The operating model is a visual representation and mapping of the processes and how the organization delivers value and, therefore, how it executes its business model. Therefore, the operating model is how the whole organization is structured around the value chain to build a viable business model.
Porter’s Value Chain
Porter for instance helps visualize the value chain and how the whole organizaiton is structured around it.
In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.
Organizational Structure
The organizational structure also determines how the company can deliver value.
An organizational structure allows companies to shape their business model according to several criteria (like products, segments, geography and so on) that would enable information to flow through the organizational layers for better decision-making, cultural development, and goals alignment across employees, managers, and executives.
Distribution Channels
Also, the distribution side, so how sales and marketing are organized to produce value is critical. Perhaps, an organization selling an enterprise solution will structure its distribution around a qualified salesforce. A company selling a consumer-facing product will structure its organization more toward marketing instead.
A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.
Marketing Mix
The various marketing channels the company will use to build its brand, and sell its product will also determine the way the operating model delivers value.
The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.
Financial Structure
And accordingly the financial model will also determine how the company acquires the financial resources for the operating model, and therefore build a viable business model.
In corporate finance, the financial structure is how corporations finance their assets (usually either through debt or equity). For the sake of reverse engineering businesses, we want to look at three critical elements to determine the model used to sustain its assets: cost structure, profitability, and cash flow generation.
Main Guides:
- Business Models
- Business Strategy
- Marketing Strategy
- Platform Business Models
- Network Effects In A Nutshell
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