What’s the difference between a Business Model and an Operating Model? Have you been faced with a challenge to distinguish between both?
Do you want to know the difference between business model and operating model? If YES, here is a detailed similarities and differences of both models.
Basically, a business model describes the way that a business captures value. On the other hand, an operating model tends to describe the way in which a business is run.
A business model defines the following:
- The stakeholders with whom the organization will do business with, particularly the “mission stakeholder” or “customer”
- The offer or promise that the organization is making to the mission stakeholder – often referred to as the “value proposition”
- The resulting financial model (income statement and balance sheet) taking account of size and growth ambitions
- The operating model that makes it possible for the organization to deliver the value proposition
An operating model defines the following:
- The main work processes that are needed to create and deliver the value proposition (the products or services or benefits that the organization chooses to provide for its “customers” or “beneficiaries”
- The equipment and technology needed to execute these core processes
- The information systems needed to support these core processes
- The processes needed to support the core processes, such as financial processes or HR processes
- The suppliers needed to support the processes and the supplier agreements needed to keep the most important suppliers engaged
- The people needed to do the work and the “offer” that will attract and retain these people
- The structure of the organization, decision rights and accountabilities needed to ‘govern’ and support the people
- The cultural context that will help the people be effective
- The locations, buildings and ambiance where the core and support processes will be executed
- The calendar of management meetings and scorecard needed to run the organization
In a nutshell, the core difference between a business model and an operating model is that a business model describes how a business generates value. For instance, a car manufacturer designs and produces cars. The cars that he produces are far more valuable than the raw materials that were combined to produce the car. Therefore, the business captures value.
On the other hand operating models describe the way that a business structures its core processes. For instance, a car company may source parts from a large number of countries and build a complex global supply chain driven by technology tools. Alternatively, the company may work with a limited number of trusted suppliers and have few supply chain capabilities of its own.