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What Is an Operating Model?

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  • Written By: Jan Fletcher
  • Edited By: Shereen Skola
  • Last Modified Date: 28 August 2016
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    Conjecture Corporation
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An operating model is an integration of all the human and machine-driven 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 referred to as enterprise architecture.

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

Enterprise architecture is comprised of all the activities the business engages in to make money. The means of production, the methods and technology used to produce goods, and the way in which the production activity is organized make up these activities. In contrast, a business model details how the 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 scheme of production.

The details contained within 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 may occur in two ways.

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

For example, a technological breakthrough in computer-aided design may place the business at a competitive disadvantage if it does not adopt the new technology when its competitors do. This is also referred to as event-driven restructuring. The potential pitfall in implementing event-driven restructuring lies within the time pressure factor. This may allow insufficient time to strategically plan for the restructuring.

It is also important that all processes and strategies be accounted for in order to ensure integration is adequate. Sometimes a company elects to change its operating model, with a goal of achieving greater profitability. Any change in an operating model typically will be viewed in a holistic fashion.

Managers will likely take into account all the aspects of current operations. Sometimes a conceptual business model is considered. This model forecasts how an optimal operating model would look, if the 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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