OPERATING MODEL: What It Is & How To Build One

An operating model serves as a strategic framework that aligns your business processes, resources, and technology to achieve desired outcomes. By carefully crafting and implementing an operating model tailored to your specific needs, you can streamline operations, enhance collaboration, and drive sustainable growth. This article will provide valuable insights. Whether you’re interested in defining your business operating model, optimizing your HR operating model, leveraging a cloud operating model, or wishing to design an operating model that aligns with your organization’s goals and objectives, we’ve got you covered.

What is an Operating model?

A blueprint or structure that specifies how a company runs and produces value for its stakeholders is known as an operating model. It encompasses an organization’s fundamental parts and components, such as its procedures, capabilities, resources, technology, governance, and relationships. An operating model is a structured way to harmonize an organization’s strategy, goals, and operations in order to achieve optimal performance and the intended results. It assists organizations in optimizing efficiency, effectiveness, and agility by streamlining processes, effectively allocating resources, and facilitating seamless cooperation and coordination across diverse roles and departments. The operating model acts as a guide for decision-making, resource allocation, and organizational design, ensuring that all areas of the business work in harmony to deliver value and meet strategic goals.

Business Operating Model

A business’s value creation, delivery, and capture processes are described in detail by its operational model. It includes all of the organization’s primary functions, resources, and value proposition. The operating model also offers a clear framework for successful and efficient operations by outlining how various business components interact and coordinating them with strategic goals. It aids businesses in streamlining operations, intelligent resource allocation, and market-condition adaptation. The operational model also makes it easier for departments to coordinate and collaborate, facilitating smooth execution and improving overall performance. In the end, in today’s dynamic business environment, a well-designed operational model is essential for generating sustainable development and competitive advantage.

HR Operating Model

The framework and structure that guide the delivery of human resources functions inside a company are referred to as the HR operating model. It describes how human resource operations and processes are organized, integrated, and coordinated with the overall corporate strategy. HR roles and responsibilities, organizational structure, technology infrastructure, policies and procedures, and the HR service delivery model are all part of the HR operating model. It gives HR managers a clear plan for managing employee recruitment, development, remuneration, performance management, and employee relations successfully.

A well-designed HR operating model allows HR departments to optimize procedures, improve employee experiences, and strategically contribute to the organization’s goals. It also assists HR directors in efficiently allocating resources, leveraging technology, and remaining adaptable in a continuously changing HR world. Finally, a good HR operating model contributes to the organization’s overall performance and growth by ensuring that HR practices are aligned with business demands and objectives.

Cloud Operating Model

The cloud operating model refers to the approach and framework for managing and delivering cloud services within an organization. It also includes the strategies, procedures, and tools employed in the design, implementation, and operation of cloud-based systems. The cloud operating model enables enterprises to take advantage of cloud computing’s scalability, flexibility, and cost-effectiveness. It also entails incorporating cloud technologies like architecture as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS) into an organization’s IT architecture and operations.

Cloud governance, security and compliance, resource management, performance monitoring, and service-level agreements are all part of the model. It also includes best practices and standards for deploying and managing cloud resources, optimizing workloads, and guaranteeing high availability and resilience. A well-defined cloud operating model enables enterprises to fully realize the benefits of cloud computing, accelerate digital transformation, and meet business goals with more efficiency and agility. It also facilitates the smooth integration of cloud services into the entire IT strategy of the enterprise and promotes innovation, scalability, and cost optimization in a cloud-driven environment.

Design Operating Model

The design operating model is a framework that outlines the processes and structures involved in designing products, services, or experiences. It includes the actions, tasks, and responsibilities of design teams, as well as the incorporation of design thinking ideas into the overall strategy of the firm. From obtaining user ideas and performing research to designing, testing, and refining solutions, the model gives a methodical approach to managing the design process. It focuses on cooperation, cross-functional teamwork, and design iterations.

The design operating model guarantees that user-centered design principles are prioritized and that design is integrated into every stage of product development, from concept to delivery. It also focuses on creating a design culture within the organization, encouraging creativity, innovation, and ongoing improvement. Organizations can also improve their ability to create meaningful and impactful goods and services that meet customer demands and generate economic success by implementing a design operating model. It aids in the optimization of the design workflow, the streamlining of decision-making processes, and the promotion of a customer-centric attitude throughout the firm.

What Is an Example of an Operating Model?

One example of an operating model is the “franchise” model, where a company grants individuals or entities the rights to operate their business under a specific brand name. The franchisees benefit from established business systems, marketing support, and access to a proven business model.

Another example is the “platform” model, where companies provide a digital platform that connects buyers and sellers, such as e-commerce marketplaces or ride-sharing platforms. In this model, the platform operator facilitates transactions and earns revenue through fees or commissions.

Additionally, the “asset-light” model is an example where companies outsource or lease most of their physical assets, reducing capital investments and focusing on core competencies. These operating models illustrate different approaches to organizing and conducting business operations, each with its own advantages and considerations.

What Are the 5 Components of the Operating Model?

The operating model consists of five key components that collectively define how an organization operates. These components include:

#1. Strategy

The operational model’s strategy component outlines the organization’s general goals, and objectives, and plans for accomplishing them. It describes the organization’s value proposition, target markets, and competitive positioning.

#2. Structure

The organizational hierarchy and the setup of the various departments, teams, and functions are discussed in the structure component. It covers the delegation of authority and responsibility inside the organization, as well as the reporting structures.

#3. Processes

Processes encompass the workflows, procedures, and activities that are followed to execute the organization’s operations. This component focuses on ensuring efficient and effective processes for delivering products or services, managing resources, and meeting customer needs.

#4. People

The people component of the operating model focuses on the human resources and skills required to carry out the organization’s operations. It includes aspects such as talent acquisition, training and development, performance management, and employee engagement.

#5. Technology

Technology refers to the tools, systems, and infrastructure that support the organization’s operations. This component includes hardware, software, databases, networks, and other technological resources that enable efficient data management, communication, and automation.

What Is the Main Focus of an Operating Model?

An operating model’s primary goal is to make sure that a company’s strategy and operations are in sync. It acts as a guide for how the firm will satisfy consumers. However, making the most of its resources, and accomplishing its objectives. Organizations can create a clear framework for effective and efficient operations by identifying the essential operating models elements, such as strategy, structure, processes, people, and technology. The operating model serves as a framework for making choices, allocating resources, and promoting continuous improvement within businesses. It enables the company to improve its competitive advantage, optimize operations, and satisfy stakeholders.

What Makes a Good Operating Model?

A good operational model has a number of essential traits. First, it ensures that every component of the model supports the larger goals by aligning with the organization’s strategic objectives. Second, it is flexible and adaptive, able to change and respond to client requests and shifting market conditions. A good operational model is also effective in maximizing production and minimizing waste by optimizing resources and procedures. The promotion of seamless coordination and knowledge sharing also encourages collaboration and effective communication among teams and departments. A strong model also includes automation and technology to improve operational capabilities and spur innovation. Last but not least, it is customer-focused, created to add value and cater to the needs of the target market, eventually promoting customer happiness and loyalty.

What Is Agile Operating Model?

The Agile operating model is a framework that emphasizes flexibility, adaptability, and iterative delivery. It promotes cross-functional collaboration and frequent feedback loops to facilitate rapid decision-making and continuous improvement. By breaking down work into smaller, manageable increments called sprints, the agile model enables teams to deliver value incrementally and respond quickly to changing requirements. It prioritizes customer satisfaction, encourages experimentation, and embraces change as a natural part of the process. The agile model also values empowered teams and encourages self-organization. It also, allows individuals to take ownership of their work and make autonomous decisions. This approach fosters innovation, enhances productivity, and enables organizations to deliver high-quality outcomes in a dynamic and rapidly evolving business landscape.

What Is the Difference Between a Business Model and an Operating Model?

The difference between a business model and an operating model lies in their focus and scope. A business model outlines how a company creates, delivers, and captures value in the market, including its revenue streams and customer segments. It encompasses the overall strategy and positioning of the business.

On the other hand, an operating model is more specific and focuses on how a company executes its business model. It defines the structure, processes, capabilities, and resources required to deliver products or services effectively and efficiently. The operating model delves into the operational aspects of the business, such as its organizational structure, workflows, technology systems, and human resources. While the business model provides the strategic direction, the model translates that strategy into actionable plans and operational frameworks. In summary, the business model sets the foundation for the company’s value creation. However, the model determines how that value is realized in day-to-day operations.

How Do You Implement an Operating Model?

Implementing an operating model requires careful planning and execution. First, assess the current state of the organization and identify areas for improvement. Then, define the target operating model that aligns with strategic objectives and desired outcomes. Next, develop a detailed implementation plan that outlines the necessary steps, timelines, and resources. Engage key stakeholders and communicate the changes to gain buy-in and support. Execute the plan by implementing changes to processes, systems, and structures. Monitor progress and make adjustments as needed. Finally, provide training and support to employees to ensure a smooth transition and successful adoption of the new model. Throughout the implementation process, effective change management and communication are crucial to addressing any resistance or challenges that may arise.

FAQs

What is the distinction between a strategy and an operating model?

The operating model is anchored in delivering value and establishing the systems, processes, and structure to deliver the value in line with the strategy, whereas strategy is more abstract. It makes it easier to communicate with a large audience and provides a sense of shared purpose.

What is the distinction between an operational and a non-operating model?

Operating activities include everything a firm does on a regular basis to bring its products and services to market. Non-operating activities are one-time occurrences that may have an impact on sales, expenses, or cash flow but are not part of the company’s regular, core activity.

What exactly is the diversification operational model?

The fact that company units have few, if any, shared consumers or suppliers underpins diversification. These business units are also operationally distinct and conduct independent transactions.