The Operating Model Gap

When Growth Outruns How You Work

Growth changes an organization long before the organization formally acknowledges that it has changed.

A clinic adds locations.

A hospital expands service lines.

A healthcare group acquires another entity.

A founder builds an executive team.

Technology becomes more integrated into care delivery.

Clinical and commercial priorities become increasingly interconnected.

Yet something often remains unchanged:

How the organization actually works.

The same decision-making structures.

The same reporting lines.

The same approval processes.

The same information flows.

The same management assumptions.

The organization has evolved.

Its operating model has not.

That is the Operating Model Gap™.

Your Organization Changed. Did Your Operating Model?

The question is not simply whether operations are efficient.

It is whether the way the organization is designed to work still fits the organization it has become.

Early-stage organizations can operate through founder decisions, informal communication and highly centralized control.

That may work at five employees.

It can become a bottleneck at 50.

The same principle applies as healthcare organizations expand across locations, specialties, payers, technologies and leadership layers.

Growth increases:

• decision complexity;

• accountability requirements;

• information volume;

• coordination needs;

• technology dependencies;

• management layers;

• clinical-commercial interfaces.

What worked previously can become friction.

And because the organization has grown gradually, the mismatch is often difficult to see.

The Hidden Cost of Yesterday's Design

An outdated operating model rarely announces itself as a crisis.

Instead, leaders begin noticing symptoms:

Decisions take too long.

Everything requires executive approval.

Accountability becomes blurred.

Multiple leaders touch a decision, but nobody clearly owns the outcome.

Information moves slowly.

Leaders receive reports rather than actionable intelligence.

Technology creates work instead of removing it.

Systems are added without redesigning the underlying workflow.

Clinical and commercial priorities collide.

Different functions optimize for different objectives without an effective mechanism for resolving trade-offs.

Management layers multiply.

More people coordinate the work, but fewer people understand who can actually make the decision.

These problems are often treated individually.

The deeper issue may be structural.

The organization is trying to operate at its current scale using a design created for its previous one.

Growth Changes the Decision Architecture

One of the most overlooked consequences of growth is decision complexity.

As organizations become larger, decisions increasingly cross departments, locations and functions.

A service-line decision may affect:

Clinical quality → Workforce → Capacity → Revenue → Patient experience → Compliance

Who owns that decision?

Who has the authority to act?

Who must be consulted?

Who simply needs to know?

Without deliberate decision rights, organizations compensate with meetings, approvals, escalation and executive intervention.

The result is a paradox:

The organization adds leadership capacity but becomes slower.

This is why operating-model design matters.

It determines not only who does the work, but how decisions move through the organization.

Centralize What Creates Consistency. Decentralize What Requires Proximity.

Healthcare organizations often fall into an unproductive debate:

“Should we centralize or decentralize?”

That is the wrong question.

The better question is:

Which decisions create greater value when standardized—and which require local judgment?

Finance, compliance, data governance and certain technology functions may benefit from centralization.

Patient-facing decisions, local workforce decisions or market-specific growth initiatives may require greater proximity.

The answer is rarely “centralize everything” or “decentralize everything.”

The strategic objective is to design the right distribution of authority.

This becomes increasingly important as healthcare organizations operate across multiple facilities, specialties and markets.

Technology Cannot Repair a Broken Operating Model

Another overlooked assumption is that technology automatically creates organizational efficiency.

It does not.

Technology can accelerate a good process.

It can also accelerate a bad one.

Adding another platform, dashboard or AI capability without redesigning roles, workflows and decision rights can simply create another layer of complexity.

McKinsey's recent healthcare operating-model research emphasizes that organizations seeking greater performance increasingly need to rethink decision-making, resource allocation, processes and organizational capabilities—not simply add technology.

The question is therefore not:

“What technology do we need?”

It is:

“What should the organization be able to do differently—and what operating model will make that possible?”

The Operating Model Gap™ Is a Strategic Risk

An organization does not need to be broken to require redesign.

That may be the most important insight.

The operating model that worked yesterday can become the constraint on tomorrow's strategy.

Expansion may require greater decentralization.

Acquisition may require integration mechanisms.

Digital transformation may require entirely different information flows.

A larger executive team may require clearer decision rights.

New service lines may require new clinical-commercial interfaces.

Growth changes the organization's strategic architecture.

Eventually, the operating model has to catch up.

The Executive Test

Leaders should periodically ask:

Are decisions being made at the right level?

Does accountability match authority?

Does information reach the people who need to act on it?

Have management layers increased faster than organizational capability?

Are technology investments simplifying work—or adding another layer?

Does our operating model support the strategy we have—or the organization we used to be?

And perhaps the most important question:

When was the last time you redesigned how your organization works—not because something was broken, but because the organization had changed?

That is the difference between operational maintenance and strategic design.

The strongest healthcare organizations do not wait for operational failure to force redesign.

They recognize that growth itself creates a requirement to rethink how work gets done.

Because eventually, every successful organization reaches a point where the way it works becomes as important as what it does.

At Phoenix MedStrategy, we help healthcare organizations anticipate that inflection point—redesigning decision structures, accountability, workflows and organizational capabilities before yesterday's operating model becomes tomorrow's constraint.

Growth should change the size of your organization.

It should also change the way your organization works.

Sources

• Galbraith, Jay R. Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels. Jossey-Bass.

• Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.

• McKinsey & Company. “What it takes to build a high-performing health system operating model.” 2026.

• McKinsey & Company. “Why agility is imperative for healthcare organizations.”

• World Health Organization. Health System Resilience Indicators: An Integrated Framework for Measuring and Monitoring Resilience. 2024.