Every organization grapples with the same challenge: how to take strategy off the whiteboard and embed it into daily work. Ambition without execution is wasted energy. The Operating Model is the vehicle that converts intent into performance. Yet not every model delivers. The difference between clarity and chaos often lies in a handful of design principles that anchor the entire framework.
These principles are not decorative statements. They are fact-based rules that guide structural choices, governance mechanisms, and capability priorities. Without them, design becomes a tug-of-war of preferences and politics. With them, it becomes a disciplined exercise in building alignment and value.
Why Design Principles Matter
An Operating Model is more than an org chart. It defines how resources are allocated, how decisions are made, and how capabilities are prioritized. A good model makes these choices explicit and consistent. A weak model leaves them implicit, creating ambiguity that slows execution.
Design principles ensure discipline. They distill strategic inputs into a small set of criteria that guide every design debate. They prevent leaders from overcomplicating structures or drifting into pet projects. They serve as the bridge between ambition and the hard realities of execution.
The framework identifies six core design principles. Each plays a critical role in linking strategy to action.
The Six Principles of Operating Model Design
- Focus on key sources of value
- Highlight critical decisions
- Set clear scope and boundaries
- Define the role of the center
- Build essential capabilities
- Preserve strengths, fix weaknesses
Together, these principles provide a practical template for design. They are short enough to fit on a page, yet specific enough to guide difficult trade-offs. They form the backbone of a durable Operating Model.
Principle 1: Focus on Key Sources of Value
The first principle insists on prioritization. Too many organizations spread resources evenly across all functions and initiatives. This “peanut butter” approach dilutes focus and creates mediocrity everywhere. Instead, leaders must channel disproportionate energy into the two or three sources of value that truly differentiate performance.
These sources might be customer experience, supply chain resilience, or speed-to-market. They must be identified clearly and linked to strategy. Then structure, governance, and investment decisions should reflect that priority. For instance, a consumer goods organization may channel resources into digital marketing because it drives growth, while a logistics provider may prioritize advanced analytics in fleet optimization.
The discipline of focus transforms the Operating Model from a loose collection of activities into a force multiplier for strategy.
Principle 2: Highlight Critical Decisions
Execution is driven by a small number of high-value decisions. Pricing, capital allocation, product innovation, or market entry choices often matter far more than the thousands of smaller decisions made every day. The principle requires leaders to identify these critical decisions and make ownership unambiguous.
Clear decision rights accelerate execution. They also reduce duplication and conflict. If multiple functions believe they own the same decision, progress slows and outcomes suffer. Governance mechanisms must clarify who decides, who contributes, and how escalation works.
Examples are plentiful. A retailer clarifying pricing decisions between merchandising and marketing. A pharmaceutical organization establishing cross-functional forums for R&D go/no-go choices. A manufacturer streamlining capital expenditure approvals. The principle transforms decision-making from a bottleneck into a driver of speed and accountability.
Principle 3: Set Clear Scope and Boundaries
Ambiguity around roles and responsibilities is poison for execution. When boundaries are unclear, duplication flourishes, conflict grows, and accountability evaporates. The principle demands precision in defining the scope of units, functions, and geographies.
Boundaries must clarify who owns customers, processes, and resources. They must establish how work flows across units without redundancy. They must balance local autonomy with enterprise-wide coordination. Global consumer goods organizations often struggle with this, deciding which product categories are managed locally versus globally. Banks grapple with the overlap between compliance and risk management. Technology organizations face friction between product development and IT operations. Clarity of scope eliminates friction and accelerates performance.
Principle 4: Define the Role of the Center
The corporate center—or headquarters—must add value. Too often it becomes a reporting hub that creates bureaucracy without driving performance. The principle requires explicit choices about what belongs in the center and what belongs locally.
Centralization captures scale benefits in areas like procurement, brand standards, or cybersecurity. Decentralization preserves local responsiveness in areas like market access or product adaptation. The center must enable rather than control execution. It must create value beyond oversight.
Examples include global pharma organizations centralizing R&D while leaving market access decisions local. Retailers centralizing procurement while leaving merchandising decentralized. Technology organizations centralizing cybersecurity while giving product teams flexibility. The role of the center must evolve as strategy evolves, ensuring ongoing alignment.
Principle 5: Build Essential Capabilities
Capabilities underpin execution. Without them, strategy remains aspiration. The principle demands clarity on which two or three capabilities matter most for delivering the strategy and disproportionate investment in those areas.
Capabilities can be technical, functional, or organizational. They might include advanced analytics, digital product management, regulatory expertise, or customer engagement skills. Whatever they are, they must be directly linked to value creation.
A logistics provider may prioritize data science. A consumer goods organization may strengthen digital marketing. An energy organization may invest in renewable expertise. The Operating Model must align people, processes, and technology around these priorities and build mechanisms to continuously upgrade them.
Principle 6: Preserve Strengths, Fix Weaknesses
Change efforts often fail because they try to fix everything, including what already works. This principle provides balance. It requires leaders to conduct an honest assessment of current strengths and weaknesses, protect what creates value, and fix what creates friction.
Preserving strengths maintains credibility and stability during change. Fixing weaknesses ensures performance is not constrained by persistent pain points. The combination creates resilience.
Financial services organizations may protect strong client advisory cultures while modernizing digital channels. Manufacturing organizations may retain lean production systems while addressing supply chain vulnerabilities. Professional services organizations may keep partnership governance while improving decision speed. The principle grounds transformation in reality.
What Leaders Must Confront
- Do we know which two or three sources of value differentiate us?
- Have we defined the small set of critical decisions that matter most?
- Are boundaries clear, or are overlaps slowing execution?
- Does the center enable value or simply add bureaucracy?
- Have we identified and invested in the capabilities that matter most?
- Are we balancing the preservation of strengths with targeted fixes to weaknesses?
These questions are not rhetorical. They form the checklist leaders must work through to ensure their Operating Model is coherent and disciplined.
The Payoff of Getting it Right
Design principles transform Operating Model conversations from abstract to practical. They reduce politics, accelerate alignment, and link every decision back to strategy. They ensure leaders focus on value creation, not personal preference.
When applied rigorously, the six principles make strategy executable. They turn ambition into repeatable performance. They create organizations that can scale, adapt, and sustain. Without them, Operating Models drift, execution slows, and strategy falters.
Leaders who treat principles as optional design add-ons miss their importance. Leaders who treat them as the foundation of Operating Model Design discover that strategy finally has a home.
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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