As part of the scoping meetings we have with our clients, we frequently find there is a lot of confusion around the difference between an operating model, business strategy and business model. This short blog is an attempt to show the differences between these terms and how they relate to each other. We see them as being interconnected as in the diagram below:
Let’s start with business strategy. Simply put, this is what an organisation wants to achieve and how it plans to get there. The ‘what’ is usually called business objectives but we like to call them the winning aspiration, from one of our favourite reads on strategy – Playing to Win. The word ‘winning’ suggests that you plan to do more than participate, instead you want to win the game by securing the hearts, minds and orders of customers, thereby outperforming direct or adjacent competitors.
The ‘how’ is embodied in the key elements of the business model that will enable the aspirations to be realised. We define a business model as:
How a business creates value for customers – through its products or services (i.e. the value proposition), channels and relationships
How it captures value for itself (i.e., profit and/or impact)
How it repeatedly delivers value to the customer and the organisation
So, what about the operating model? This is a detailed version of 3 above. An operating model describes the assets, processes, organisations, partners, etc. that are used to deliver value to the customer and the organisation and how these pieces work together. There is a lot being written at the moment about digital operating models.
The logic of the above diagram is that detailed operating models should only be developed once a compelling ‘winning aspiration’ has been defined and a clear business model has been designed and rigorously tested.
So, to sum up, an operating model is the detailed delivery component of a business model which is a key element of any business strategy – begin with the end in mind!
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