Product-Centric Operating Models: How Top Companies Work

Operating models are how a company delivers value, aligns resources, and executes its strategy. As enterprises increasingly shift towards product-centric strategies, having a product-based delivery model has become essential to driving innovation, scaling efficiently, and meeting evolving customer needs.

This article will serve as a comprehensive guide to understanding product operating models. We’ll explore their definition, core components, and significance in an enterprise setting. You’ll also find real-world examples of successful operating models, insights into their advantages, and actionable guidance on how to create and implement one for your organization. 

Whether you’re a C-level executive, decision-maker, or product stakeholder, this guide will help you unlock the full potential of a product-centric approach.

What Is a Product Operating Model?

An operating model (or product model for short) refers to how a company organizes itself in order to achieve strategic objectives. A product operating model, or product model for short, puts the product at the center of operations. At a company employing a product operating model, every team has a role to play in the creation, improvement, and distribution of the product. Importantly, every team member knows exactly what that role is and has it front of mind at all times.

To put it simply, the product-based operating models center on creating enduring accountability and alignment within cross-functional teams that oversee a product’s lifecycle from conception to optimization. This focus enables organizations to integrate customer feedback, prioritize features, and continuously iterate for improved outcomes.

Unlike traditional project-based models, which focus on temporary initiatives with fixed timelines, a product-based operating model emphasizes continuous value delivery. Product models align teams around customer-centric goals, fostering innovation and responsiveness to market changes.

How did we get here? The transition to Product-Based Operating Models

If the product model described above sounds par for the course, that’s due to the Silicon Valley-ing of product development. It wasn’t always this way. 

Historically, enterprises relied heavily on project-based operating models to drive initiatives. These models are often siloed, with teams disbanding after the project’s completion. While this approach works for short-term goals, it often falls short in maintaining long-term customer relationships and adapting to rapid market shifts. 

In contrast, organizations achieve greater agility and accountability by assigning teams to specific products or features. This model enables a seamless flow of work, continuous improvement, and a sharper focus on delivering customer value. 

The widespread transition to product operating models was heavily influenced by methodologies like Agile and Lean Product Development, which prioritize iterative progress and customer feedback in their delivery models. Companies like Spotify popularized this shift with their "Squads and Tribes" model, enabling small, autonomous teams to innovate rapidly.

Then there’s Amazon. Venture capital analyst Benedict Evans refers to its operating structure as "the machine that makes the machine:

“Amazon is hundreds of small, decentralized, atomized teams sitting on top of standardised common internal systems...These are the famous ‘two pizza teams’.”

You can read more about these examples below, but for now, suffice it to say that a product model can be defined as a dynamic framework that underpins all major decisions in regards to: 

• What the goal is, or product strategy

• What to build to achieve that goal, or product discovery

• How to build it, or product development

• How to scale it and make it profitable, or product growth

Components of a Product Operating Model

If you’re reading this and thinking, “Our company already uses a product operating model”, then one of two things is happening. One is that it really is a product-first, Agile organization that values iterative improvement, autonomous teams, and continuous delivery. The other, more likely, situation is that it strives to have those things, but the reality is a lot more siloes, missing data points, and blocked teams than anyone would like. 

A successful product operating model is built on several interconnected components that collectively enable organizations to deliver continuous value. These components ensure alignment between strategic goals, team structures, processes, and technology, creating a seamless environment for innovation and growth. This doesn’t just happen. It requires intention, and in the case of a business transforming from project to product-led, it takes strong leadership and commitment. The components of a product operating model are:

1. Product vision and strategy

Product vision and a corresponding strategy is the foundational element that defines the purpose and long-term objectives of a product. It aligns the organization on what needs to be achieved and provides a guiding framework for all subsequent decisions. A clear product vision helps prioritize features and ensures teams are working towards a shared goal.

2. Cross-functional team structures

Product-centric models rely heavily on cross-functional teams that bring together diverse skill sets, including product management, design, engineering, and marketing. These teams are empowered to own specific products or features, fostering accountability and ensuring that decisions are made collaboratively. Models like Spotify’s "Squads and Tribes" emphasize small, autonomous teams that are agile and customer-focused.

3. Agile processes and governance

Implementing Agile methodologies ensures continuous delivery and iteration. Processes like Scrum or Kanban facilitate collaboration, transparency, and adaptability. Governance structures are critical for maintaining alignment across teams and ensuring accountability without stifling innovation.

4. Technology infrastructure and tools

A robust technological foundation supports the execution of a product operating model. Tools for product management, product analytics, and collaboration, such as Jira, Figma, or Amplitude, enable teams to plan, track progress, and measure outcomes effectively.

5. Metrics and feedback loops

Continuous improvement relies on measuring success and integrating feedback. Key product metrics such as customer satisfaction, time-to-market, and feature adoption rates are essential for evaluating product performance. Feedback loops allow organizations to adapt to changing customer needs and market conditions.

Product Model Examples

Spotify: The squad and tribe model

Spotify’s operating model has become a benchmark for Agile, product-centric organizations. Their "Squads and Tribes" framework emphasizes small, autonomous teams that focus on a specific aspect of the product while fostering collaboration through structured communication.

The Spotify model dates back to 2011 when coach and consultant Henrik Kniberg & Anders Ivarsson, at the behest of their colleagues, published a whitepaper: Scaling Agile @ Spotify. Kniberg has said that it was never meant to be something that people copied or implemented at their own companies. “It’s just an example of how one company works.”

Well, it's way too late for that! The whitepaper created a furor and since its publication, The Spotify Model has been a beacon in the Agile world. Here's how it works:

• Squads: The basic unit of development, each squad operates has the necessary skills to build a product, including design, testing, and engineering. Squads are self-organizing and free to choose the frameworks that work best for them, whether Scrum, Kanban, or another approach. They are guided by a product owner for task prioritization and an agile coach for process optimization.

“A Squad is similar to a Scrum team, and is designed to feel like a mini-startup. They sit together, and they have all the skills and tools needed to design, develop, test, and release to production...Each squad has a long-term mission such as building and improving the Android client, creating the Spotify radio experience, scaling the backend systems, or providing payment solutions.”

• Tribes: Squads working on related areas of the product are grouped into tribes, which remain under 100 members to ensure effective collaboration. Tribes facilitate cross-squad communication and are led by a tribe lead who ensures everyone has the resources they need.

• Chapters and Guilds: To encourage knowledge sharing, Spotify introduced chapters—groups of people with similar skills across different squads—and guilds—interest-based communities open to anyone passionate about a particular area, like testing or design. These structures ensure innovation and consistency across the organization.

So, should you go back and apply the Spotify Model at your organization? Well, before you do that, you might want to take into consideration that Spotify doesn't use the model anymore…

The unique selling point of the model is the high levels of autonomy experienced by teams. While this looks great on paper, alignment was actually more difficult to achieve when everyone has their own way of thinking and their own way of working. There’s a balance to be found between total alignment and total autonomy, and the Spotify Model can’t guarantee that you’ll find it.

People get stuck on the flashy names like Guilds and Squads, when in reality, what makes Spotify so successful and allows it to compete with monoliths like Apple and Amazon is what's hidden behind the names. These Spotify model components remained even when Spotify changed up (iterated on!) its operating model: 

• Agile delivery via Kanban, Scrum or a combination. As Kniberg put it, “Some use Scrum sprints, some use Kanban, some use a mix of these approaches.”

• Empowered teams, embodied by the “autonomous squads”

• Aligning around shared product goals or “long-term missions”

• Iteration or continuous improvement, as summarized in the slogan “Think it, build it, ship it, tweak it”.

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Amazon’s operating model 

Amazon’s famous "Two-Pizza Team" model is centered on nimble, independent teams that are small enough to be fed with just two pizzas. Each team owns its product or feature end-to-end, from development to deployment, ensuring accountability and rapid innovation. 

Writing about the Two-Pizza Rule, The Guardian’s Alex Hern observes:

“The goal wasn’t to cut down on the catering bill. It was, like almost everything Amazon does, focused on two aims: efficiency and scalability. The former is obvious. A smaller team spends less time managing timetables and keeping people up to date, and more time doing what needs to be done. But it’s the latter that really matters for Amazon. ”

In reference to the question of scalability, Hern continues: 

“Amazon is good at being an e-commerce company that sells things, but what it’s great at is making new e-commerce companies that sell new things. The company calls this approach its “flywheel”: it takes the scale that can smother a typical multinational and uses it to provide an ever-increasing momentum backing up its entire business.”

The proof is in the product-centric pudding. By fostering agility, accountability, and customer-focused innovation, Amazon is able to have multiple businesses, or product lines, in one. 

By repeating the same Agile, autonomous structure over and over, it can branch out into whole new industries without reinventing the wheel. This “fractalization” of the operating model, combined with a data-driven approach that prioritizes data accessibility for all Amazon teams—this is the origin story behind Amazon Web Services—makes it possible to come up with one customer-delighting solution after another at a dizzying speed.

How to Create and Implement a Product Operating Model

It's all well and good to study product model examples from the likes of Spotify and Amazon, but how does one go about trying it at home? Let's look at the steps required to apply a product-centric operating model to your own business.

1. Assess the current operating model

Begin by mapping out existing workflows, team structures, and governance frameworks. Identify areas of inefficiency or misalignment that a product operating model could address. Conduct interviews and surveys with stakeholders to gain a clear understanding of the current challenges and opportunities.

At Product School, we consider the assessment stage to be the foundation for all transformations. When we work with enterprise clients, the first step is always an in-depth assessment of competencies. This way, we can measure the gap between the current state and the desired operating model.

2. Define the product delivery model vision and strategy

Speaking of objectives, it's equally as important to establish a clear vision and long-term strategy for the product operating model. This should include:

• Defining the overarching business objectives.

• Identifying customer needs and how the product model will address them.

• Aligning leadership on the goals and principles of the new operating model.

3. Establish a governance framework

Governance is critical for ensuring alignment and accountability across teams. Examples of how to structure Product Leadership:

• Decision-Making Councils: Groups that define priorities and allocate resources.

• Product Steering Committees: Cross-functional teams that ensure strategic alignment.

• OKRs (Objectives and Key Results): A framework to measure and track progress.

4. Choose a methodology

Selecting a product management methodology is essential to guide the day-to-day implementation of the product operating model. Consider the following options:

• Agile: Tailored to team needs, options include Scrum (focused on iterative sprints), Kanban (continuous workflows), or hybrid approaches blending elements of both.

• Lean: Focuses on eliminating waste and optimizing processes for value delivery.

• Scaled Agile Framework (SAFe): Designed for scaling Agile practices across large organizations, ensuring coordination among multiple teams.

5. Invest in the right technology

Equip teams with tools and platforms that support seamless collaboration, analytics, and product management. Examples include:

• Jira for project tracking.

• Figma for design collaboration.

• Amplitude for product analytics.

• Tableau and Power BI for data tracking and visualization.

• Amazon QuickSight for dynamic reporting and dashboards.

These tools ensure teams can monitor progress, share insights, and make data-driven decisions effectively.

6. Monitor metrics and iterate

Establish key metrics to track the performance of the operating model. Examples include:

• Time-to-market.

• Customer satisfaction scores.

• Feature adoption rates. Regularly review these metrics and gather feedback from teams to refine and optimize the model.

Implementation example: Adobe’s transition to a product-centric operating model

Adobe’s shift from a project-based to a product-centric operating model is a prime example of successful implementation. The company restructured teams to focus on specific products, empowered product managers with end-to-end ownership, and adopted Agile methodologies. According to Ernst and Young: 

“Adobe made an intentional effort to incorporate its products more deeply into the company’s workflows. That helped create more efficient processes, and also gave Adobe a larger team of users to continuously evaluate and improve on its products.”

By aligning its operating model with customer needs, Adobe achieved faster innovation cycles and significantly improved customer satisfaction.

The Journey to Product-Centric Excellence

While product-based models can unlock agility, innovation, and customer value, challenges should not be underestimated. Teams have to overcome resistance to change and balance alignment with autonomy across cross-functional units. Addressing these challenges requires buy-in from leadership and a clear vision.

The potential promised by the right product model is infinite, as we've seen in the cases of Spotify, Amazon, and Adobe discussed above. Transforming from a project-based to a product-centric model promises compound rewards as the right models scale seamlessly into better and better outcomes. 

Implementing a product operating model is an iterative journey. That means it doesn't have to be perfect on the first try. The important thing is getting started.

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