Updated: November 14, 2023 - 8 min read
As your company expands, adopting a Product Operating Model becomes key to managing increased complexity and associated challenges like rising costs and reduced agility. Growth frequently leads to the creation of isolated departments within a company, causing barriers to operations and knowledge sharing.
These silos can create more handoffs, disrupt workflow, and diminish product quality, ultimately impacting your mission to deliver value to customers and sustain efficient company performance. To effectively address these challenges, pivoting towards a product-driven approach with a focus on a customer-centric Product Operating Model is a strategic solution.
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In this model, "product" refers to not just physical goods but also platforms and services that consistently deliver value to either internal or external customers. Aligning your organization's strategic objectives with clear, transparent interfaces allows everyone to see their direct contribution to delivering customer value. This alignment fosters a unified business-customer relationship.
What is a Product Operating Model?
An operating model is a blueprint that defines how your organization delivers value, bringing together cross-functional teams under one unified mission. This model is the intersection where the 'why' of your strategy meets the 'how' of your processes, culminating in the 'what' — your operating model.
It's about creating essential harmony within your organization, ensuring that every effort is geared towards developing a product that maximizes customer value.
This approach is designed to ensure that product teams are not working in isolation but are intrinsically connected to the overall objectives of the organization. The goal is clear: deliver the highest possible value to your customers through your product offerings.
In a product operating model, every decision, process, and strategy is filtered through the lens of product value. From marketing to development, sales to customer support, every department aligns with the central goal of enhancing the product in a way that resonates deeply with customer needs and preferences.
This model empowers you to create products that are not just commercially successful but also beloved by your customers. It encourages a culture where continuous learning, customer feedback, and market adaptation are not just encouraged but ingrained in your organization.
Customer-centricity in a Product Operating Model
At its core, a customer-centric product operating model places customers at the forefront. This approach revolves around deeply understanding your users and buyers — their challenges, needs, and desires. It's about building solutions that solve their problems and enhance their overall experience with your product.
In a customer-centric model, every aspect of product development, from ideation to delivery, is aligned to add value to the customer. This alignment ensures that the product remains relevant, desirable, and useful to its intended audience, ultimately driving user satisfaction and loyalty.
The pitfalls of a Product-centric approach
Conversely, a product-centric approach may not always prioritize solving customer problems. In this model, the focus is primarily on the product itself — its features, functionalities, and technical specifications. While this approach can lead to impressive products, it risks overlooking the most crucial aspect: the customer’s needs and expectations.
Why should you embrace a Product Operating Model?
The question isn't whether you can afford to embrace a product operating model, but rather, can you afford not to? In an era where customer loyalty is paramount and market competition is fierce, this model offers a clear path to improved customer satisfaction, revenue growth, and cost savings.
1. Enhanced customer loyalty
Companies can create products that resonate deeply with customers, fostering brand loyalty and repeat business by adopting a product operating model.
Apple Inc. is a good example of customer loyalty driven by a product operating model. Apple's focus on user experience and integration across its product ecosystem has fostered a loyal customer base willing to queue for hours for the latest product release.
2. Increased revenue growth
A product operating model aligns product development closely with customer needs, leading to products that customers are willing to pay for, thus driving revenue growth.
For instance, Spotify’s personalized music recommendations, driven by its product-centric approach, have not only attracted millions of users but also converted them into premium subscribers, significantly boosting its revenue.
3. Cost savings through efficiency
A deeper understanding of customer needs enables companies to allocate resources more effectively, avoiding wastage on less impactful initiatives.
A good example of cost savings is Netflix’s use of data analytics to understand viewer preferences. This initiative has led to efficient content curation and production, reducing costs associated with less popular content.
4. Improved market responsiveness
A product operating model empowers businesses to respond swiftly to market changes and customer feedback, maintaining a competitive edge.
Take Tesla's over-the-air software updates for its vehicles –these updates allow Tesla to quickly address issues and roll out new features, keeping their cars technologically current.
5. Driving innovation and continuous improvement
This model fosters a culture of innovation, encouraging continuous improvement in product offerings, which can lead to the discovery of new markets and customer segments.
Amazon’s continuous innovation in its product offerings, from Alexa-powered devices to the ever-expanding capabilities of Amazon Web Services (AWS), demonstrates a commitment to staying ahead in technology and customer service.
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6. Streamlining decision-making
A product operating model integrates data and insights directly into the decision-making process, ensuring that product development is aligned with real user needs and preferences.
At Google, the decision-making process is heavily reliant on data and user feedback, which allows for rapid iteration and development of features that users love, such as Google Maps’ real-time traffic updates.
7. Building a stronger brand image
Companies can strengthen their brand image by consistently delivering value through products, becoming synonymous with quality and innovation in the eyes of customers.
This is the case of Nike, whose focus on innovative product design and customer experience, especially through its apps and Nike+ community, has significantly enhanced its brand image as a leader in sports and lifestyle.
The benefits of integrating a product operating model are evident across various industry leaders. It improves specific aspects of business performance and ensures long-term success.
Unpacking the Product Operating Model
Your product operating model should be the mindset that permeates every level of your organization, tying together strategy, operations, and the delivery of customer value through products.
Here are five key components that are essential for you to develop and manage a successful product operating model:
1. Actively managing a product strategy and portfolio
An actively managed product portfolio provides insights into the relationships between various products and their performance across different markets. It's supported by well-defined product life cycle stages and governance mechanisms for optimal product performance.
2. Supervising value streams
Breaking down silos and supervising the entire value stream from ideation to post-sale services is key. This approach ensures that value creation isn't lost in hand-offs and organizational gaps.
Dedicated owners of value streams work closely with product teams, enhancing coordination and maximizing throughput, quality, and agility.
3. Focusing on the customer
A product operating model thrives on a culture that deeply understands and respects customers. It's not just about the end product but extends to every facet of the organization.
Customer-centric capabilities in development, experience, and management allow product teams to target and meet customer needs continuously, thus improving satisfaction and performance.
4. Building stable and dedicated Product Teams
Shifting from a project-based to a product-based approach means having small, stable teams accountable for specific products.
These teams are interconnected, using common data points for cohesion, yet diverse enough to encourage innovation. Governance models support this environment, allowing product teams to flourish.
5. Innovating through data insights and technology
Real-time data and technology enablement platforms are vital for understanding customer behaviors and product performance.
Aligning product strategy with technology strategy creates a synergy that leads to more precise applications, innovations, and advancements, ultimately improving product performance.
Being product-driven goes beyond merely completing a sale; it's about nurturing long-term relationships with your customers. Customer experience, insights, and support become central pillars of this approach.
Product-driven companies are characterized by their use of data-driven feedback loops. These loops are essential for adapting, learning, innovating, and growing. They enable the company to continuously regenerate value, staying ahead in a constantly evolving market.
Digital transformation and its impact on Operating Models
A significant challenge today is the high rate of failure in digital transformation initiatives. These failures often stem from a lack of understanding of product transformation concerning traditional operating models.
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Digital transformation should go hand-in-hand with product transformation. The pandemic has underscored the importance of agility and adaptability in business, highlighting that being open to digital transformation is key to success. However, this openness doesn’t automatically translate into operational changes.
Scaling successfully with a Product Operating Model
As businesses scale, they commonly face increased complexity, rising costs, and diminishing efficiency. Communication challenges often arise, further compounded by the growth of information silos within the organization. These issues can strain the unified goal of creating and delivering value.
A product-driven approach with a customer-focused product operating model is key to facing these scaling challenges. As more companies enhance their products and services through this approach, businesses that adopt a product-driven strategy will be better positioned for both short-term survival and long-term success.
Keep in mind that the choice between a customer-centric and product-centric approach can significantly influence your product and its success in the market. Integrating a product operating model that prioritizes customer needs and experiences could be the key to unlocking greater potential in your product management career.
Updated: November 14, 2023