Adaptable Product Operating Model | Deloitte US has been saved
Authored by Anthony Jardim, Liz Mihm, Maya Bodan, Nate Paynter and Sanjay Purohit
The fast pace of modern technological advancements has led to an increasingly competitive and complex digital landscape. Companies that find the most success on their digital journeys build customer-centric product organizations—allowing them to drive value frequently and directly to their customers by leveraging continuous data-driven insights. This article is part of a series exploring Deloitte’s perspective on how companies can create product-centric organizations.
Why a product operating model?
As part of companies’ digital transformation journeys, we introduced essential considerations in an earlier perspective to reimagine how product organizations are structured and how product teams collaborate. Organizations are increasingly transitioning to product operating models to support the enterprise’s vision and deliver on their missions, with the goal of achieving the following:
- Focus entirely on customer needs and experiences through product design and frequent interactions that most cost-effectively contribute to the mission
- Accelerate time to market through continuous iteration and automated build and testing to improve throughput and product quality
- Increase accountability and transparency through ownership of products to measure investments, financial benefits, and customer value more clearly
Shifting to a product operating model is not a one-size-fits-all approach. A product organization’s transformation often depends on the broader enterprise’s setup, the organization’s maturity, and the organization’s stakeholders. This change can fall on a spectrum, from slightly altering the current state to completely rethinking the organization’s target operating model. It is important to assess how the organization’s operating model needs to evolve at its current inflection point to drive the most impact.
To determine the optimal operating model design, the product organization must have already defined its strategic ambitions and the business model it wants to adopt to win in its target markets. Building on these foundational elements, product organizations then need to address three critical operating model decisions:
- What capabilities does the product organization need?
- How should the capabilities be configured?
- How can organizations activate their product operating models?
What capabilities does the product organization need?
A key operating model design consideration is defining the comprehensive set of existing and new capabilities the product organization needs across the product life cycle to generate value and meet its strategic aspirations. For example, product strategy is a capability that develops the product vision and articulates the customer need, product value, and service delivery model.
Figure 1: Illustrative product strategy capabilities
Once the capability set is defined, the product organization prioritizes and acquires each capability by building it internally, accessing it through its partner network, or outsourcing it. The discrete capabilities come together, complement each other, and represent the collective work that the product organization needs to deliver.
How should the capabilities be configured?
After the capabilities are determined, organizations must decide where the target operating model’s capabilities reside within the product organization. Many ways to allocate the work exist, as capabilities can be placed close to the customer (e.g., sales), centralized globally (e.g., finance), or housed in functions with specific decision rights (e.g., close to executives to speed up the decision-making process). Allocating the work appropriately through the organization design will enable product organizations to meet their customers where they are, maximize value, and operate more effectively. Consider the following questions when determining the optimal type of product operating model:
- Does the capability need to be close to a customer segment, product, or geography to support unique needs or access specific resources? Or can the capability be centralized for scale?
- Is the capability more strategic–does it need to be close to decision-makers? Or is the capability more operational, where it can be housed closer to the required skill sets?
- How will the capabilities interact with each other?
Putting it into practice:
Situation: A fast-growing global technology company needed to better organize its capabilities and roles across its complex product lines and geographies to facilitate decision-making, execute faster, and scale its staggering revenue, customer, and employee growth.
Outcomes: To support this, the organization pursued a geographic operating model that elevates profit and loss (P&L) responsibilities to geographical leads. This process ultimately provided a fit-for-purpose company operating model that aligns the C-suite and leadership team levels and brings clarity to decision rights, reporting structures, and how essential support functions, such as product, engineering, and marketing, support the geographical owners.
How can organizations activate their product operating models?
Finally, one of the most important elements is creating a product organization that can keep up with shifting business priorities and unforeseen marketplace challenges. In addition to adopting a test-and-learn approach to implementing the product operating model, leading product organizations also activate their desired target operating model capabilities by intentionally designing adaptable organizations and teams.1
Adaptable product organization design
Leading product organizations strategically position their groups at the core of their unique ecosystems so that they can uncover changing customer needs, tap into the flexible contingent workforce, and access external communities and crowds. Product organizations are also transitioning away from deep hierarchies and silos to networks of formal and informal structures (as seen in Figure 2).
Figure 2: Illustrative formal and informal structures
This includes tactically configuring capabilities within the network to balance the value gained through efficiency versus adaptability. For example, execution-focused and operational capabilities, such as finance and payroll, can often be organized centrally in a more formal structure to prioritize efficiency. On the other hand, customer-focused and growth-oriented capabilities, such as sales and product development, may justify a more cross-functional, decentralized, and informal model.
Putting it into practice:
Situation: A philanthropic organization struggled with a silo mentality and a top-heavy command chain. Working in silos resulted in limited cross-functional collaboration. Redundancies between departments extended decision-making processes and limited employees’ abilities to drive work forward. The client identified a need for a more flexible operating model, requiring a significant shift from a hierarchical functional organization to an agile organization focusing on a network of multi-functional teams.
Outcomes: Deloitte partnered with the client on a product-led transformation by defining a new product operating model based on networked teams to enable faster decision-making and greater efficiencies. The client established new team structures and equipped employees with agile processes to enhance the employee experience and improve service to grantees and partners. The organization also redesigned talent processes, including career paths, performance management, and compensation model, to incentivize agile behaviors and sustain the new product operating model.
Adaptable product team design
Within the network of formal and informal systems, leading product organizations have a mix of centralized and decentralized teams with a shared organizational purpose and distinct customer-driven missions (as seen in Figure 3).
Figure 3: Illustrative mission-driven teams
For example, product organizations can embed collaborative pod teams in a “four-in-a-box” model across product management, business, engineering, and design that are laser-focused on delivering specific customer outcomes. An adaptable product team design would empower these autonomous cross-functional teams with the necessary decision-making authority and agile tools to experiment and iterate, speed up feedback loops, and be self-serving.
Putting it into practice:
Situation: A US retail and recreation services corporation was on a journey to reimagine its business from a functionally siloed, brick-and-mortar retail organization to a data-based, customer-centric, product-based organization.
Outcomes: Deloitte partnered with the organization to put together future-state operating model design considerations for its Digital and IT organizations, including a “four-in-a-box” product team structure. To activate the future-state product operating model, new product definitions and leadership talking points were developed to support a common way of speaking to products across teams. In addition, a communication and training strategy helped drive behavioral changes, such as new agile ways of working, testing and learning, and psychological safety. A product interaction model framework also helped accelerate the product-led transformation.
What will you build?
Dramatic shifts in technologies and expectations from the business are driving ever-greater changes in how companies are required to organize, execute, and behave. As a result, organizational attributes, such as customer focus, agility, and transparency, have become increasingly important, and product organizations have emerged. To create product organizations and reap these benefits, leaders need to think strategically about how to build product operating models by considering the following questions:
- What outside-in business outcomes does the organization want to deliver?
- How should the organization be constructed to balance efficiency and adaptability?
- Where can the organization embed flexible governance and decision-making models to deliver value faster?
Ready to take your product organization to the next level? Deloitte has worked with product organizations across industries and at every stage of the maturity scale. Our professionals can help you define what needs to change in your organization, design optimal team networks, and guide you through new ways of working.
Authors:
Contributors:
- Amanda Solomon
- Kolbe Klement
- YC Wong
References:
1 Deloitte, “The Adaptable Organization,” 2022.
