Separating business and operating models
I am variously interested in (modelling) four things:
- Business
- Companies
- Company Operations
- Enterprise
... which, to my way of thinking, are four very different things.
But responses to my recent posts on operating model design and the limitations of the people-process-technology (PPT) paradigm suggested that many people don't draw the same distinctions. And so to help readers better understand my future posts on business and (company) operating models, I figured it would be helpful to clarify the differences as I see them.
Conceptual differences
To my way of thinking:
- Business is the identification or creation and satisfaction of desire through the agreeable exchange of 'things of value' (e.g. goods, services, information, money, rights and obligations). It is a dynamic, manifold, fractal-like concept equally applicable to the endeavour of sole traders and multinational corporations.
- Companies (in a business context) are corporate bodies - like firms, partnerships, proprietorships, corporations and cooperatives - that 'do business'. They are legal entities with rights and obligations, e.g. they can form contracts and own property.
- Company Operations encompass everything that a company does, literally: how it operates, how it works, how it does what it does, how it 'does business'.
- Enterprise is something bigger and more abstract. It is the pursuit of goals by various means - commercial, military, political, scientific, religious, etc. And it applies to equally to people (as individuals) and groups of people (as associations or organisations).
Models
A model is a means of communicating ideas and meaning. It is an abstraction, a simplified representation of a more complex 'thing'. And so ...
- A business model is a simplified representation of business
- A (company) operating model is a simplified representation of how a company does what it does
Two basic examples:
1. The phrase 'bait and hook' describes a business model characterised by the offering of one product (the 'bait') at a low price (often at a loss) that generates demand for an associated product (the 'hook') which can be sold at a price that generates a net profit.
[you're thinking of printers and ink cartridges, aren't you?!]
2. The phrase 'bricks and clicks' describes an operating model characterised by a company's use of a website ('clicks') alongside a network of stores/branches ('bricks') to retail its products.
[a well known example from the UK is the retailer John Lewis]
Both models quickly and clearly communicate significant meaning and serve as the basis for further analysis, however, they represent two very different perspectives.
The distinction
- A business model describes an aspect of demand generation, identification or fulfilment
- A (company) operating model describes an aspect of a company's use of assets or resources
So, as I see it, the Business Model Canvas is a hybrid. And there's nothing wrong with that. It's an excellent modelling tool.
But this is only how I see it - other perspectives exist. I only posted this to help people better understand my thinking and this series of posts. I hope it helps.
All feedback warmly welcomed.
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Ben is a Business Architect; writer of business cases; and designer of business models, solutions and services. He's available to hire on a contract basis, but he'll also consider collaborations, start-ups and pretty much any interesting offers of work.
You can read his other posts here, including: 'Are we stuck with 'People, Process & Technology'?' and 'Can I be a [Something] Architect too?'
Award-Winning Entrepreneur, Co-Founder & CEO of Care Quality Ecosystems (CQE)
7 年Beautifully analysed and eloquently elucidated. I'll bet you're a pretty good business analyst too!
Thinking outside the envelope to help deliver the future for our business
8 年Feels a bit like the "All models are wrong" debate. In other words, no model suffices on its own. And no model is likely to be consistent. Just do a Google search on 'target operating model' and see how many different images it produces. My suggestion, don't try to pre-define your models. Instead determine what works best for the problem at hand and know your audience / different stakeholders. And test early to see if they like it. Preferably by whiteboard. Then there's also the Model versus View question. In other words, enterprise architects like me will argue that you can have a business model that represents the different capabilities or building blocks that an organisation has. And you can have a View of how the relevant building blocks are used to produce a solution, answering a stakeholder concern. But really, your audience won't care whether its called a model or a view; they just want a meaningful picture! Preferably by Powerpoint. :-)
I enjoyed intellectually reading your post. There is a positive aspect and a less positive aspect of it: Positive- you are proposing a systems theory model for the activity of an organization. Many other frameworks are incomplete viewpoints. Less positive - it is yet another intent of a systems theory model for the activity of an organization. Same meanings, different terminology, early stage. I personally consider that we have these two challenges in front of us: 1) extract a complete systems model through formal analysis and synthesis means, in true scientific method spirit. Such a systems theory based model would describe the system as well as deal with the issues of effective control as reflected in the disconnect between the length of EA output and the rate of change of the organization (simpler said - too late for effective control) 2) address the issues of people change, from the executive level down (I always presume executives represent the owners of the business, as such they are holders of the vision and values/culture behind the organization). If not used, a good tool (organization model ..) is as good as a bad tool.
Mostly Retired Business Architect and HE Lecturer.
8 年Nice,simple but effective summary.
Strategy and Proposition Design /Transformation / WE EMEA (Women In ETF's) Mentor 2020-2021
8 年I'd just like to add I think the business strategy and the operations plan are the WHY and I'm not sure it is entirely necessary to agree exact language/ levels, particularly when many in this field relate better to diagrams or some visual representation. To me it is logical (and essential) we recognise the human capability element in an organisation, which may sit outside of the architecture function (Marketing, Finance etc.) who can be real drivers of the WHY, and also real drivers in how well the capability is delivered to market. Lets not get too purist in what must have a practical application in a day2day business setting.