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An operating model is the blueprint that describes how an organization delivers value to customers by defining its core processes, people, systems, and governance structures. It translates strategy into practical execution by specifying how the business operates on a day-to-day basis.
What is an Operating Model?
An operating model outlines the key components and workflows that enable a company to function. It defines how resources are organized, how decisions are made, and how products or services are delivered.
Definition
An operating model is a structured representation of how an organization runs its operations to deliver value, combining processes, organizational structure, technology, governance, and performance metrics.
Key Takeaways
- The operating model turns strategy into actionable systems and processes.
- It ensures alignment between people, technology, workflows, and organizational goals.
- A strong operating model improves efficiency, scalability, and consistency.
- It is foundational for transformation projects, mergers, digitalization, and growth.
Understanding Operating Models
An operating model acts as a bridge between strategy and execution. While strategy answers “what do we want to achieve?”, the operating model answers “how will we make it happen?”
Key components typically include:
- Processes: Core workflows such as sales, procurement, service delivery, and support.
- Organization: Structure, roles, responsibilities, and accountability.
- Technology: Systems, platforms, and tools enabling operations.
- Governance: Decision rights, policies, and compliance structures.
- People and Skills: Capabilities and competencies required to operate effectively.
- Data and Performance Metrics: How success is measured.
Operating models vary significantly depending on company size, sector, and strategic priorities. For example, digital-first companies often emphasize automation and agile processes, while service businesses prioritize customer experience and people-based workflows.
Real-World Example
A financial services company undergoing digital transformation redesigns its operating model by automating customer onboarding, restructuring teams around customer segments, and implementing a new CRM system. This improves efficiency, reduces costs, and enhances customer satisfaction.
Importance in Business or Economics
Operating models are essential because they:
- Enable consistent delivery of value.
- Support scalability and organizational growth.
- Improve efficiency and reduce operational bottlenecks.
- Drive alignment between strategy, processes, and technology.
- Strengthen governance and accountability.
Companies regularly update or redesign their operating models to respond to market changes, technological shifts, or mergers and acquisitions.
Types or Variations
Centralized Model: Decision-making and operations concentrated at headquarters.
Decentralized Model: Business units operate independently.
Shared Services Model: Support functions consolidated across the organization.
Agile Operating Model: Flexible teams focused on rapid iteration.
Digital Operating Model: Heavy use of automation, analytics, and cloud technology.
Related Terms
- Business Model
- Organizational Structure
- Governance Framework
- Digital Transformation
- Process Optimization
- Enterprise Architecture
Sources and Further Reading
- McKinsey & Company – Operating Models
- Deloitte – Operating Model Transformation
- Harvard Business Review – Strategy Execution
- Gartner – Operating Model Design
Frequently Asked Questions (FAQs)
Is an operating model the same as a business model?
No. A business model defines what value is created; an operating model defines how that value is delivered.
How often should companies update their operating model?
Whenever strategy changes significantly, such as during growth, restructuring, or digital transformation.
What makes an operating model effective?
Clear roles, aligned processes, strong governance, and enabling technology.
