What is an Operating Model?
What Is an Operating Model? (and why it fails in most companies)
Introduction
“Operating model” is one of the most widely used, and misunderstood, terms in business.
It appears in strategy decks, transformation programmes, and consulting proposals. It sounds precise. Structured. Executive.
Yet in most organisations, it is neither clearly defined nor consistently applied.
The result is predictable:
Companies believe they have an operating model. In reality, they have a collection of disconnected activities.
What an Operating Model Is (In Practice)
At its core:
An operating model is how a business actually runs day to day.
It translates strategy into execution.
It defines:
How work gets done
Who does it
How decisions are made
How resources are allocated
How performance is managed
If strategy is the direction, the operating model is the machinery.
The Gap Between Theory and Reality
On paper, most companies look well structured.
They have:
Organisational charts
Defined roles
Documented processes
Governance frameworks
But inside the business, the reality is different.
Decisions are unclear.
Processes overlap.
Accountability is blurred.
Priorities conflict.
Why?
Because the operating model is not truly designed. It has simply evolved.
The Root Cause: No System View
The real issue is not poor management.
It is a lack of a unifying structure.
As outlined in The Standard Model for Business, companies are complex systems made up of interdependent functions, processes, and decisions. Without a framework, that complexity becomes overwhelming.
Most operating models fail because they are built in isolation:
HR designs people structures
Finance defines controls
Operations builds processes
Technology implements systems
Each part works individually.
But no one designs how they work together.
The Five-Stage Reality of Operating Models
An effective operating model must evolve with the business.
Every company moves through five stages:
Start
Stabilise
Grow
Govern
Assure
Each stage requires a different operating model.
1. Start: Speed Over Structure
At this stage:
Roles are fluid
Decisions are fast
Processes are minimal
This is necessary. Structure would slow the business down.
The challenge is not chaos.
The challenge is survival and product–market fit.
2. Stabilise: Introducing Order
As the company grows:
Finance, HR, IT, and Legal become essential
Processes begin to formalise
Roles become clearer
This stage builds the foundation for scale.
Without it, growth breaks the business.
3. Grow: Scaling Execution
Now the operating model must handle:
Increased volume
New markets
Greater complexity
Functions like:
Logistics
Partnerships
R&D
become critical to expansion.
The operating model must shift from reactive to repeatable.
4. Govern: Controlling the Machine
At scale, performance alone is not enough.
The business needs:
Procurement discipline
Administrative control
QHSE standards
Corporate governance
This ensures efficiency, accountability, and consistency.
Without governance, growth becomes fragile.
5. Assure: Securing Trust
At maturity, the focus shifts again.
Now the operating model must support:
Risk management
Compliance
ESG
Internal audit
This is about trust.
Not just performing well, but proving it.
Why Operating Models Break
Most companies fail to evolve their operating model as they move through these stages.
Instead, they:
Keep early-stage behaviours too long
Add structure too late
Bolt on governance after problems occur
This creates tension:
Speed vs control
Growth vs stability
Innovation vs risk
These tensions are natural.
But without a structured model, they become destructive.
The Hidden Problem: Misalignment
The most common failure is not process inefficiency.
It is misalignment.
Strategy says “grow fast”
Finance says “control costs”
Risk says “reduce exposure”
Operations says “maintain stability”
All are correct.
But without a coherent operating model, they conflict.
The organisation slows down.
What a Good Operating Model Looks Like
A strong operating model does three things:
1. Aligns Functions
Every function understands:
Its role
Its dependencies
Its contribution to the whole
2. Evolves With the Business
It changes as the company moves through stages.
Not too early. Not too late.
3. Balances Tension
It manages the natural trade-offs between:
Speed and control
Growth and discipline
Innovation and risk
This is not about eliminating tension.
It is about structuring it.
The Leadership Perspective
From a leadership standpoint, the operating model is not a document.
It is a capability.
It requires the ability to:
See across functions
Understand interdependencies
Make decisions that work for the whole system
As highlighted in The Standard Model for Business, strong leaders develop breadth across functions to avoid siloed thinking and improve decision-making.
This is what allows an operating model to function in reality, not just on paper.
A Practical Definition
To simplify:
An operating model is how a business turns strategy into coordinated action across all functions.
If it is unclear, the business struggles.
If it is aligned, the business scales.
Conclusion
Most operating models fail not because they are badly designed, but because they are never truly designed at all.
They emerge.
They drift.
They fragment.
The organisations that succeed are the ones that step back and ask:
How does our business actually work?
How should it work at this stage?
And what needs to change next?
That is the beginning of a real operating model.
