What is an operating model?

Operating models typically integrate all business units, processes, and operations into the business architecture.

An operating model is an integration of all the human and mechanical processes and business strategies used to create, produce and sell products. It implements production activities within a business structure formed to make a profit. This is also known as enterprise architecture.

The operating model looks at the big picture, not the details. It is seen as a logical and intentional plan that takes into account all factors involved in production and operations. Operating models typically integrate all business units, processes, and operations into the business architecture. Managers can then reference this data to find areas that are not interacting as well as they should.

Enterprise architecture is made up of all the activities that the company engages in to make money. The means of production, the methods and technology used to produce the goods and the way in which productive activity is organized constitute these activities. In contrast, a business model details how business structures and processes interact with production activities. The operating model is not concerned with business processes. Instead, it looks at the overall strategy used to implement the production schema.

The details contained in the enterprise architecture model answer the essential questions for the productive activities of the business. In terms of organizational structure, the business model drives the process. A change in enterprise architecture can occur in two ways.

One occurs as a result of changes in the market. Management may be under pressure to restructure in order to maintain profitability. Changes to operating models are often implemented after a macro change in the economic or competitive environment.

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For example, a technological advance in computer-aided design can put the company at a competitive disadvantage if it does not adopt the new technology when its competitors do. This is also known as event-based restructuring. The potential pitfall in implementing an event-based restructuring is the time pressure factor. This may allow insufficient time to strategically plan the restructuring.

It is also important that all processes and strategies are considered to ensure that the integration is adequate. Sometimes a company chooses to change its operating model, with the aim of achieving greater profitability. Any change to an operating model will normally be viewed holistically.

Managers will likely consider all aspects of current operations. Sometimes a conceptual business model is considered. This model predicts what an optimal operating model would look like if plans for it were implemented. A forecast helps managers understand the human infrastructure that currently drives the business model and what changes would need to be made.

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