Business Model vs. Operating Model: What’s the Difference?

Do you want to know the difference between business model and operating model? If yes, here are a detailed similarities and differences of both models.

Basically, a business model describes the way a company captures value. On the other hand, an operating model tends to describe the way a business is run.

A business model defines the following:

  • The stakeholders with whom the organization will do business, in particular the “mission stakeholder” or the “customer”
  • The offer or promise that the organization is making to the stakeholder of the mission, often referred to as a “value proposition”
  • The resulting financial model (income statement and balance sheet) taking into account size and growth ambitions
  • The operating model that enables the organization to present the value proposition

An operating model defines the following:

  • The main work processes necessary to create and deliver the value proposition (the products or services or benefits that the organization chooses to provide to its “customers” or “beneficiaries”
  • The equipment and technology needed to run these core processes
  • The information systems necessary to support these core processes
  • The processes needed to support core processes, such as financial processes or human resources processes
  • The vendors needed to support the vendor agreements and processes needed to keep major vendors engaged
  • People needed to do the job and the “offer” that will attract and retain these people
  • The organization’s structure, decision rights and responsibilities necessary to ‘govern’ and support people
  • The cultural context that will help people to be effective
  • The locations, buildings and environment where the core and support processes will be executed
  • The schedule of management meetings and the scorecard necessary to run the organization.

Business model vs operating model: what is the difference?

Simply put, the main difference between a business model and an operating model is that a business model describes how a business creates value. for example, an automobile manufacturer designs and produces automobiles. The cars it 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 a company structures its core processes. For example, a car company can source parts from a large number of countries and build a complex global supply chain powered by technology tools. alternatively, the company may work with a limited number of reliable suppliers and have few own supply chain capabilities.

 

Leave a Comment