man and woman writing on sheet creating an operating model

What is an operating model (and how to build your own)

Running a thriving enterprise? You’ve likely nailed your business model – the blueprint capturing your operation’s heart, the reason it exists, and the customer problem it solves. But have you considered the mechanics that pump life through your business – the operating model?

Comprehending your operational model’s intricacies is vital, especially for management or leadership. It’s your key to efficiently orchestrating employees, systems, and processes.

As a leader, knowing your operating model is crucial for success. It offers a clear view of how everything intertwines, enabling informed decisions, process tweaks, and efficient team management. Whether you’re a startup or established business, defining and implementing an effective operating model can make a difference in achieving your business goals.

In this article, we’ll cover what an operating model is, as well as some practical tips on how to make your own that serves its purpose. What is an operating model? Too many details Unclear business purpose How to build an operating model: the basic building blocks Strategy Design Principles People; the lynchpin of your operating model Tech Structure What to do if you serve multiple customers Less is more

What is an operating model?

An operating model is a blueprint that outlines how a business organises its resources and operations to achieve its strategic goals. Imagine it as a table of contents, serving as a reference roadmap.

While a business model unveils the ‘why’ and the customer problems the business solves, the operating model discerns how the company meets its objectives efficiently. It encompasses processes, technology, people, and partnerships – all contributors to achieving company goals. Hence, creating a sturdy operating model is vital for businesses to optimise resource usage, enhancing profitability, scalability, and sustainability.

While an operating model provides a business plan outline, it isn’t the primary learning resource. You look to a table of contents to quickly navigate to the manual for more info; you wouldn’t head there to receive full instructions.

Herein lies a common mistake I see a lot of business owners make when they make their own operating models; cramming it with too much detail.

Too many details

Operating models that seem crafted during a caffeine-fuelled all-nighter are more common than you think. They’re akin to attempting ‘War and Peace’ on a rollercoaster. But remember—they should serve as a table of contents, not the entire manual.

An overload of information can impede employees’ navigation, causing confusion or even discouraging use entirely, defeating its purpose. Instead, the table of contents should provide a brief overview of the document and a guide to accessing it, allowing employees to swiftly identify job-relevant material.

Unclear business purpose

Business owners often try to construct an operating model without understanding their business purpose. But it’s crucial to grasp the problem your business solves and for whom. Without this, you can’t map out the ‘how’ in your operating model.

Your business purpose should guide your decisions—be it about products, marketing, or company culture. A clear purpose ensures company-wide understanding of the business direction and roles to get there. It also communicates your value to potential customers.

If your purpose is unclear, it could confuse your customers. So, reflect on your business purpose before developing an operating model.

With both of these common errors out of the way, let’s dive into the “how to” part of making your own operating model.

How to build an operating model: the basic building blocks

There are plenty of templates out there, but often they’re not a great fit for your business. Trying to shoehorn your operations into someone else’s idea of an operating model is like all the ladies trying to squeeze into Cinderella’s slippers; they were made for her, not for you.

If you’re staring at a blank canvas, then make your operating model reflect how the supply chain works. Think of your business as a river with its flow—how suppliers, your operations, and customers interact.

For instance, you acquire raw materials, produce bright yellow rubber ducks, and deliver them to customers. Recognize your critical products and services—those crucial elements

without which your business would stumble. This isn’t about amenities like the office coffee machine but indispensable partnerships and suppliers.

Understanding these foundational aspects is crucial before establishing an operating model.

Start by comprehending the supply chain, from inception to delivery, to grasp value creation. Understand who your suppliers are and what they provide, the nature of your business operations, and your customers’ specific needs. Also, acknowledge the critical tools or services underpinning your operations—without these, your business would falter. A cogent operating model ensures business components work together effectively, enabling you to meet customer needs and grow your business.

Strategy

To devise and execute a potent strategy, you need to pinpoint the strategic objectives, priorities, and target outcomes for business management and leadership. Agreeing on what is the overall strategy aligns the organisation’s activities with desired results.

You’ll need internal and external stakeholders in strategy development—such as senior management, employees, customers, suppliers, and partners—to work closely together. Understanding their needs simplify generating internal and external reports or feedback.

Performance management, defined by success metrics and progress tracking, is another strategy pillar. It maintains focus on desired outcomes and identifies improvement areas. Ultimately, a well-structured, goal-aligned strategy engaging all relevant stakeholders is a business success keystone.

Design Principles

Design principles significantly shape successful products by acting as design process guides. They infuse the brand’s personality and values into the product for consistency with the brand identity, and harmonise teams and management during disagreements by providing a shared reference point.

Any successful organisation will have their top talent disagreeing with each other. Constructive discussions around different approaches can be helpful in keeping the business agile, but the design principles help the organisation remain user-focused.

People; the lynchpin of your operating model

All successful strategies and operating models need the business’s employees to carry out their roles effectively. That’s why clearly defining roles and responsibilities will help your employees understand their duties and their contribution to company objectives.

You’ll need to identify critical staff and stakeholders who have an impact or will be impacted. Once you’ve identified who your internal and external stakeholders are, you can discuss if anyone needs training to bridge any skill gaps. Investing in your staffs’ development ensures quality services and product delivery, which translates to hitting deadlines and goals.

If you work backwards from the goal, you can reverse engineer what skills are needed at each step of your operating model. From there, you can decide if you have employees who can drive processes or if you need to bring on more hired help. Working backwards allows you to identify the minimum staff required for your operating model to succeed.

However, it’s important to have a diverse workforce. A successful organisation fosters an inclusive, diversity-valuing, teamwork-promoting work environment. This is because organisational success hinges not just on the talents and abilities of its individuals, but on their harmonious collaboration towards a shared vision.

The cornerstone of an organisation’s success lies in its people, their development, and their united efforts towards a common goal. Invest in your people to ensure they can meet goals where needed.

Technology

Similar to figuring out which employees you need, you should determine the bare minimum software you need for operations. Then, you can select tools and systems to boost efficiency. You should consider how intuitive the technology is and its frequency of use to ensure smooth integration and usability.

Leadership should collaborate with stakeholders to determine the technological needs for specific business processes. Involving department heads in this process ensures the selected technology fulfils the needs of all users. This approach ensures the best technology choice for your company, leading to increased productivity and allowing you to achieve more in less time.

Consider your budget when selecting which software to purchase. To avoid overspending on unnecessary tech or underinvesting in critical ones, align your technology investments with your business goals. Remember to factor in long-term costs, including maintenance, upgrades, and training.

After integrating new software, provide employees with adequate training and support so employees can use it to its full potential and maximise productivity.

Structure

Structure is vital to ensure a company operates at full capacity. It refers to how a company organises people, authority, and communication to reach its goals. Companies need to devise structures that align with their strategies and can support different teams and departments.

Clear reporting lines and communication channels are critical to avoid confusion within the organisation. Teams should communicate effectively through structured channels. For instance, weekly meetings with team leaders can provide valuable feedback and identify potential issues.

An effective structure significantly impacts company performance, requiring routine evaluation and necessary adjustments for optimal outcomes.

Processes

Well-designed processes are like muscle memory. Like an athlete, they don’t need to think about how to do their sport – they just perform because the actions required are drilled in and are now second-instinct.

To this end, your processes should include specific steps, actions, and procedures necessary to achieve goals or objectives. Companies need to map key business processes and workflows to identify and improve efficiency areas. Documenting these details will play a huge role in reducing operational costs, enhancing productivity, and delivering more value to customers.

One way to achieve this is by visualising major process milestones essential for customer value delivery. This involves deconstructing a process into its key components and identifying the specific steps required for its completion.

This strategy allows businesses to understand factors impacting customer satisfaction and identify areas for improvement. In summary, effective process management is vital for businesses seeking to stay competitive in a fast-paced, rapidly changing market. By prioritising process mapping and optimization, companies can improve their operational efficiency, increase customer satisfaction, and achieve sustainable long-term growth.

What to do if you serve multiple customers

Serving multiple customers could present a challenge when designing your operating model because of all the moving parts and processes you need to map out. For example, Woolworths, known primarily for selling groceries, also has an insurance department. They couldn’t use the same operating model for both departments considering they each have separate aims and processes.

To manage this kind of diversity, creating two separate operating models for clarity could be advantageous, with distinct business units catering to each segment. You could also construct a comprehensive model that provides a holistic view. However, it’s vital to define target customer segments and establish specific processes and suppliers to serve them efficiently.

This approach necessitates a profound understanding of each customer group’s unique needs, preferences, and requirements, ranging from pricing to quality and product range. By doing so, you can optimise your operations to better serve them, thereby enhancing your brand reputation, customer loyalty, and, ultimately, driving growth and revenue for your business.

Less is more

As we’ve covered, an operating model can vary widely in its mapping, processes, and purpose. Though there may be common components among similar businesses or competitors, the models can differ significantly to suit specific needs.

Understanding your business’s core purpose and target audience is essential before creating an operating model. This ensures the model is customised to your specific requirements and designed to deliver value efficiently.

Establish the bare minimum and build upon it as needed, but ensure it provides sufficient insight for users. The operating model’s primary goal is to illustrate how a business operates and how its components collaborate to create value. Therefore, it should be clear, concise, and easy to follow. By understanding your business’s needs and crafting an operating model tailored to those needs, you can ensure smooth and effective business operations.