Business model and operating model - what is it about?

We hear a lot about the company's business and operational models, which are often considered synonymous. However, the differences between them are fundamental - the business model answers the question of what the company must do to achieve benefits, and the operating model - how it will do it. In this text, we will try to explain to you exactly what both models consist of and how they should be developed!

Business model - what is it?

Alex Osterwalder, a Swiss business theorist, says about the business model this way:

"The business model describes the rationale behind the way in which an organization creates value, and delivers and benefits from that value created." This is undoubtedly an important element in the entire strategy of your company, as it is simply a diagram of its operation. One company may use several business models, depending on the market situation. The key question that the business model answers is how does your business earn. The model defines the sources of potential profit, but this question is only an introduction to a number of other questions that you need to ask yourself when creating your business model.

How to create a business model?

Each company, especially a start-up company, should establish its business model taking into account many factors. A well-created model allows for the effective implementation of the company's goals. To show you how you can create a business model of your company, we will use a scheme created by Osterwalder called Business Model Canvas. It consists of 9 elements that you must analyze when creating a business model for your company. Remember that their order is not without significance - we will present them, starting with the ones you need to consider at the very beginning.

1. The first priority is the issue of proposed values. You have to consider what value you are offering your customers. Once you've figured it out, think about whether the goods or service you are offering solve any problems or meet any needs of your customers. Try to divide your customers into smaller groups, segments, and try to think about the value your company offers to each of these groups.

2. If you have carefully considered what values ​​you can offer to each of the segments, decide which one you are able to satisfy the most. This element of creating a business plan is called customer segmentation. You need to define exactly who your model customer is, what characterizes them, what their purchasing behavior is.

3. Once you know exactly who your customers are, move on to customer relations. You now need to develop communication channels that will help you attract new customers and maintain relationships with your current ones. Here is also a place to choose forms of marketing, thanks to which you will effectively influence your current and potential customers.

4. The fourth element of Business Model Canvas is the definition of distribution channels through which your goods or services will reach customers.

5. The fifth element is the so-called revenue stream. Here you define the prices of your goods or services, as well as payment models. Consider how many customers / goods sold will break even for your business.

6. Once you've settled on pricing issues for your products, you're in a key action phase. You need to define what actions you should take in order for the business model you are creating to function properly.

7. After the key activities phase, it is time to identify the key resources needed for the smooth operation of your business model - these can be human resources, material resources, financial resources and knowledge resources if necessary for the proper functioning of the model.

8. Once you have identified your most important resources, you can move on to the key partners phase. You have to consider who are the most important partners with whom you want to implement the business plan, which partners effectively allow you to create value that you will then offer to clients.

9. The last step you need to take in creating a business model for your company is to define the cost structure. What does it consist of? Estimated fixed costs (independent of the change in production sizes) and variable costs (depending on the change in production sizes) in a given model. Also identify what consumes the most, or least costs, in your business.

The presented way of constructing a business model is a collection of the most important aspects that you need to pay attention to. Remember, however, that as your business grows, it will change and you have to react fairly quickly to changes in each element, as they will affect the entire model. You will have to keep your finger on the pulse to optimize the business model for the current requirements and market conditions. Remember not to change the components of the model too hastily - if you see that something needs to be changed, first try to test whether the new solution proves effective. If not, look for another solution - if so, integrate it permanently into the business model.

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Business model and operating model

As we set out at the beginning of this text, the business model answers the question of what we need to do to achieve benefits, and the operating model will tell you how to do it.As you can easily guess, the operating model is inferior to the business model - each of the business models can be supported by several, often equivalent, operating models. In concrete terms, it can be said that the operating model assumes appropriate resource management to achieve specific goals set in the business model.

The inferiority of the operating model does not mean that it is less important than the business model. An efficiently operating operating model is the basis for the successful achievement of the goal set by the company. What can make up such a model? It may be the organizational structure of the company, the division of duties, the adopted management model, the way of working, the type of selection of human or material resources. Appropriate optimization of these elements can significantly affect the effectiveness of the company's strategy implementation.