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HOW is OPERATiOns sTRATEgy dEvElOPing? 39
the business logic of a specific firm. It is a description of the value a company offers to one or
several segments of customers and of the architecture of the firm and its network of partners for
creating, marketing, and delivering this value and relationship capital, to generate profitable
and sustainable revenue streams.’ 16
One synthesis of literature shows that business models have a number of common
elements:
1 The value proposition of what is offered to the market.
2 The target customer segments addressed by the value proposition.
3 The communication and distribution channels to reach customers and offer the value
proposition.
4 The relationships established with customers.
5 The core capabilities needed to make the business model possible.
6 The configuration of activities to implement the business model.
7 The partners and their motivations of coming together to make a business model
happen.
8 The revenue streams generated by the business model constituting the revenue model.
9 The cost structure resulting from the business model.
One can see that this idea of the business model is broadly analogous to the idea of
a ‘business strategy’, but implies more of an emphasis on how to achieve an intended
strategy as well as exactly what that strategy should be.
An ‘operating model’ is a ‘high-level design of the organisation that defines the structure
and style which enables it to meet its business objectives’. It should provide a clear, ‘big-
picture’ description of what the organisation does, across both business and technology
domains. It provides a way to examine the business in terms of the key relationships
between business functions, processes and structures that are required for the organisa-
tion to fulfil its mission. Unlike the concept of a business model, which usually assumes
a profit motive, the operating model philosophy can be applied to organisations of all
types – including large corporations, not-for-profit organisations and the public sector.
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An operating model would normally include most or all of the following elements :
1 Key performance indicators (KPIs) – with an indication of the relative importance of
performance objectives.
2 Core financial structure – P&L, new investments and cash flow.
3 The nature of accountabilities for products, geographies, assets etc.
4 The structure of the organisation – often expressed as capability areas rather than
functional roles.
5 Systems and technologies.
6 Processes responsibilities and interactions.
7 Key knowledge and competence.

Note two important characteristics of an operating model. First, it does not respect con-
ventional functional boundaries as such. In some ways, the concept of the operating
model reflects the idea that we proposed earlier in the chapter: namely that all manag-
ers are operations managers and all functions can be considered as operations because
they comprise processes that deliver some kind of service. An operating model is like

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