7 Minute Read
Dave West, CEO & Product Owner at Scrum.org, explores the agile product operating model and its role in integrating digital technology into organizations and its impact on operations and structure.
Over the last ten years, digital technology has become an integral part of our lives. Smartphones, websites and integrated technology have become the norm in our daily routines and work. It’s hard to imagine a time when we didn’t have the supporting infrastructure of maps, transportation, translation and local knowledge in the palm of our hands. However, despite this technology’s prevalence, its integration into organizations remains complex.
For many, digital technology is still a separate entity that needs to be connected to the organization’s core business. This is where product thinking steps in, empowering organizations to leverage digital technology and integrate it seamlessly into their operations.
Product thinking takes center stage
Every organization has products. They describe the goods and services that the company provides. However, for most organizations, products stop at the boundary of a packaged good or service for the customer. Products are supported by an elaborate collection of business processes, applications and systems built to support the product and the people involved in its delivery. A great example of this is when you visit your bank. You are interested in opening a CD, but as you engage with the bank, you are treated to a collection of systems and processes ranging from customer acquisition, risk management, compliance and sales.
Often, these handoffs are hidden from the customer; only when the integration fails does the customer see the collection of systems. Digital brings the complexity of these systems front and center as opportunity, delivery speed, and the relationship with the client are turned on its head. Product thinking does not remove the underlying complexity; it provides a unifying concept to align teams and drive work. It provides a rallying call for teams to focus on the customer and value and uncover dependencies and bottlenecks.
Product operating model
An operating model is a holistic description of how a company realizes its strategy and how it operates to support its strategy. It is the latest name for an organization’s collection of elements to deliver value.
The model includes:
People and Organizations – What are the people’s responsibilities, titles and how are they organized
Processes – How the people work together and what information is required to deliver value
Governance – Who makes decisions, and what oversight and controls are in place
Culture – The values, beliefs, attitudes and rules influencing behavior
Measures and Incentives – The key performance indicators and how performance and success are measured and communicated
Tools and technology – The systems and tools required to deliver value
The model should respond to an organization’s strategy and mission. Over time, the organization’s strategy changes and the operating model should change in response. However, most organizations’ operating models result from years of different strategies. Change is hard, and adding and renaming without fundamental changes is much easier.
The product operating model is the operating model for an organization when it delivers products. It sounds straightforward. However, the idea is much larger than the “product” bit of a typical organization. It is a unifying concept in the digital age and will ultimately change the idea of projects for most work. Yes, projects will happen in a product-aligned organization rather than a separate collection of individuals from specialist areas, like front-end development, marketing, database, manufacturing, etc…
Moving to this model also requires the organization to define its products and understand the boundaries, dependencies, costs and ultimate value of those products.
Agility manages complexity and risk
Product operating models provide the model for each product and show how everything works together in response to the needs of the product. An organization will have many operating models, one for each product. For products that are digital or have a large digital element, those operating models must be agile. Inherently, digital products are complex because the problem being solved, and the solution has multiple “right” answers. The solution and problem have an odd relationship where one influences the other.
For example, by providing a new capability on, say, a smartphone, changes the user’s behavior in a way that can not be predicted and controlled. That leads to new opportunities and risks. This is why software development turned to agile methods. They provide some respite from complexity by encouraging empirical processes and reducing decision latency through empowered teams. Empirical process describes how in a complex or complicated world that evidence about the situation emerges incrementally. Teams are empowered to take that evidence and make decisions quickly.
The impact on individuals, teams, and organizations
The following impacts result from the agile product operating model:
Organizations will need to build cross-functional teams aligned to products.
This will require removing the barriers between technology, business, and operations in pursuit of customer value and insight. Often, this will result in flatter, more customer-aligned organizations. However, this will also be messy, as many people have built careers focused on building deep knowledge of internal systems, and that alignment is changing. Deep system knowledge continues to be very valuable but must be married with flexibility and a focus on the end-to-end value stream of the user.
Product Ownership and Management will be growing skill sets throughout the organization.
Each product will need clear leadership, which needs to unify the disciplines of product management with the mindset of product ownership. The titles of these people will vary depending on the organization; however, the skills are crucial.
Evidence will help structure planning and decision-making.
Because digital requires an empirical approach, evidence will become crucial in framing goals, work, and outcomes. This will naturally lead to organizations becoming much better at framing problems regarding the evidence required and using data to inform decisions.
Product thinking will be associated with externally facing customer products as well as internal products.
Clarity in customer, user, value, dependencies, and boundaries will enable teams to build a strong product culture throughout the organization. Internal customers will be treated in the same way as external customers, allowing a more consistent customer-focused approach.
Investment in products will exist across planning horizons.
Products exist until they are removed from the portfolio. Traditional project planning has driven unrealistic expectations around the total cost of ownership for a product, leading to increased technical debt and legacy system blackholes. Investment levels will change depending on choices at the portfolio level, but products will continue to exist even if they are not a focus for this planning period.
So, why should you care?
Moving to an agile product operating model is the next evolution in how organizations take advantage of digital technology. However, like subsequent moves, that move will be challenging as it changes the organization’s power structures and encourages flatter, outcome-based approaches. Because of this, many organizations will adopt product thinking by name only, replacing their existing project operating model with a product one. This ultimately will reduce the value and increase the internal complexity of the organization.
Watch for two warning signs:
- Work is everywhere. Instead of clear outcome-based strategies and investment themes connected to customers and outcomes, planning, backlogs and reporting centers on work being delivered. Work is, of course, an important thing for teams to focus on, but outside of the team it is a distraction. Leaders should focus not on what teams are doing but the evidence being delivered that shows progress against clear outcomes and goals.
- Decisions require large groups of people. In more established organizations, decision-making is distributed and complicated. Agility requires rapid decision-making based on evidence. Senior leadership sets guard conditions (for example, budget, timeframes, quality, governance) and clear business goals but allows teams to execute against those goals. Products provide an organization with a model that can help define accountabilities. However, existing organizational structures can undermine those boundaries.
If you face those challenges, try to influence a clear alignment between outcomes and customer opportunities and encourage clarity around product boundaries and accountabilities.
