Operating Model

A business model can be defined as “how a business creates value for its customers and captures value from its customers.” I have found it helpful to break the business model into these two main functions (value creation and value capture). The operating model is what I call the value creation portion of the business model. The revenue model is what I call the value capture portion.

The challenge with developing a generic template for an operating model is that operating models differ significantly depending on what business you are in. If you make products, a significant component of your operating model will be manufacturing. If you own and operate stores, a significant component of your operating model will be retailing. Whirlpool’s operating model looks very different from Best Buy’s operating model. Google’s looks very different from either of them.

The Business Model Canvas has two blocks feeding directly into the value proposition: key resources and key activities. I would describe these two as “what you need” and “what you do” to deliver the value proposition. It has a third block feeding into these two which is key partners, which I typically describe as “who helps you with what you need and what you do”. While I like the conceptual structure of these three blocks, they are so broad and so generic that I don’t know that they really help in developing a business.

I’ve broken the Key Resources block into two blocks: People, and Assets & Locations. I’ve also broken the Key Partners block into two blocks: Suppliers, and Key Partners. I’ve replaced the Key Activities block with a value chain which I’ve labeled Value Creating Activities.

The value chain for any given business will be somewhat unique, reflecting the specific activities required to create value for customers. In developing a value chain for the Value Creating Activities portion of the Operating Model, I recommend considering the categories of activities identified by Porter, but identifying specific activities at a much more granular and specific level. What are the key activities involved in creating and delivering the value proposition and how do those activities fit together?

Tools for creating an Operating Model coming soon!