Overcoming Challenges in Adopting Product-Centric Business Models

In recent years, many organizations have adopted a product-centric approach characterized by terminology such as product teams, product owners, and value streams. However, while the language of product management is widely embraced, the underlying structures and practices often remain unchanged, leading to significant implementation challenges.

The Disconnect Between Language and Authority

Despite the adoption of product-focused jargon, traditional budgeting and decision-making models frequently persist. A critical point of inquiry is whether individuals below the CFO can reallocate funds between products without the necessity of drafting new business cases. As Michael Podgortsev, director of data and AI strategy, notes, if such financial flexibility does not exist, the organization merely layers product terminology onto a project funding framework.

Strategic Shifts: Where Transformation Stalls

Transitioning from projects to product teams can enrich communication but does not inherently result in meaningful transformation. Hersh Tapadia, CEO of Allstacks, emphasizes that while renaming projects may seem beneficial, empowering product teams with budgetary control can threaten existing power dynamics, often halting progress.

Leadership turnover can exacerbate these difficulties. Abby Knowles, former vice president of global technology at Verizon Consumer Group, faced such challenges while leading her firm’s transition over three years. She observed that many efforts fell short, with some product areas not progressing beyond superficial branding changes.

The Risks of Mislabeling Ongoing Work

Post-launch, organizations can mistakenly categorize ongoing development efforts as mere maintenance, disregarding the essential resource allocation needed to sustain a platform’s value. Nishanth Sirikonda from FirstDay Foundation notes that this mischaracterization diminishes the ongoing investment needed to keep platforms robust and relevant.

Furthermore, rapid technological advancements, such as those powered by AI, highlight existing mismatches between development speed and funding processes. As Prayaag Kasundra, CEO of Simform, states, despite accelerated coding capabilities, organizational bottlenecks remain due to traditional funding cycles and governance procedures.

Innovative Funding Approaches

To align budgeting with a product-oriented approach, some suggest that organizations should implement continuous funding for product teams rather than adhering to annual project-based budgets. Podgortsev advocates for quarterly recommitment from product teams based on specific metrics, allowing the CFO to maintain oversight through regular performance reviews rather than intermittent approvals.

Thomas DeFabrizio, CFO at Vertage, concurs that the role of finance should be to sustain continuity for team operations, enabling ongoing product improvement free from the need to justify expenditures repeatedly. Tracking expenditures per product type can facilitate this shift, as suggested by Tapadia, while also ensuring accountability regarding software capitalization standards.

Empowering Product Owners

A pivotal element in fostering a successful product-centric environment is granting product owners the authority to make critical decisions, including the power to reject requests from senior stakeholders. Arjun Jaggi emphasizes the necessity for powerful backing from executives, such as the CIO, to uphold these decisions within the organization.

Knowles supports this notion by suggesting that product owners should be rooted within the business rather than technology, improving customer relationship management and ensuring a dual-perspective approach by pairing technological and business-oriented product owners.

Measuring Success Beyond Activity

One of the significant pitfalls organizations face is equating activity with success. Aaron Hutten, CTO at Studio Science, warns that rewarding performance solely based on resource utilization can undermine true product outcomes. DeFabrizio argues that success metrics must reflect economic impacts, not just activity levels.

As companies embrace AI, Tapadia cautions against adopting superficial velocity metrics that do not correlate to genuine value creation, while Jason Gold underscores the importance of aligning productivity gains with actual cost savings.

Establishing Clear Decision Rights

Conflicts surrounding authority often stem from poorly defined decision rights. To remedy this, organizations should formalize and document decision-making powers, ensuring budget alignments reflect these rights. Tapadia suggests that when a shared service or project management office makes unilateral decisions, the budget line should follow accordingly to facilitate resolution.

Kasundra advocates for integrating risk and compliance checks within development pipelines to minimize bureaucratic hurdles and expedite decision-making while retaining necessary reviews for high-risk changes.

Initiating Transformational Efforts

Organizations need not overhaul their entire structure at once. By selecting two or three product teams equipped with stable members, sustained budgets, defined decision rights, and mutual outcome metrics monitored by both business and IT stakeholders, they can test and refine the product-centric framework.

The measure of success does not rest on new organizational charts but rather on tangible outcomes. As Podgortsev states, a primary indicator of progress is the elimination of underperforming products based on their metrics, while Jaggi highlights the importance of upholding decisions made by product owners in the face of resistance.

In essence, a product operating model embodies a significant shift in power dynamics within an organization. This change becomes tangible only when current power holders are willing to relinquish control, creating a more agile and responsive business environment.

Pam Baker is a freelance journalist and the author of books including ChatGPT For Dummies and Generative AI For Dummies. She is also an instructor on AI topics for LinkedIn Learning and a member of the National Press Club, the Society of Professional Journalists, and the Internet Press Guild.