Crafting an Effective Operating Model: The Essential Components and a Step-by-Step Guide to Creating Yours

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By Ben Timlons

Mastering Your Operating Model: A Detailed Guide for Ecommerce Businesses

Effective operating models are crucial to the success of any business, especially in ecommerce. They outline key priorities, work processes, business structure, workforce organization, and technology, and ultimately help streamline operations for success. In this article, we’ll dive into the importance of operating models, their differences from business models and strategies, and how to develop an effective operating model for your online store.

Bottom Line: A flexible, well-structured operating model will make your ecommerce business more adaptable to change, increasing efficiency, reducing costs, and enabling growth. If you’re a business owner or manager, this article is a must-read.

Understanding Operating Models

An operating model is a description or representation of how a business runs. It includes how facilities, equipment, and software are used; how work is performed; how people are hired, trained, and evaluated in their jobs; and how the business’s product or service is delivered to customers. The basic operating model is typically conveyed through a one-page visual representation, such as organization charts, workflow maps, and performance scorecards. These aids make it quicker and easier to understand a business’s operations than, say, a thick manual.

5 Key Elements of an Operating Model

A good operating model typically has these five elements:

  1. Key priorities: This lays out important and measurable objectives, the time frame to meet those objectives, target customers, and the geographical scope of your strategy.
  2. Work processes: This section details how work is done in each part of the business and what systems are used in the workflow.
  3. Business structure: An explanation of the organization’s structure includes how the business is organized into teams, departments, or functions, and how these groups interact and collaborate.
  4. Workforce organization: This section includes information on the types of workers to be hired, their team or department assignments, and their roles. It can also cover ways to increase employee retention and an explanation of the desired corporate culture.
  5. Technology: This element can range from trucks to hand tools, but in today’s economy, it more likely means information technology, such as computer systems, software, telecommunication, websites, and data networks.

Operating Model vs. Business Model vs. Business Strategy

These three terms are often confused, but it’s essential to distinguish among them:

  1. Business model: This describes what the business is and how it will turn a profit.
  2. Business strategy: This outlines the goal for the business.
  3. Operating model: The operating model explains how the business will reach that goal and is typically a more detailed, specific plan for the business structure, production and sales processes, management, and role of each employee.

Because business models and strategies are more abstract, they tend to remain in place longer than an operating model, which is more dynamic, flexible, and subject to change as the business evolves.

Benefits of an Operating Model

An operating model offers numerous benefits, including:

  • Organization
  • Measurement and monitoring
  • Roadmap for internal growth
  • Guiding investment decisions
  • Improved communication with stakeholders

Developing an Effective Operating Model

Business owners and consultants often create checklists to help develop operating models, such as the POLIST framework:

  1. Processes: Defines how the product or service is created, marketed, and delivered.
  2. Organization: Defines the types of people doing the work and how they are organized.
  3. Location: Specifies where people and assets are located, whether centralized or dispersed.
  4. Information: Articulates how company technology uses and shares information.
  5. Support: Outlines how administrative, payroll, human resources, and customer support functions work, as well as the roles of business partners and suppliers.
  6. Timetable: Sets expectations for service and delivery, as well as planning and performance review schedules.

Your operating model may need to be updated or revised if your business isn’t meeting its goals or has outgrown its current structure. Technology also plays a central role, as businesses today heavily rely on information technology for success.

By understanding the importance of operating models and how to develop one effectively, ecommerce business owners and managers can pave the way for streamlined operations and increased success in the online marketplace.