Introduction

Operating models work on developing a strategy that enables the organisation to reduce its operational complexity. This is achieved only after a lot of critical thought and significant on-ground experience. However, once achieved, will create a huge advantage for the company. 

For example, Indigo airlines uses single narrow-body Airbus planes, ATRs and freighters that simplify their operations. The workforce training is simplified, their bargaining power for leasing aeroplanes increases, and speed of execution increases, thereby creating better operational capabilities than other airlines. 

An operating model turns strategic intent into operational capability. It serves as the basis for implementation and gives enterprise leadership teams, line managers, and operational teams a clear roadmap. It describes how an organisation provides value to its stakeholders, as well as how it operates in practice. In this sense, it is a subset of the business model of the organisation.

In this article, we’ll provide an overview of such recurring themes that can help businesses build efficient operational models.  

Characteristics of Effective Operating Models

There isn’t a single operational model that will help every business to improve its capabilities. Operational models are more contextual, which makes it different for every company. However, there are a few essential characteristics that will help businesses create their own operational advantage. The most familiar aspects are discussed below:

1. Global navigation Since growth in developed economies has stalled, organisations must strengthen their worldwide expansion strategy in order to reach the next billion consumers. Future success will be characterised by globally integrated enterprises that can readily expand into multiple markets and switch outputs between them. Companies constructed like ships can sail fast to the harbours with the most enticing opportunities. This capacity to explore the world provides businesses with a particular advantage in emerging markets.
2. Scalable perspective: Market demands are fluctuating in nature, due to which resource consumption changes with time. The most effective operating models are able to adapt to changing market demand and still maintain high operational efficiency. Ensuring that building a business model that allows accommodating changing consumption trends will improve the business margins. Such improvements will improve customer retention, and also attract new customers to the business.  
3. Employee mobility: Businesses and consumers have adopted mobile technology. The best talent is dispersed throughout the world, and a flexible work model may capitalise on it. Effective operational models leverage mobile to identify the greatest personnel in the world, enable geographic and work style flexibility, and promote cooperation.
4. Digital enablement: Every day, digital innovations disrupt company paradigms. But they also give distinct opportunities. Operating models must leverage the advantages of digital technologies (e.g., analytics, mobility, social outlets, cloud computing). The most efficient operating models feature an enterprise-wide digital strategy that is harmonised. Successful firms strongly consider digital enablement when creating their operational models, as opposed to just “bolting on” digital technologies. Create operating models for an “omni-channel” future and integrate analytics and other digitally enabled capabilities into the organisation’s fabric.
5. Configurable design: Even a leading corporation will find it difficult to “go it alone” or have a single model in the current business climate. The formation of strategic alliances, joint ventures, and partnerships will be crucial to market success. Innovative operational models include a governance framework that strikes a balance between decentralised decision-making and enough control to permit macro-level adjustments. Operating models should be customizable to address new threats and opportunities, much like a fleet of ships altering their formation.
6. Regulatory policy: As regulators alter their expectations in numerous nations and industries, compliance plans should be a central component of business operations. Companies whose operational models are the most effective comprehend the regulatory landscape. They create and implement a proactive plan for meeting regulatory requirements. In addition, they adapt their capabilities, such as technology platforms, to legislative changes.

Useful elements to build operating models 

With the changing market behaviour and emergence of new technologies, many new operational models have emerged in the current business environment. Some of the essential traits of these models are discussed below:

1. Niche operators are small, independent companies, such as those that trade on e-commerce websites like Etsy. Etsy has welcomed tiny specialty businesses specialising in wedding things (such as cake toppers and stationery) and links them with consumers via an internet platform. Today’s ability of small product/service enterprises to prosper on the market is powered by niche technologies.
2. Infrastructure providers are high-volume, routine process and service delivery businesses with substantial capital expenditures. Typically, the companies’ data storage infrastructures are of the highest quality, allowing them to scale rapidly and add additional consumers to their network.
3. Aggregation platforms are businesses that connect several market participants with consumers or market participants with consumers. This business concept is not new and is utilised by numerous peer-to-peer organisations. Amazon and eBay are two widely-known examples.
4. Businesses that act as intermediaries between consumers and talent. LinkedIn and Pandora are examples. Pandora connects consumers of personal music to artists. LinkedIn today has over 380 million members in over 200 countries, enabling business professionals to maintain connections within their respective communities and on a worldwide scale.
5. Mobilizers are businesses that bring together members with a shared objective through a set of rules and governance. Social Finance, Inc. (SoFi) is an illustration. SoFi is an alternative to conventional lenders that brings together early-stage professionals and individual investors to refinance school debts, personal loans, and mortgages. SoFi has linked these parties in order to incorporate a social objective into the financing process.

Formation of operating models

To develop future-proof operational models, businesses require a distinct business plan that identifies their primary customers and the products they will bring to market. Organisations should examine a comprehensive set of competencies using a systematic, holistic approach that places equal emphasis on the now and the future. Businesses should evaluate their operations to determine how they can transform into operating models.

In order to initiate this transition, business executives must consider the following:

1. Firstly, businesses must validate that their business model and strategies have undergone rigorous stress testing. In many instances, firms fail to clearly identify essential strategic features of the business model prior to constructing the operating model. Concentrating on “where to play” and “how to win” can aid in the clarification of these priorities.
2. Thereafter, businesses should define the fundamental ideas and guiding judgments that will function as the design’s guardrails. The leaders of a corporation should evaluate important trends and comprehend the business’s potential long-term trajectory. If they fail to do so, they may face unneeded organisational churn, lengthy timetables, and a lack of support from senior executives.
3. And last but not the least, firms should examine their capabilities in depth, not just their organisational structure. Companies that effectively build new operating models analyse the capabilities they need to win in the marketplace and the focus surrounding the delivery of those capabilities. Based on the analysis done so far, companies make educated decisions. These decisions ensure the appropriate approach to decision rights, business expectations, and operating frameworks are in place.

Conclusion

A business always needs to have an “edge” over others to increase its long-term sustainability.  Every company keeps searching for different ways and means to create its own competitive advantage. Creating Moats is one such strategy, and Operating Models are one of the moats that can create benefits in the long term.

However, creating a strong operating model needs a lot of research and business understanding. Its implementation can vary significantly across businesses. To help businesses with their search for the right competitive advantage, we have listed the most common patterns and emerging models in the present era. Startups should also do their own share of research and use the existing patterns to identify opportunities and revamp their operating model accordingly.