By: Jamison Hutton
There are a lot of terms that you have to learn when you enter the world of business, ranging from abbreviations like “CEO” to specialized terms like “digital disruption.” The term “operating model” can have one specific definition and still mean different things to different people.
For instance, an operating model will look different for a manufacturing company than it will for a retail store because they run in very distinct ways. This can make understanding the term at first glance more difficult, but once you research how to write an operating model of your own, the ambiguity becomes clear.
What is a Target Operating Model?
The most basic definition of an operating model is a visualization of how the company operates to provide value to beneficiaries and customers. These models usually take on the form of a flow chart of the value chain, with the starting point the first bit of work you put in and with the ending point the delivery method to the customer. For a restaurant, the value chain would start with sourcing ingredients and end with the waitstaff.
When you use target operating models, on the other hand, you are looking at both where your company is now and where you want to be in the future. To continue the restaurant example, your operating model can contain sourcing ingredients from national distributors and marketing through word-of-mouth, while your target operating model can make the changes of sourcing local ingredients and expanding marketing to social media and newspaper advertisements.
The practical use of these models is about more than just knowing what your value chain is. Target operating models can help you visualize the processes that your company needs to function so that you can trim expenses in the areas which are less important. They can help you create an ongoing business plan for growth, and they can help you determine which chains are the most beneficial to your company. To best use an operating model, you will want to update it on a regular basis to reflect changes in the market and in your company. Your governance team should be empowered to address weak links or to monitor progress towards goals with confidence.
The biggest benefit to using operational models is that they can provide visualization for your company’s growth. This can help employees see how their daily tasks influence the business and customers more directly, giving them the insight into how changes on their part can positively affect sales. For instance, if you are adding a content manager to your website development staff, then you can create a value chain which shows that adding weekly updates keeps customers engaged with your website and informed of the value of your products and services. This can also help you streamline awkward processes and better see which teams are functioning as the target model indicates and which ones need help.
There are many things that companies tend to leave out when creating their models, such as how market forces impact finances, which metrics to use, and what performance analysis tools are available. With the right configuration for your company, you can map out what each team does, and give department managers the right mandate to act on any issues or monitor the progress that they see. Not only do you need the right mandate and configuration for your operating models, but you also need to know what tools are the best for each stage of the chain and what data will best reflect how you are performing now as well as where you need to go in the future. You can find software solutions to help you determine which data to include as well as to create the visualizations once the information is entered into the model format. Sometimes you can even choose how the information is displayed to find a format that works best for your needs.
Developing and understanding operating models and value chains are important, but so is implementation of target operating models. These models will show you what each team and individual in your company should be doing and how that adds value—and target models will guide those employees to streamline and improve performance. Making a separate model for each person may be too much for any one manager or department to take on, so most companies implement a model for the whole business, with each department using a variation to guide their work.
Making an operating model for your company can be a good way to track the process your products and services go through to reach the consumer. It is important to remember that data and analytics about both individual performance and market trends will influence your models—and the better your analytics and metrics are, the more effective your models will be.
About the author
Jamison Hutton is a tech enthusiast and business intelligence consultant. He’s a freelance journalist who loves writing about people’s small business dreams. Jamison resides in Houston, Texas with his wife and son.