What is an operating model, and when should you redesign it?
The operating model is how strategy becomes daily work. Here is what it covers and the signs that yours needs attention.
Ask ten executives to define an operating model and you will get ten different answers. Some describe the organisation chart. Others describe processes, systems or the location of teams. All are partly right. An operating model is the way an organisation turns its strategy into the work people do every day, and it touches all of these things.
The concept matters because strategy and execution meet here. A good strategy with a poor operating model will not be delivered. An operating model designed for an old strategy will quietly pull the organisation back towards it.
The elements of an operating model
Frameworks vary, but most cover a similar set of elements. Taken together, they describe how value is created and delivered.
- 1Structure. How the organisation is divided, by product, market, function or some combination.
- 2Decision rights. Who decides what, who must be consulted, and where accountability sits.
- 3Processes. How the core work flows, from customer order to delivery and from idea to launch.
- 4People and capabilities. The skills, roles and culture the strategy depends on.
- 5Technology and data. The systems and information that support decisions and work.
- 6Location and partners. Where work is done, and what is done in-house versus by others.
Change one element and the others usually need to move with it.
Of these, decision rights are the most often neglected and the most powerful. Two organisations with identical structures can behave completely differently depending on who is allowed to decide what. Slow decisions, endless escalation and duplicated effort are almost always symptoms of unclear decision rights.
Signs that yours needs attention
Operating models rarely fail suddenly. They drift out of alignment as the business changes around them. Common warning signs include decisions that take too long or are made too far from the customer, and repeated conflicts between functions or between the centre and the business units. Others are costs that grow faster than revenue, especially in support functions, and new initiatives that struggle because nobody clearly owns them.
Certain events almost always call for a review: a significant change in strategy, a major acquisition, rapid growth or contraction, and the adoption of technologies such as AI that change how work can be done. We have argued that AI is an operating-model question first, and the same holds for most large changes.
Design from the strategy outwards
Operating model redesigns often start with the organisation chart, because it is the most visible element. That is usually a mistake. Structure should follow from a clear understanding of what the strategy requires.
A better sequence starts with the strategic choices and asks what the organisation must be exceptionally good at to deliver them. It then identifies the few decisions and processes that matter most to those capabilities, and designs decision rights and processes around them. Only then does it choose the structure, roles and systems that best support that way of working.
Redrawing boxes on a chart is easy. Changing how decisions are made is where the value lies.
Keep the change manageable
Operating model changes are disruptive. They alter roles, reporting lines and ways of working, and they carry real risk to performance while they are under way. The most successful redesigns are clear about what is changing and what is not, sequence the changes deliberately, and protect the core business throughout.
They also pay close attention to the informal organisation: the networks, habits and norms that determine how work actually gets done. A new structure imposed on unchanged habits will soon behave like the old one.
Where to begin
Pick the three decisions that matter most to your strategy. For each, map who makes it today, how long it takes and what information is used. Then ask how it would be made in an organisation designed from scratch to deliver your strategy. The gaps between the two answers are your operating model agenda.
What would change our view
If redesigns prompted by the warning signs we list rarely improved performance, while those driven by a change in strategy did, we would narrow our list of triggers.
This piece is RavenArc analysis. It draws on established management practice rather than new data, and it cites no specific figures.
RavenArc tests every decision against six questions. See the RavenArc Decision Method.
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