The transition to a product operating model is a big cultural and operational change – but it’s worth the effort. […]
In their endless pursuit of speed, digital executives are shifting from project to product orientation [engl.] Fort. However, this change is not an initiative that you just do. It requires care and continuous development, which often leads CIOs to ask themselves: Is our team doing this only because it is currently trending, or are we there to drive meaningful change?
The definition and introduction of a product operating model is only the beginning of a long road, which is riddled with diversions and detours. And your ability to bring about meaningful change ultimately depends on your ability to cope with three factors.
Reality 1: There are not many (successful) product owners in IT
Successful product owners have a unique combination of business acumen, technical know-how and leadership skills. If one of these characteristics is missing, this can lead to an existential crisis for product-based IT. In our conversations with CIOs, we most often hear that there are not enough qualified product owners.
Many companies have launched product management bootcamps or “digital academies” to counter the trend and equip their teams with the tools they need to become successful product owners.
Amir Arooni, EVP and CIO at Discover Financial Services, a $13 billion company, has launched a technology academy to give its engineers a wider range of skills and counter the view that “developers are more like assembly line workers producing code than creative problem solvers who can contribute to innovation”.
This training program in conjunction with a product orientation in IT pays off: a recent pilot project for mobile devices [engl.] led to an increase in productivity of almost a third, without increasing the number of employees.
Other companies choose to recruit product owners directly from the business units and functions and combine them with their IT colleagues to form a cohesive unit that breaks the supposed wall between business and IT.
Whether you’re doing a product management bootcamp, recruiting product owners from the divisions, or pursuing something completely different, you should be prepared to invest in training to ensure that the new product teams have the necessary skills to succeed.
Reality 2: Business units and functions must leave their mark on the model
The development of your IT operating model without the involvement of the business units and functions can lead to small successes, but ultimately will not bring the desired transformative results. If you want to achieve greater benefits in the implementation, you should involve the business units and functions at an early stage and give them the opportunity to leave their mark on the following components of the operating model:
- Vision. Explain what it means to work in a product-based operating model and how it will help solve known business problems. The chief digital officer of a healthcare client initiated the transformation of his company by distributing a memo co-authored by a BU president to explain the vision in business language and describe how the new operating model would accelerate the work to integrate the people, processes and technological aspects of a recent merger.
- Product taxonomy. Present a draft of the product teams that you think are needed to support the current and emerging capabilities throughout the value chain, and then quickly get the business and technical leaders in the conversation to do their part. Be sure to take into account the nuances of products and processes so that you do not upset your business units and departments. For example, get business unit feedback before assuming that the lead-to-cash process for multiple business units can be supported by a single product team. Tell your interlocutors the reasons for your product taxonomy and negotiate an initial set of products, which is a balance between the autonomy of business divisions and the scale of products. Review the taxonomy regularly to identify opportunities to merge or spin-off existing product teams or create new product teams to support the development of the business model.
- New ways of working. The transition to product-based IT is often closely linked to agile transformation efforts that introduce many new roles, responsibilities and processes. If you want to introduce a new admission process or involve the management in the quarterly planning and prioritization of the order backlog, you should let them participate in the design of the process. This way you have a certain say and avoid the impression that the tail is wagging the dog. At the same time, you should be aware that things may not work perfectly right away. The tendency of functional managers to contact the software engineers directly instead of taking the path through the product owner can lead to serious capacity management problems for a company that is making this transition. It is important to address these issues quickly and directly to ensure that everyone involved is on the same page.
Reality 3: A change in the operating model requires that the financing system evolve with you
If the goal of moving to product-based IT is to have autonomous and empowered product teams that pursue the most valuable opportunities, you can’t let the finance department slow you down with labeling processes. Digital executives need to build a close partnership with finance departments to demonstrate the benefits of a product-based financing model for them and the entire company.
In a recent conversation with Maya Leibman, EVP & CIO of American Airlines, she noted that traditional, project-based financing models were “designed in a way that you had to give up. There were so many mountains to climb that it had almost become an endurance game“. Before the introduction of product-based financing, many teams would have used maintenance funds for projects just to bypass the approval process.
American Airlines’ new product-based financing model provides a continuous stream of financing and reduces unnecessary approvals. The product team for the boarding experience, for example, annually adds up the technology and process costs incurred to maintain and improve the boarding experience, and then receives these funds, which it must spend on the further development of the experience at its discretion.
This not only improved speed and throughput, but also gave finance departments more insight into costs and new ways to prioritize investments. Ross Clanton, Managing Director of Technology Transformation at American Airlines, highlighted a breakthrough that emerged in the finance department as a result of the new financing model: “You could now see into the ‘black box’ of running costs, not just the growth costs that we submitted in the project-based model.“
The transition to a product-related operating model is a major cultural and operational change. If implemented well and continuously improved, it can lead to shorter time to market, more innovation and better customer experiences. But the road is not easy, and CIOs need to be willing to get their hands dirty. But if you take into account the above realities in your plans, you can bypass the many traffic jams on the way to the product utopia.
*Michael Bertha is Managing Director at Metis Strategy, a strategy and management consulting firm specializing in the intersection of corporate strategy and technology.