Business Models and Operating Models

http://ashridgeonoperatingmodels.com/2014/02/24/95/

http://www.ashridge.org.uk/Website/Content.nsf/wOPN/Designing+Operating+Models~Fact+File?opendocument

What is the difference between a business model and an operating model and who cares? First, I don’t think that it matters how you define terms like business model or operating model or business architecture. But it does help to be consistent. In this blog I will offer some definitions, not because I think they are more right than other definitions but because, in order to develop definitions, you need to think through all the moving parts.

For me a business model is the larger concept. An operating model is a part of a business model. An operating model is the engine at the heart of the business model that helps make the business model work.

A business model defines the following
- the stakeholders with whom the organisation will interact
- the offer or promise that the organisation is making to each stakeholder segment
(customers, employees, investors, suppliers, etc both internal and external)
- the contribution that each stakeholder segment is expected to make (work from employees, money from customers)
- the resulting financial models (income statement and balance sheet) taking account of size and growth ambitions
- the operating model that makes it possible for the organisation to interact effectively with its stakeholders

An operating model defines
- the core work processes that are needed to create and deliver value to each stakeholder group
- the equipment and technology needed to execute these core processes
- the information systems needed to support these core processes
- other processes needed to support the core processes, such as financial processes or HR processes
- the suppliers and supplier agreements needed to support the processes
- the people needed to do the work
- the organisation structure, decision rights and accountabilities needed to ‘govern’ and support the people
- the cultural context in which the people work
- the locations, buildings and ambiance where the core and support processes will be executed
- the suppliers needed to support the processes

Some people use the short hand of People, Process and Technology to describe an operating model. My own shorthand is PILOS – Process and equipment, Information technology, Location and property, Organisation and governance, Suppliers and agreements. All this is covered on the course Designing Operating Models