What Should an Operating Model Include?

  • By: Change Strategists
  • Time to read: 5 min.

Operating models are an integral part of running a business. Without one, your company likely won’t know which direction to go or how to get there. Creating a functioning operating model requires multiple factors and sections to make it much easier to run the business smoothly. So, what should yours include?

An operating model should include a breakdown of your IT department, a list of potential suppliers and distributors, ideal customers, locations for each operation, and a layout of how to make the right decisions for the business. Operating models aren’t a strategy; They’re a layout of how to start.

In this post, we’ll discuss the steps of creating an operating model, the four primary blueprints for operating models, and common misconceptions about what they include. We’ll also describe how an operating model impacts your business and how you can make adjustments.

How Do You Create an Operating Model?

To create an operating model, follow these steps:

  • Layout your IT model, including websites, HR communications, and so on. Information technology is a crucial part of running a successful business. It ranges from making websites to handling customer information. Decide who’s in charge of the IT department, how communications work, and how data is tracked.
  • Create a grid or chart of optimal suppliers, distributors, and other companies you’ll work with. Opex Society claims supplier chains are essential when it comes to making an operating model. You need to know how much they charge, their contact details, operating hours, and so on.
  • Make a target customer list to know who you’re selling to. It helps to give the person a name, age range, gender (if applicable), and interests or hobbies. This archetype lets you customize your business around what they want, what they might buy, and how you can improve their experience with your company.
  • Design a map that shows where every part of the business operates. You should know the address of each storefront, the main office or operating headquarters, supplier locations, distribution centers, and any other place that deals with your company. This map keeps every point connected for seamless operations.
  • Consider adding a multi-step checklist for making important decisions. This checklist can include various questions or considerations, such as whether or not it’ll benefit the customer, if it’ll yield a profit, whether or not pay cuts will be necessary, and more. You should also factor in how it’ll affect your company ten years from now.

These five points will help you make the ultimate operating model for your business. However, there are many ways to approach the creative process. After all, some companies require more time, fewer variables, more money, etc.

Read on to learn about the four primary types of operating models to help you design the perfect set of charts, tables, blueprints, and so on.

What Are the Four Types of Operating Models?

The four types of operating models include diversification operating models, unification operating models, replication operating models, and coordination operating models. Each model has a unique set of benefits and drawbacks, so it’s important to know how they’ll influence your company’s decisions and results.

Here’s a detailed breakdown of each operating model:

  1. The Diversification Model: This model assumes none of the separate business departments have shared suppliers, customers, distributors, or other factors. They operate separately, but all of them benefit the business. Each department requires its own chief, splitting the aforementioned operating model blueprint into several chunks.
  2. The Unification Model: According to Altametrics, this model shows all parts of the business work similarly or together. They could have shared distributors and suppliers with a common customer archetype. The departments often have different geographical locations but share the same goal.
  3. The Replication Model: This model is similar to the diversification model because few or none of the departments have the same distribution, suppliers, or customers. However, they have a similar goal to one another. The means to achieve the goal are different, requiring unique operating model layouts for each autonomous department.
  4. The Coordination Model: JD Meier claims the Coordination Model has departments with dissimilar or similar goals and shared data. In other words, the goals of each department could be completely different, but they have the same way of achieving those goals. One operating model blueprint can be used by each department.

Your operating model typically falls into one of these four categories. Small businesses often fall into the Unification or Replication model. However, the models can evolve throughout the course of the business’s growth. For example, a small business might grow into a chain with multiple locations, requiring it to change from a Coordination model to a Unification model.

What Not to Include in an Operating Model

It’s important not to include multiple factors in an operating model, such as unwavering expectations, go-to strategies, or unchangeable blueprints. An operating model changes with your company, so it can be influenced by several decisions throughout the incoming years. Furthermore, there should be room for more customers, suppliers, and other groups.

Operating models aren’t a cut-and-dry strategy or direct line to a goal. You shouldn’t create a customer archetype, assume you’ll buy X amount of products, guarantee your sales or services, and hit a predictable profit each year. Making a strategy is great, but operating models can be applied repeatedly to help you make the right decisions and adjustments.

Another thing you don’t want to include in an operating model is fixed prices. Suppliers can change their rates, as can distributors. You’ll have to increase your prices to reach the same profit, which means the whole model can be thrown off if you try to predict reliable price points. The model can include scaled percentages to aid in the profit-making process, though.

Conclusion

Now that you know how to create the ideal business operating model, you can prepare your company for success. Operating models are the walkway to a booming business, but they require frequent adjustments when various factors change. Keep your operating model at the heart of your business decisions.

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