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Editor's Note: Take a look at our featured best practice, Digital Transformation Strategy (145-slide PowerPoint presentation). Digital Transformation is being embraced by organizations across most industries, as the role of technology shifts from being a business enabler to a business driver. This has only been accelerated by the COVID-19 global pandemic. Thus, to remain competitive and outcompete in today's fast paced, [read more]
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Most strategies look impeccable on paper. Market positioning is defined, financial targets are ambitious, and leadership alignment feels strong. Yet when execution begins, cracks appear quickly. Misaligned decision rights, overengineered governance, or unclear roles drag performance down. At the core, the Operating Model is often the missing link. Without a deliberate approach, organizations design by accident rather than intent, leaving strategy stranded at the conceptual level.
An Operating Model is the blueprint that connects Strategy to day-to-day execution. It defines how resources are organized, how decisions get made, and which capabilities matter most. When designed poorly, the blueprint creates confusion instead of clarity. When designed well, it becomes the silent backbone of performance, converting strategic ambition into measurable outcomes. The difference lies in a disciplined set of design principles—rules of the road that guide choices, prevent drift, and keep the model fact-based rather than personality-driven.
Strategy alone is fragile. Leaders may debate “where to play” and “how to win,” but unless those choices cascade into structure, governance, and capabilities, the vision remains abstract. The Operating Model is that bridge. It sets boundaries between units and functions, clarifies the role of the center, and specifies the capabilities that will differentiate performance.
The challenge is that many organizations either move too slowly or overengineer. Inertia leads to models that no longer reflect strategic priorities. Overengineering creates complexity that consumes energy without delivering value. Both outcomes are costly. The remedy is a simple but powerful framework anchored in six core design principles.
As defined in the framework, the six principles of Operating Model Design are:
These principles are fact-based, specific, and brief. They fit on a single page, yet they anchor hundreds of decisions about structure, governance, and resource allocation. Their power comes from their clarity. Executives can use them as a consistent reference point, avoiding the temptation to design around personalities or short-term politics.
Consider the modern trend of Digital Transformation. Organizations rush to digitize customer journeys, automate processes, and embed analytics. The temptation is to launch initiatives without redesigning the Operating Model. The result is often duplication, weak governance, and wasted investment.
Applying the six principles forces discipline. Leaders identify the true sources of digital value, whether customer experience or data-driven decision-making. They clarify critical decisions, such as technology investment trade-offs, and allocate ownership. They set boundaries between IT, digital units, and business lines. They define what sits in the corporate center—cybersecurity, for instance—and what belongs locally. They invest disproportionately in capabilities like digital product management. Finally, they protect cultural strengths, such as customer intimacy, while addressing weaknesses, such as risk aversion.
Without design principles, Digital Transformation becomes noise. With them, it becomes a focused engine of execution.
The framework is powerful because it strips Operating Model Design to its essentials. Rather than attempting to solve everything at once, it creates a disciplined sequence. First, understand the sources of value and the critical decisions. Then, define boundaries and clarify the center. Next, invest in capabilities and protect strengths. Each step builds logically, and the cumulative effect is alignment across strategy, structure, and execution.
Another strength is its adaptability. Principles are stable even when strategy shifts. Whether pursuing mergers, entering new markets, or navigating digital disruption, the same principles guide decision-making. They act as a compass, ensuring that redesigns remain coherent rather than reactive.
The framework also elevates conversations in the executive suite. Instead of debating reporting lines endlessly, leaders ground discussions in principles tied directly to value creation. This reduces politics and accelerates decision-making. The Operating Model becomes less about personal preferences and more about organizational outcomes.
Focus on key sources of value. This principle forces prioritization. Too many organizations spread resources evenly across functions, markets, or initiatives—the “peanut butter” problem. The principle insists on disproportionate investment in the two or three sources of value that truly matter. For a retailer, that might be digital channels. For a logistics provider, fleet optimization. For a software organization, product engineering. The model channels energy where impact is greatest.
Highlight critical decisions. Strategy execution is determined by a handful of decisions, not thousands. Pricing, capital allocation, technology investment, go/no-go R&D choices—these are the levers that define performance. An Operating Model must clarify ownership, inputs, and escalation paths for these decisions. The principle disciplines leaders to spend time on what matters most. It embeds governance and accountability into structures and processes so that decisions happen quickly and clearly.
A global service organization that had grown through a decade of acquisitions faced exactly this problem. Its Operating Model had not kept pace with its scale. Governance was muddled, duplication rampant, and decision-making slow.
By applying design principles, the leadership team evaluated four possible models: country-based, matrix with countries leading, matrix with functions leading, and global functions. Through rigorous evaluation against the principles, the organization selected a “matrix, functions lead” model. This struck the balance between global scale and local responsiveness.
The case illustrates a broader truth. The right Operating Model is not chosen arbitrarily—it is proven through structured assessment against design principles. The principles act as objective criteria, guiding leaders through complexity toward fact-based choices.
Even with a strong framework, pitfalls remain. Six are especially damaging. Leaders overcomplicate principles, diluting clarity. They fail to link principles directly to value creation. They ignore cultural realities, designing in a vacuum. They skip sequencing, trying to do everything at once. They treat design as static rather than iterative. They underestimate the discipline required for implementation.
Avoiding these traps requires leadership alignment and continuous reinforcement. Principles must be embedded in governance, performance metrics, and feedback loops. Only then do they move from paper to practice.
Which two or three sources of value should dominate our Operating Model?
These questions turn the framework into a practical leadership tool. They shift the Operating Model conversation from abstract structure to targeted performance outcomes.
Execution remains the Achilles’ heel of strategy. A strong Operating Model, designed with clear principles, is the difference between aspiration and delivery. Leaders who treat design as optional will find themselves managing constant friction and inefficiency. Leaders who embrace the discipline of design principles will see strategy translate into results with far less wasted effort.
Operating Model Design is not glamorous work. It is not about clever slogans or bold vision statements. It is about the architecture of execution—the invisible scaffolding that lets an organization move with clarity and speed. The leaders who master it will find that strategy finally has a home, and execution finally has a chance.
Interested in learning more about the steps of the approach to Operating Model Design? You can download an editable PowerPoint presentation on Operating Model Design here on the Flevy documents marketplace.
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