Types Of Business Operating Models | 4 mins read

Clear Examples and Types of Business Operating Models

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Hanh Truong

By Hanh Truong

Introduction Types of Business Operating Models

The consumer market is quickly changing due to new technologies and the Internet. As a result, small businesses and enterprises have to quickly shift and evolve to maintain their value and make money. To make sure that a company has the means and structure to stay competitive, entrepreneurs need to have a business operating model. This component will help organization leaders determine their target consumers, increase revenue, and identify other factors that are key to their success.

The consumer market is quickly changing due to new technologies and the Internet. As a result, small businesses and enterprises have to quickly shift and evolve to maintain their value and profitability. To make sure that a company has the means and structure to stay competitive, entrepreneurs need to have a business operating model. This component will help organization leaders determine their target consumers, increase revenue, and identify other factors that are key to their success.

Types of Business Operating Models

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Business operating models outline how an organization should use technology, processes, and labor to deliver and maintain value. Essentially, an operating model helps entrepreneurs lay the foundation for their company. Before creating business strategies, the management team must determine the operating model that aligns with their needs and goals. With an operating business model in mind, entrepreneurs and staff members can also effectively carry out their roles and responsibilities. The following are the most common example and types of business operating models.

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Coordination Operating Model

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Coordination operating models are for companies that have multiple disparate departments. Although these departments have different functions, they impact one another because they share data, clients, and processes. For instance, the human resources and payroll department have their own roles and internal structures. However, employee work hour data must be shared with payroll to streamline compensation. Some key traits of a coordination operating business model include the following.

  • Departments function autonomously
  • Each department has unique business operations and supply chain functions
  • Each department or team in a company must work together and share client, employee, or supplier data
  • Departments have their own IT infrastructure and technology tools

Unification Operating Model

A unification operating model is popular among large-scale companies that have consumer bases and suppliers across multiple geographic locations. The model integrates global business processes so that departments in all areas have standardized procedures. This helps business owners to centralize data and processes and to control the departments. Additionally, it increases efficiency and consistency in delivery. A small or new business will typically adopt a unification operating model once their operations grow large enough. Some factors that demonstrate when a business should have a unification operating model include the following-

  • Customer bases, supply chain, and third-party contractors are located globally and locally
  • Business processes are standardized or need to be integrated
  • Departments in all business locations have similar processes and operations
  • Company leaders and executives outline all workflows, activities, and employee duties
  • Decisions regarding IT are made centrally

Diversification Operating Model

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Diversification operating models are commonly used by companies that have few or no shared customers or suppliers. Each business unit or department has unique operations and independent transactions. There is also less of a need to standardize business procedures. Key elements of a diversification operating model include the following-

  • The only shared aspect between departments is the products or services that the company sells
  • Each business unit completes independent transactions
  • Management is autonomous
  • Departments have their own operations and IT designs

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Replication Operating Model

The replication operating model aligns with businesses with departments that share some customers and suppliers. Information and data are typically standardized for accessibility between business units. However, each department does function autonomously with unique processes. This means some units will have similar operations, depending on the decision made by the management teams. The following are key features of a replication operating model-

  • Few or no shared customers and suppliers between departments
  • Business transactions are independent are other departments
  • Department leaders manage their teams autonomously
  • Data is standardized and is usually owned by a third-party, local organization
  • IT solutions are designed centrally

Key Takeaways to Types of Business Operating Models

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  • Business operating models help entrepreneurs determine how to use technology, labor, and processes to effectively deliver and maintain value to customers.
  • Determining the business operating model for an organization will help highlight key responsibilities and a business strategy.
  • With a business model, organization leaders can stay competitive and build a stable foundation for their company.
  • The 4 different types of business models include the coordination operation model, diversification operating model, replication operating model, and unification operating model.

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