An operating model is the foundation of how your business functions—it defines the structure, workflows, and systems that enable you to deliver value to customers efficiently and profitably. It’s more than just processes; it aligns people, technology, and strategy to ensure every aspect of your business is working towards a common goal.
An operating model defines how a business creates, delivers, and captures value.
Why invest in an operating model?
Many businesses operate reactively, struggling with inefficiencies, inconsistent performance, and a reliance on key individuals to keep things running. Without a structured model, growth can lead to chaos rather than increased profitability.
A well-designed operating model provides:
✅ Clarity & Alignment – Ensures every department and team understands how they contribute to business success.
✅ Efficiency & Scalability – Eliminates bottlenecks, reduces costs, and creates a framework for sustainable growth.
✅ Resilience & Independence – Builds a self-sustaining business that can operate without being reliant on you as the owner.
✅ Maximised Business Value – A structured, high-performance organisation is more attractive to investors and buyers, increasing its overall worth.
If you want to optimise operations, increase profitability, and build a business that runs without constant firefighting, an operating model is the key to transforming your company into a scalable, high-value asset.
Why businesses should transform their operating model
In today’s rapidly changing business environment, businesses need to adapt their operating model to remain competitive and sustainable. Global trends are reshaping industries, requiring businesses to develop new skills, embrace innovation, and rethink how they operate.
Adapting to Market Changes
Emerging challenges and opportunities are driving the need for a more strategic approach:
✅ Climate Change & Sustainability – Businesses must integrate cross-functional collaboration and sustainable practices to manage environmental impact.
✅ Technological Innovation – Advancements like AI and automation are shifting customer expectations and requiring SMEs to enhance efficiency.
✅ Economic & Social Shifts – Factors such as supply chain disruptions, labour shortages, and shifting regulations demand greater flexibility and resilience.
Unlocking Long-Term Value
Transforming your operating model isn’t just about navigating disruption—it’s about unlocking growth and profitability. Businesses that proactively refine their structure, streamline processes, and align their operations with strategic goals can see significant benefits:
- Faster growth and innovation adoption
- Increased operational efficiency
- Greater financial performance—up to 20% improvement based on transformation-focused businesses
A well-designed operating model ensures that SMEs are not just reacting to change but actively shaping their future, creating a more resilient, high-value business.
How an Operating Model Works
An operating model connects a company’s strategy to its daily operations. While strategy defines why a company exists and its long-term objectives, operations determine how those goals are executed. The operating model serves as a blueprint, outlining what the company does to turn strategy into effective execution.
A well-designed operating model consists of these seven key components:
1. Strategic Direction & Goals
Start with a clear strategic vision. Engage key stakeholders to define long-term objectives and distil them into a concise strategy statement, such as:
- “Transition to a data-first model.”
- “Deliver a seamless customer experience across all touchpoints.”
This strategic foundation informs every other element of the operating model.
2. Business Processes & Workflows
Businesses depend on structured workflows to operate efficiently. Identify the systems, tools, and methodologies that drive operations, from business platforms to automation. Map out how each process contributes to strategic goals and assess whether improvements are needed.
3. Organisational Structure & People Capabilities
An effective operating model requires the right organisational design, roles, and talent to execute the strategy.
This includes:
- Defining team structures, leadership models, and decision-making frameworks.
- Identifying key skills and capabilities needed for success.
- Ensuring alignment between roles, responsibilities, and business objectives.
A well-structured workforce fosters collaboration, agility, and accountability.
4. Technology & Digital Enablement
Technology plays a crucial role in modern business operations. Identify the digital tools, software, and platforms needed to:
- Enhance collaboration and productivity.
- Automate processes and improve efficiency.
- Support data-driven decision-making.
A well-integrated technology stack enables scalability and innovation.
5. Culture, Values & Ways of Working
A company’s culture influences behaviour, decision-making, and employee engagement.
Define and embed:
- Core values and leadership principles.
- Ways of working that support innovation and high performance.
- A work environment that attracts and retains top talent.
Aligning culture with strategy strengthens the organisation’s long-term resilience.
6. Finance, Investment & Resource Allocation
Financial sustainability is critical for executing the operating model effectively.
Establish:
- A robust budgeting and investment framework.
- Financial controls and risk management strategies.
- Funding models that support both growth and operational stability.
Strong financial management ensures the business can scale without compromising profitability.
7. Governance, Compliance & Performance Management
Governance provides oversight, accountability, and risk management.
Develop:
- Decision-making frameworks and reporting structures.
- Compliance and regulatory policies.
- Key performance indicators (KPIs) to measure success.
Strong governance enables ethical leadership, operational discipline, and sustainable growth.
A high-performing operating model ensures that strategy, processes, people, technology, culture, finance, and governance work in harmony. When these seven components are aligned, businesses can achieve sustainable growth, operational excellence, and long-term success.
Why Operating Models Have Had to Change
Throughout history, businesses have adapted their operating models in response to shifts in technology, markets, and societal expectations. From the Industrial Revolution to the digital age, companies that successfully navigated these changes thrived, while those that resisted fell behind. The pace of transformation has accelerated, and today, operating models must be more agile, responsive, and value-driven than ever before.
The Legacy of Traditional Operating Models
For much of the 20th century, operating models were designed for stability and efficiency. Hierarchical structures, rigid workflows, and economies of scale defined success. The rise of mass production, exemplified by Henry Ford’s assembly line, revolutionised manufacturing. In the post-war era, the emergence of global supply chains allowed businesses to optimise costs and expand markets.
However, these models assumed predictable conditions—stable supply chains, consistent demand, and long product life cycles. The reality of the 21st century has rendered many of these assumptions obsolete.
The Forces Driving Change
- The Digital Revolution
- The shift from industrial to digital economies has fundamentally altered how businesses operate.
- Automation, artificial intelligence, and cloud computing have redefined efficiency, requiring new models built around data, connectivity, and speed.
- From Cost Efficiency to Value Creation
- The dominant business models of the late 20th century prioritised lean operations and cost reduction.
- Today, businesses must balance financial performance with innovation, sustainability, and resilience to remain competitive.
- Globalisation & Supply Chain Complexity
- The integration of global markets has increased competition but also exposed vulnerabilities in supply chains.
- The COVID-19 pandemic, trade disputes, and geopolitical instability have highlighted the need for more flexible and decentralised operating models.
- The Workforce Transformation
- The expectations of workers have shifted dramatically. The lifetime employment model has been replaced by demands for flexibility, autonomy, and purpose-driven work.
- Remote and hybrid work structures, skills-based hiring, and continuous learning are now integral to modern operating models.
- Sustainability & Regulatory Pressure
- Environmental, social, and governance (ESG) considerations are no longer optional but central to how businesses operate.
- Regulatory frameworks, investor expectations, and consumer preferences have forced companies to integrate sustainability into their strategies.
- The Need for Agility & Resilience
- Businesses today operate in a state of continuous disruption. Economic shifts, technological breakthroughs, and societal changes require adaptive, modular operating models.
- Companies that can pivot quickly—leveraging digital tools, data-driven decision-making, and decentralised structures—are more likely to thrive.
The Evolution of Operating Models
The organisations that succeed in the coming decades will be those that embrace dynamic, value-driven, and human-centred operating models. The ability to integrate technology, empower employees, and align with broader societal needs will define the next generation of high-performing businesses.
This is not the first time businesses have had to rethink how they operate, and it will not be the last. However, the key lesson from history remains unchanged—adaptation is not an option; it is a necessity.
Operating Model Examples
Organisations adopt various operating models to structure their operations, maximise efficiency, and deliver value to customers. An operating model describes how a company organises its resources, processes, and capabilities to execute its business strategy.
The operating model is crucial for defining how value is created, delivered, and captured. Below are examples of different operating models, each illustrating a distinct approach to business organisation and service delivery.
- Direct-to-Consumer (DTC) Operating Model
Example: Gymshark
Description: The Direct-to-Consumer model focuses on selling products directly to customers, bypassing traditional retail channels. This model allows for greater control over branding, customer relationships, and profit margins.
In the case of Gymshark, the company sells fitness apparel directly through its online store, leveraging social media marketing and influencer partnerships.
Key capabilities include e-commerce management, customer service, and efficient supply chain operations. - Platform Business Operating Model
Example: Deliveroo
Description: A platform business operating model connects service providers with customers through a digital platform. This model is highly reliant on technology to manage interactions and transactions between users.
Deliveroo, for example, connects restaurants with consumers who want food delivered to their doorsteps. The company’s core capabilities include technology development, user experience design, and network management to ensure seamless service delivery. - Freemium Operating Model
Example: Dropbox
Description: The Freemium model offers a basic product or service for free while charging for premium features or upgrades. This approach attracts a large user base quickly, with the potential to convert free users into paying customers.
Dropbox operates under this model by offering free cloud storage with options to upgrade for additional space and advanced features. Key capabilities include product development, user engagement, and conversion optimisation. - Franchise Operating Model
Example: Costa Coffee
Description: The franchise operating model involves licensing business operations to independent operators who use the brand name and follow established guidelines.
Costa Coffee uses this model to expand rapidly across locations by allowing franchisees to run coffee shops. This model relies on strong brand management, quality control, and franchisee support to maintain consistency across multiple locations. - Subscription-Based Operating Model
Example: The Financial Times
Description: The subscription-based model involves offering products or services for a recurring fee, often providing access to premium content or features.
The Financial Times follows this model, offering high-quality journalism on business, politics, and finance in exchange for a monthly subscription fee. Core capabilities for this model include content acquisition, customer retention strategies, and the use of data analytics to understand reader preferences. - Lean Production Operating Model
Example: Jaguar Land Rover
Description: The Lean production operating model focuses on minimising waste, maximising efficiency, and improving the overall quality of products and services.
Jaguar Land Rover applies lean principles in its manufacturing processes to optimise resource use, improve production speed, and reduce costs, all while maintaining high product quality. Key capabilities include process improvement, quality control, and supply chain management. - Service-Centric Operating Model
Example: Bupa
Description: A service-centric operating model focuses on delivering specialised services to clients, often relying on human expertise.
Bupa, a health insurance and healthcare provider, uses this model to offer services that cater to individual and corporate healthcare needs. The company’s core capabilities include customer service, healthcare expertise, and relationship management, all aimed at providing a superior customer experience. - Product-Centric Operating Model
Example: Dyson
Description: The product-centric operating model places a strong emphasis on designing and producing high-quality, innovative products.
Dyson follows this model by focusing on the development of advanced household appliances such as vacuum cleaners and hair care products. Core capabilities include product design, technology integration, and marketing, which allow Dyson to create cutting-edge products that stand out in the market. - Marketplace Operating Model
Example: eBay
Description: A marketplace operating model involves creating a digital platform where third-party sellers can list and sell products directly to customers.
eBay UK operates this model, facilitating transactions between individual sellers and buyers. The company’s key capabilities include logistics management, customer service, and ensuring platform scalability to handle millions of transactions. - Freight Brokerage Operating Model
Example: DPD
Description: The freight brokerage model involves acting as an intermediary between shippers and carriers to facilitate the transportation of goods.
DPD, a parcel delivery service, uses this model to connect businesses and individuals with appropriate logistics providers for their delivery needs. Key capabilities include freight management, logistics coordination, and contract logistics.
The Difference Between a Business Model and an Operating Model
When discussing business strategy, two terms often come up: business model and operating model. Though they may sound similar, they refer to distinct aspects of how a company operates and achieves success. Understanding the difference between these two models is key for business leaders aiming to maximise their company’s performance.
What is a Business Model?
A business model defines how a company creates, delivers, and captures value. It’s the overarching framework that explains the company’s approach to generating revenue and sustaining profitability. The business model encompasses everything from the company’s target market to its value proposition, the channels it uses to reach customers, and the revenue streams it employs.
In simple terms, the business model answers the question: How does the business make money?
Example: Apple
Apple’s business model is based on creating high-quality, premium-priced consumer electronics such as iPhones, MacBooks, and iPads, alongside a suite of software and services like iCloud and the App Store. Their revenue comes from both the sale of products and ongoing service subscriptions. By combining hardware and software, Apple offers an integrated experience that keeps customers within its ecosystem, creating a strong brand loyalty that translates into recurring revenue streams.
What is an Operating Model?
On the other hand, the operating model focuses on how a company delivers on the promises made in its business model. It outlines the processes, systems, and resources that are needed to operate the business effectively on a day-to-day basis. This model is concerned with the internal mechanisms that enable the business to function smoothly, whether that be through efficient supply chains, operational workflows, or human resources management.
In simple terms, the operating model answers the question: How does the business operate on a practical level?
Example: Amazon
Amazon’s operating model is based on its world-class logistics and supply chain management. The company’s vast network of warehouses and distribution centres allows it to offer fast and reliable delivery, an essential part of its business model. Amazon’s operational success comes from its relentless focus on efficiency, cost control, and innovation. This enables them to keep prices low and deliver a customer experience that supports their core business model of being a one-stop shop for nearly everything.
Key Differences Between a Business Model and an Operating Model
- Purpose:
- The business model is about value creation and the company’s overall approach to making money.
- The operating model is about how a business executes its day-to-day activities to fulfil that strategy.
- Focus:
- A business model focuses on external elements, such as customer segments, value propositions, and revenue streams.
- An operating model focuses on internal elements, such as operating processes, resources, and supply chain management.
- Scope:
- The business model has a broader scope and defines the company’s market position and competitive advantage.
- The operating model has a more tactical focus on the internal systems and processes required to run the business.
In summary, while the business model defines what a company does and how it generates value, the operating model defines how the company executes its internal processes to bring that business model to life. Both models are essential to business success, but they operate at different levels. A well-aligned business and operating model can enable a company to not only survive but thrive in a competitive marketplace.
For business leaders, understanding the difference between the business and operating models is vital. A strong business model might attract customers, but a well-executed operating model ensures that those customers are satisfied and that the business can efficiently meet demand.