The rise of product-centric operating models
Product-centric operating models have gained significant traction over the past decade – and for good reason. Rooted in the software-driven culture of Silicon Valley, this approach prioritises creating real customer value through technology-powered solutions. By focusing on customer needs and bringing business value and customer experience to the forefront, organisations can achieve superior alignment of resources, platforms, and strategies. This shift is not only beneficial in the short term, but also supports long-term innovation and value creation.
As product-centric thinking has spread from Silicon Valley into the mainstream, it has evolved to fit various contexts beyond pure technology companies. Inspired by models like the much-publicised "Spotify model", companies across industries are adapting these principles to their unique environments. In many cases, this approach has replaced the traditional project-based or siloed methods of delivering technology solutions. However, a more balanced view suggests that these traditional approaches can co-exist with agile methodologies.
Despite the growing adoption of product-centric models, the expected benefits – such as faster time to market, more effective prioritisation, and enhanced collaboration – often fall short in larger organisations. In this article, we explore why these models sometimes fail to deliver as expected, and offer insights into how businesses can set themselves up for success.
Why product-centric operating models fail
In the transition to an agile, product-led delivery model, many organisations find that the promised benefits like shorter time-to-market, closer collaboration with the business, more effective prioritisation of initiatives and higher productivity are not delivering as expected or, in the worst cases, not delivering at all. We typically see a range of issues and root causes that need to be addressed to get the model right:
- Scaling complexity: A model that works in a 100-person startup often encounters significant challenges in larger organisations. More stakeholders, dependencies, and technical complexities arise as the organisation scales. Shifting from local to global optimisation requires new skills in orchestration, prioritisation, and trade-off management.
- Confusion over definition and scope: There is often confusion among sponsors and executives regarding what a product-centric operating model truly entails. Is it an evolution of the IT function? A bridge between business and IT? Or something entirely different? This lack of clarity can hinder effective implementation.
- Misunderstanding of terms: Key terms such as "product" and "operating model" are often misunderstood. Is a product something that directly reaches consumers, or could it be a process improvement or a technical component? Clear definitions are crucial to aligning the organisation around common goals.
- Resistance to organisational change: Many organisations overemphasise traditional reporting lines and functional structures, which can stifle the dynamic, principle-driven approach that product-centric models require. The operating model should guide how capabilities come together to achieve the end goal, and this requires a shift away from rigid structures.
- Over-purism and reliance on methodologies: Many organisations fall into the trap of treating methodologies like Agile or SAFe as the ultimate solution. While these frameworks provide valuable guidance, they are not panaceas. A pragmatic approach that embraces the complexity and ambiguity of real-world scenarios is essential.
- Underinvestment in skills and capabilities: Successful adoption of a product-centric model requires a focus on developing new skills and capabilities. However, organisations often concentrate on structures, methodologies, and toolkits at the expense of building the necessary human capital.
A third evolution: Moving toward a scaled, product-led operating model
In the transition to an agile, product-led delivery model, many corporations now adopt a hybrid model to capture the promise and benefits of the product-led delivery model with more precision and speed.
This model entails the careful balancing of autonomous, decentralised product teams with more central elements like strategy and planning, portfolio management, product and platform architecture standardisation and rigorous outcome management.
Agile, product-centric teams are an important building block, but
they are not sufficient to bring a product delivery organisation to
the next performance level. What is required is a comprehensive
transformation, with several elements and key questions to
consider:
- Structure, e.g., Verticals vs. horizontals; Product and platform taxonomy; Make vs. buy strategy. Consider the core structural components that need to come together in your organisation to solve problems and deliver value. What is the overall product and platform architecture in your organisation that serves as a guiding rail for your development activities and avoids overdevelopment? What product elements are you developing in-house and which components are brought in from external sources or open source?
- Shared governance, e.g., Goal setting and prioritisation; Funding; Portfolio planning; Accountability and performance measurement. What are the critical governance building blocks? What should be consistently applied across all teams to give you enough commonality for globally productive working vs. what framework do the teams have autonomy to operate within?
- People and skills, e.g., Culture change; Teaming; Talent management; Upskilling and capability building; Incentives; Open Source/Inner Source culture. Consider how the skills and capabilities you need from your teams have evolved. How do you upskill and support your teams to be successful in an agile, highly matrixed, ambiguous and ambient environment?
- Operating procedures, e.g., Best-practice product lifecycle management (PDLC) processes, Clearly-defined accountability and decision rights; Aligned cross-product and platform dependencies. Do you have clear accountabilities and responsibilities defined for all building blocks of the operating model? Do you apply PDLC best practices? Do product managers have the right authority to steer development within given boundaries?
- Tools and data, e.g., Planning and collaboration tools; Developer tools; DevOps tools; Continuous integration/Continuous delivery (CI/CD) pipelines; GenAI tools to improve software development effectiveness. Do you provide product teams with a state-of-the art tooling set to increase development productivity? Are you finding the right balance between pioneering and innovation of new tools while ensuring consistent use of the core across teams?
AlixPartners' approach: Pragmatism over purism
At AlixPartners, we advocate for a pragmatic approach that delivers value quickly while establishing sustainable models for the future. We believe that organisations should approach the adoption of product-centric operating models through a series of structured steps:
- Align on principles: Start by aligning on the core principles that will guide the adoption of the product-centric model. This includes educating the executive team to ensure they have a clear understanding of what the model entails and the organisational space it should occupy.
- Develop the operating model blueprint: Create a comprehensive blueprint that includes key components such as structure, strategy, governance, ways of working, tooling, and talent management. This blueprint should be dynamic, allowing for evolution over time as the organisation's needs change.
- Focus on culture and capability building: Place a strong emphasis on culture, behaviour, and talent management. Upskilling teams and fostering a collaborative, problem-solving mindset are critical to success. This involves preparing teams to navigate ambiguity and equipping them with the skills needed to thrive in a dynamic environment.
- Iterative implementation: Implement the model iteratively, starting with product pilots and gradually rolling out the model across the organisation. This approach allows for adjustments and refinements along the way, ensuring that the model is both effective and sustainable.
A balanced approach for success
Transitioning to a scaled, product-centric operating model is a business transformation enabled by technology, not merely a technology transformation. By adopting a pragmatic approach that balances the need for speed with the complexities of large-scale implementation, organisations can unlock the full potential of this operating model. The key is to focus on principles, culture, and capability development while remaining flexible and adaptive in the face of change. The potential benefits – ranging from increased product launch rates to higher employee satisfaction and revenue uplift – are significant, making the journey well worth the effort.
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