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Clear Examples and Types of Business Operating Models

clear examples and types of business operating models

Regardless of whether a company is regional or global, many executives wonder whether their ideas and brand are enough to deliver value to consumers. With the rise of online marketing and globalism, companies are under increasing pressure to produce and deliver new products and services as quickly as possible.

Consumer needs are evolving by the day as the internet has provided new opportunities for the competition to market itself. In short, operating a business and managing a supply chain in today's world can be challenging and competitive.

To ensure that a brand is delivering value to a target market, an organization has to choose the most applicable type of business operating model. Different operating models work better for certain industries, depending on the size and scope of the company.

Understanding how a chosen operating model can influence profits and target customers is one of the most important requirements of running a successful business.

Read ahead to learn about the different operating models and how they work.

Business Operating Models-Examples & Types

Business operating models determine how an organization delivers value by employing technologies, processes, organization, and labor. It is the building block that defines the architecture of a company.

Rather than describing what type of value is generated, an operating model determines how the value is generated. It is the preliminary idea behind all of the business strategies employed by an organization. If an operating model is disorganized or undefined, probably, the organization's business strategies are also unclear.

Without understanding how the organization operates to generate value, it's difficult to ensure a company's success. Recognizing the value behind a business operating model isn't just essential for the management or leadership team. Every part of the business benefits from knowing how the operating model works because it allows everyone to know exactly how to fulfill their roles.

Furthermore, it helps both employees and managers define the various strategies needed to deliver value to customers and investors. Finally, companies with a strong operating model have greater effectiveness, efficiencies, customer relationships, leadership teams, and flexibilities.

Here are the four types of business operating models essential to an organization-

1. Coordination Operating Model

A coordination operating model is a business that has separate departments with their operating structure, but each department impacts one another as a result of shared customers, data, or products/services.

Autonomous departments control their internal processes but can adapt to other departments' autonomous operating structure. Characteristics of a coordination model include-

  • Departments are autonomous but have shared customers, data, or suppliers.
  • Each department coordinates and impacts other units in one way or another.
  • Each department operates in its unique way and is managed autonomously.
  • Every department chooses the IT infrastructure needed to carry out its roles/processes.

Unification Operating Model

The unification operating model is utilized in large companies that have customers and suppliers placed in various geographic locations. Departments across these locations are similar in the way they operate as processes are standardized and shared.

Management is centralized in one location to maintain order over a large number of departments. Standardization of processes is essential to ensure efficiency and uniformity of delivered value and branding.

Once a business grows large enough, it often employs a unification model to maintain structure and order among all locations. Characteristics of unification models include-

  • Customers/suppliers are spread throughout different geographic locations.
  • Business processes are integrated and standardized.
  • Departments across all locations are similar in how they operate.
  • High-level executives and managers define workflows, processes, and activities.
  • IT infrastructure decisions are made in a centralized location

3. Diversification Operating Model

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Diversification operating models are dependent on the notion that most departments don't have customers or suppliers in common. These departments operate independently of one another and do not incorporate the standardization tactics employed in the unification operating model.

The only shared element the business units have are the products/services sold by the company. Elements of a diversification operating model include-

  • Not many shared suppliers or customers between business units.
  • Transactions are independent in each business unit.
  • Each department operates differently than other departments.
  • Business management is autonomous.
  • IT infrastructure choices are made within each department.

4. Replication Operating Model

In a replication operating model, there are few shared customers/suppliers between departments. Similar to the way the U.S. government is designed, each business unit acts as a state by creating its own autonomous processes.

IT infrastructure is standardized with data that is owned locally by an outside company that has some type of relation to the business.

Departments are similar in their operating methods, though they can differ a bit depending on the decisions made by each autonomous leadership team. Characteristics of a replication model include-

  • Very few or no shared customers/suppliers.
  • Transactions in each business unit are independent and separate from the other business units.
  • Business leaders are autonomous in each department.
  • Federal management is implemented over business design.
  • Data is standardized but locally owned by a related organization.
  • IT infrastructure is centrally designed and required.

Key Takeaways

In conclusion, here are the key takeaways to remember the types of business operating models-

  • Business operating models determine how an organization delivers value by employing technologies, processes, and labor.
  • Every part of a business benefit from knowing how an organization's operating model works because it allows everyone to know exactly how to carry out their jobs.
  • The different types of operating models include coordination operating model, unification operating model, diversification operating model, and replication operating model.