexity, and strategic objectives. They provide a blueprint for allocating resources, coordinating activities, and making decisions within an organization to achieve desired outcomes. Operating models serve as a bridge between strategy and execution, guiding the design and implementation of organizational capabilities to deliver value to customers, shareholders, employees, and other stakeholders.

What Is A Business Model?

A business model is a framework detailing how an organization creates, delivers, and captures value. It includes key components such as target market, value proposition, revenue streams, cost structure, and distribution channels. 

This model explains how these elements interact to generate profitability, providing clarity on revenue generation and operational sustainability. Business models vary across industries, reflecting different strategies and market dynamics, and serve as a roadmap for aligning activities with strategic objectives and market opportunities.

The Business Operating Model (BOM) is a specific type of business model used to implement a company's strategic plan, ensuring customer satisfaction. BOM outlines the methods an enterprise uses to achieve its goals, including product or service delivery. 

It is often described as the business's architecture, similar to a building's blueprint, illustrating the relationships among various operations and including detailed sub-maps for specific elements.

Business Model vs Operating Model

While both the business model and operating model are essential frameworks for understanding and managing an organization, they serve different purposes and focus on distinct aspects of business operations as follows:

What do you need to Build your Operating Model Design?

Building an effective operating model design requires careful consideration of several key elements to ensure alignment with the organization's strategic objectives and operational requirements. Here are the essential components you need to focus on:

1. Clear Understanding of Business Objectives

Start by defining the organization's strategic goals and objectives. Understand the market dynamics, customer needs, and competitive landscape to determine how the operating model can support the achievement of these objectives.

2. Stakeholder Analysis

Identify and analyze key stakeholders, including internal teams, external partners, customers, and regulators. Understand their needs, expectations, and interactions with the organization to design an operating model that effectively addresses their requirements.

3. Process Mapping

Map out the end-to-end processes involved in delivering products or services to customers. Identify critical workflows, dependencies, bottlenecks, and areas for improvement to streamline operations and enhance efficiency.

4. Organizational Structure

Define the organizational structure, including reporting lines, roles, responsibilities, and decision-making processes. Ensure clarity and accountability to enable effective coordination and collaboration across departments and teams.

5. Resource Allocation

Determine the resources required to support the operating model, including human resources, technology, infrastructure, and financial investments. Allocate resources strategically to optimize performance and achieve desired outcomes.

6. Technology Infrastructure

Assess the technology infrastructure needed to enable and support the operating model. Identify appropriate systems, platforms, and tools to automate processes, enhance productivity, and facilitate data-driven decision-making.

7. Governance and Controls

Establish governance mechanisms and control frameworks to monitor performance, manage risks, and ensure compliance with regulatory requirements. Define KPIs, metrics, and reporting structures to track progress and evaluate the effectiveness of the operating model.

8. Change Management Plan

Develop a comprehensive change management plan to communicate the operating model changes effectively and ensure buy-in from stakeholders. Provide training, support, and resources to facilitate the transition to the new operating model smoothly.

What do you need to Build your Business Model Design?

Building a successful business model design involves careful planning and consideration of various factors that influence the organization's ability to create, deliver, and capture value. Here are the key elements you need to focus on when building your business model design:

1. Value Proposition

Clearly define the value proposition that your organization offers to its customers. Identify the unique benefits and solutions that differentiate your products or services from competitors and address the needs and preferences of your target market.

2. Customer Segments

Identify and segment your target audience based on demographics, behavior, needs, and preferences. Understand the distinct customer segments and tailor your value proposition and marketing strategies to effectively reach and engage each segment.

3. Revenue Streams

Determine how your organization will generate revenue from its products or services. Explore different monetization strategies, such as one-time sales, subscription models, licensing fees, or advertising revenue, and align them with your value proposition and customer segments.

4. Channels

Define the channels through which your products or services will be delivered to customers. Consider both traditional and digital channels, such as retail stores, e-commerce platforms, mobile apps, social media, and direct sales, and choose the most effective channels to reach your target audience.

5. Key Partnerships

Identify strategic partnerships and alliances that can enhance your business model and provide access to key resources, capabilities, or distribution channels. Collaborate with suppliers, distributors, technology partners, and other stakeholders to leverage complementary strengths and create mutual value.

6. Cost Structure

Determine the costs associated with operating your business and delivering your value proposition. Identify fixed and variable costs, overhead expenses, and investments required to develop, produce, market, and distribute your products or services. Optimize your cost structure to maximize profitability and efficiency.

7. Key Activities

Define the key activities and processes that are essential for executing your business model. Identify core competencies, operational workflows, and value-creating activities that drive the success of your organization and differentiate you from competitors.

8. Customer Relationships

Establish and nurture meaningful relationships with your customers to build loyalty, trust, and long-term engagement. Determine how you will acquire, retain, and serve customers at each stage of the customer journey and tailor your approach to meet their evolving needs and preferences.

Business Operating Model Example Case study

Imagine a retail store adopting a famous European trademark, for sports outfits for example, which produces high-quality products with reasonable prices available in various countries. The following operations illustrate how it works:

• The central administration is in Europe.
• Manufacturing in Asian countries.
• The targeted markets are Africa and the Middle East.
• The sale is online.
• Prices are competitive with those of other companies.

According to the above mentioned, the general frame of (BOM) will illustrate the following items that facilitate the final delivery with the quality and the value expected by the client.

1. The company’s ability to develop and cope with market change.
2. Tasks and operations like manufacturing, distribution among other things
3. Geography represented in work and sell in more than one place
4. Roles and process design
5. Organizational structure showing the practical and geographic Integration of roles
6. Technology including electronic transactions with customers.

Is BOM beneficial to the firm?

The presence of clear (BOM) helps to:

1. Explain the mechanism by which the firm is operating.
2. Clarify operational and technical tasks.
3. Determine operational disorders and work clashes.
4. Detecting responsibility for vulnerabilities and risks.
5. Highlight data fragmentation, system and tasks.

  How can BOM prevent operations’ breakdown?

• A stable solid (BOM) leads to organizational decision-making.
• It helps to achieve the vision and the message and determines the areas of questioning as well as the effectiveness in dealing with the weaknesses.
• The presence of strong leadership to carry out the strategies can prevent such breakdowns.
• (BOM) prevents personal hesitation that may lead to the centralization of the strategies.
• It organizes the roles of the individuals and their responsibilities and enhances consultations and dependence at the right time and place.
• It improves productivity, and time management determines which tasks need to be prepared and answers what and how questions.
• It represents an organizational roadmap to ensure preparedness and make sure to find the right people at the right time in the long run.

Is (BOM) considered ideal in my company?

It should be said that (BOM) should be present in every firm. However, not all models are the same and effective in supporting the goals of the firms.

how to know that there is a problem with the (BOM) of your firm?

Positive answers to the following questions indicate the strength and the effectiveness of your model:

• Are the capacities of the organizational structures well-defined in a way to fulfill the strategies of your company?
• Are you performing many transactions through trademarks and in different places more effectively than in the past?
• Are you performing your central operations cheaper and more effectively with fewer distractions than those in other places by your firm?

Are your ways and practices allow presenting appropriate people in appropriate times to solve challenges or respond to threats with the least amount of bureaucracy?

• Are your strategies, budget, and planning well-connected with the financial resources bearing in mind the available opportunities?
• Does your firm professionally take and implement decisive decisions faster than the competitors?
• Is there clarity in taking the most important twenty strategic and operational decisions at the firm and who takes these decisions and on what basis?
• Does your firm have a well-coordinated and effective style of work reflecting its culture and achieving its aims positively?

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Conclusion

In summary, while the business model focuses on the external-facing aspects of the organization and sets the strategic direction, the operating model deals with the internal workings and execution of that strategy. Both models are interdependent and need to align closely for the organization to succeed. 

A well-defined business model informs the design of the operating model, ensuring that the necessary capabilities and resources are in place to deliver on the value proposition and achieve strategic objectives. 

Conversely, the operating model shapes how the business model is implemented in practice, ensuring operational efficiency and effectiveness in value delivery. Together, these models provide a holistic framework for understanding and managing the organization's operations and strategic direction.