Strategy, Business Model, & Operating Model

Unlocking the Secret to Business Success
Have you ever wondered how successful companies seamlessly translate their grand visions into day-to-day operations? The answer lies in the intricate interplay between business strategy, business model, and operating model. According to Harvard Business Review, a business strategy refers to the plan a company uses to gain a competitive advantage in the market by choosing a unique position and business model (set/system of activities). A business model describes the logic of how a company operates and creates value for stakeholders. Operating model defines the tactics - the specific actions taken - to execute the strategy within the framework of the chosen business model.

What is Business Strategy?
Business strategy is the pattern of decisions and actions that shape a company's direction and influence its outcomes in a competitive business environment. A business strategy is designed to address fundamental questions or problems related to strategic issues. It consists of a layered set of approaches that tackle essential questions (concerns) across four key dimensions: strategic direction, positioning and competitive advantage, implementation (functional), and execution (operational). These key dimensions with questions that a well-crafted strategy should address the following fundamental question:

​1. Strategic Direction

• Core Purpose: What is the fundamental reason for the organization's existence?
• Vision: What is the desired future state of the organization?
• Mission: What are the organization's primary goals and objectives?

2. Positioning and Competitive Dimensions

• Value Proposition: What unique value does the organization offer to its customers?
• Target Market: Who are the organization's ideal customers?
• Competitive Advantage: How will the organization differentiate itself from competitors?

3. Implementation Dimensions

• Capabilities: What resources, skills, and processes are needed to execute the strategy?
• Governance: How will the strategy be implemented and monitored?
• Organizational Structure: How should the organization be structured to support the strategy?

4. Operational (Execution) Dimensions

• Operations: How will the organization's day-to-day activities be managed?
• Technology: What technologies will be used to support the strategy?
• Risk Management: How will the organization identify and mitigate risks?

Each of these dimensions involves addressing specific strategic issues or concerns. The solutions to these issues form the layers of a comprehensive business strategy, which include:

1. Corporate Strategy: This layer focuses on the overall strategic direction of the organization, including long-term goals and the allocation of resources across various business units.
2. Business Unit and Competitive Strategy: This layer deals with how individual business units compete within their markets. It involves positioning and gaining competitive advantage.
3. Functional Strategy: This layer pertains to the strategies of specific functions within the organization, such as marketing, finance, and operations, ensuring they align with the overall business strategy.
4. Operational Strategy: This layer focuses on the execution of strategies at the operational level, ensuring that day-to-day activities align with strategic objectives.

By addressing strategic issues within these dimensions, a business strategy provides a structured approach to achieving organizational goals and maintaining competitive advantage. The realized business strategy provides a framework for guiding a company's activities and ensuring that they are aligned with its long-term goals. 

What is a Business Model?
A business model is your company’s blueprint for success. It outlines how you create value, deliver it to customers, and capture the value for stakeholders. Think of it as the system of activities that reflect the big picture, the overarching strategy that guides how you execute the strategy.

Business strategy influences the business model in the following ways:

• Defining the Value Proposition: Business strategy helps define the unique value that the company offers to its customers. This value proposition is a core component of the business model.
• Identifying Target Market: Business strategy guides the identification of the most suitable customer segments for the company's products or services.
• Determining Revenue Streams:  The business strategy influences the development revenue streams, such as sales of products, services, subscriptions, and licensing.
• Analyzing Cost Structure: Business strategy helps assess the costs associated with delivering value and developing a sustainable cost structure. 

Business strategy serves as a guiding principle for all these business model activities, ensuring they are aligned with the company's overall objectives and contribute to its long-term success. 

What is a Business Architecture?
Business architecture is a comprehensive framework that outlines the structure of an organization, including its components and their relationships. It aligns strategic objectives with operational realities and provides a clear roadmap for achieving business goals.

Business strategy influences business architecture activities in the following ways:

• Enterprise Architecture: Business strategy provides the overarching direction for the enterprise architecture, which defines the structure, governance, and technology landscape of the organization.
• Information Architecture: Business strategy influences decisions about the information architecture, including data management, data governance, and information systems.
• Application Architecture: Business strategy guides the selection of and development of applications that support the company's goals and operations.
• Technology Architecture: The business strategy helps determine the technology infrastructure and platforms that are necessary to implement the business model and operating model. 

Business architecture serves as the foundation upon which the operating model is built, providing a detailed and holistic view of the organization. It connects strategy to execution, ensuring that the organization can navigate its journey successfully.

What is an Operating Model?
Operating model is the detailed plan that outlines how your organization will execute its business model. This includes everything from your organizational structure to your processes, technology, and human resources. While the business model focuses on the “how you do it,” the operating model is all about the “how you do it day-to-day.”

Business strategy influences the operating model in the following ways:

• Organizational Design: Business strategy guides decisions about the company's organizational structure, including the distribution of authority, responsibilities, and decision-making rights.
• Process Design: The operating model is influenced by the business strategy, as it defines the processes and workflows necessary to deliver the value proposition efficiently.
• Technology Infrastructure: Business strategy helps determine the technology investments required to support the operating model and achieve strategic goals. 
• Resource Allocation: Business strategy guides the allocation of resources (e.g., human, financial, technological) to support the operating model and achieve desired outcomes.

Business strategy serves as a guiding principle for all these operating model activities, ensuring they are aligned with the company's overall objectives and contribute to its long-term success. 

Understanding Business Strategy: Business Journey Metaphor
The business strategy is your master plan. It sets out your long-term goals, defines your vision, mission, and core values, and identifies the strategic initiatives to get you there. Think of it as the "why" behind everything you do and the roadmap guiding you on this journey.

The business journey is the actual path you take to reach your strategic goals. It encompasses the transitions, progress, and challenges you encounter along the way. Its about "how" you get from point A to point B, adapting and evolving as you move forward.

The vehicle for this journey is the operational embodiment of the business strategy and business architecture. It ferries value to where it needs to go. It encompasses the processes, technology, people, and systems that make the creation, delivery, and capture of value possible. By ensuring the vehicle is well-designed and aligned with the business architecture, you guarantee that the value flows seamlessly from creation through delivery, meeting customer needs and fulfilling the stakeholder expectations. This alignment is crucial for maintaining efficiency, and adaptabiolity on the business journey.

Real-World Example: The Airport Clipper
Consider a barbershop at an airport. Its business model is centered around providing quick, convenient, and high-quality haircuts to time-conscious travelers and airport staff. The value proposition is speed, quality, and a clean environment. The target market includes customer segments such as: business travelers, leisure travelers, frugal voyagers, indulgent explorers, and airport staff.

The operating model for this barbershop involves:

• Optimized Scheduling: A robust appointment booking system ensures minimal wait times.
• Standardized Services: A streamlined menu of haircuts, beard trims, and shaves caters to diverse customer needs.
• Skilled Barbers: Highly trained professionals with master barber-level skills deliver consistent, high-quality services.
• Efficient Workspace: A well-designed, clean, and modern environment enhances the customer experience.

By aligning the business model with this efficient operating model, The Airport Clipper can successfully cater to the needs of its target market and thrive in a competitive airport environment.

Challenges and Pitfalls
A common challenge for small businesses, especially service-oriented ones like barbershops, is failing to clearly differentiate their value proposition from their service. For instance, a barbershop at an airport offers haircuts, shaves, and other services tailored to the specific needs of travelers. While the core service is a haircut, the needs of customers can vary significantly based on the context. At a neighborhood barbershop, customers might value community and social connection, whereas at an airport, relaxation and convenience are paramount. The mistake lies in not understanding the environment and circumstances, and assuming preconceived notions about what customers value and expect.

To address this, businesses must delve deeper into understanding customer needs and desires within the context of their environment and circumstances. What problem does the service solve for the customer? How does the service improve the customer’s life? By clearly defining the value proposition, businesses can tailor their offerings and marketing efforts accordingly.

Making it Work: Key Considerations

• Alignment: Ensure your business model and operating model are in sync.
• Flexibility: Be ready to adapt to changes in the market or internal conditions.
• Innovation: Continuously look for ways to improve your business model and operating model.
• People: Your employees are crucial to successful execution. Invest in their development and engagement.

By understanding the interconnectedness of your business model and operating model, you can unlock the full potential of your business.