Master the Product Operating Model Core Principles for Leaders

What is the Product Operating Model?

A product operating model is a strategic framework that organizes a company’s teams, processes, and systems around delivering a specific product, prioritizing customer value and continuous improvement, with the product itself at the center of operations.

The product operating model concept emerged when software companies discovered the benefits of organizing cross-functional teams around products rather than projects. Dr. Mik Kersten formalized the approach with the Flow Framework®, first mentioned in his 2018 book “Project to Product.” This model is now used by all different types of organizations to manage software delivery.

Key Differences From Traditional Operating Models

What does implementing the product operating model mean for your organization? The most important differences from a traditional operating model occur in structure, decision-making, and metrics.

Organizational Structure

In a traditional operating model, functional departments, such as marketing, IT, and finance, have separate reporting lines and approval chains. But in a company organized by product, cross-functional teams with aligned objectives are entirely dedicated to specific products or customer solutions.

Decision-Making Approach

Next, decision-making changes drastically. Companies working in the old way make decisions through centralized hierarchies, with an emphasis on adhering to processes and standardization. In a product operating model, decisions are made by empowered teams who are close to the customer and market needs.

Success Metrics

Finally, success is measured differently. Traditionally, companies focused on internal efficiency metrics, departmental KPIs, and operational excellence to measure success. But in a product model, success is measured by customer-centric outcomes, product performance, and value delivery.

Why Product Operating Models are Critical in Today’s Business Environment

Across industries, technology investments are growing. Analysts expect that IT investments will grow 9.3% in 2025, with certain sectors showing even stronger double-digit growth. IDC projects that AI-related spending will grow at a compound annual rate of 29% through 2028.

As spending expands, tech executives want to ensure each dollar is justified and achieves a specific business outcome. They want to increase productivity, efficiency, velocity, and quality in their digitalization efforts.

A product operating model provides the management structures, information, and processes necessary to deliver on the above business goals, especially when developing digital software experiences.

McKinsey research shows that organizations with mature product operating models achieve “60% higher returns to shareholders and 16% higher operating margins” compared to lower-performing organizations. Conversely, Planview research found that 75% of every dollar a typical company spends on software development is wasted on misalignment, teams working on the wrong thing, and other inefficiencies.

Listen to the podcast episode with McKinsey & Company about why product operating models increase success.

Product operating models aren’t just for digital native companies. In fact, 58% of software developers work in industries where software is not the primary product. As more and more non-tech companies find themselves needing to operate like software companies, they need an operating model that will help them work more efficiently.

The Evolution of Product Operating Models in Modern Organizations

It takes time to shift from the traditional way of working — a focus on projects — to the product operating model. According to Planview’s 2024 Project to Product State of the Industry Report, most organizations (41%) are in the “experimenting” stage, while 32% are in the “expanding” stage. In fact, only 12% have reached the “operationalizing” or “approaching maturity” stages.

Seven Areas of Change

Although the benefits of a product operating model are well justified, transitioning to this way of working requires significant changes in fundamental operations, particularly in seven key areas.

1. Visibility & Alignment: Strategic decisions are shared by business and technology and aligned to agreed-on objectives and key results (OKRs).
2. Success Measurement: Outcomes are based in customer value, rather than “on time and on budget” metrics.
3. Organizational Design: Team structures change from temporary teams into persistent, stable product teams.
4. Planning: Annual, requirement-driven plans should evolve into iterative, feedback-driven planning.
5. Funding: Predefined, output-based budgets changes to incremental, outcome-based funding.
6. Delivery Timeframes: Rather than using finite end-dates, work transitions to a continuous delivery model.
7. Risk: Annual risk planning shifts to managing risk as it occurs.

Our guide, Accelerate Organizational Speed, is a handbook to help you steer your organization through each of these areas of change.

“You don’t create a single product model that lasts you two years, you start small, measure, iterate, and refactor.”

– Dr. Mik Kersten

The four components of an effective product operating model are:

1. People
2. Process
3. Technology
4. Governance

But prior to implementing shifts in these areas, your organization has to orient around a flow-based understanding of value creation and delivery.

This means bringing the same rigor to architecting software delivery value streams as advanced manufacturing plants employ to their assembly lines. It often means looking for “flow items,” which are discrete units of work that move through a value stream.

According to Dr. Kersten, the four flow items that matter most in product-based work—features, defects, risks, and debts—represent all the units of value that must flow through your organization’s value streams.

“The four flow items that matter most in product-based work are features, defects, risks, and debts.”

– Dr. Mik Kersten

By measuring and optimizing the flow of these items, he says that organizations can move beyond just tracking outputs to truly understanding how value is created and delivered to customers.

Once there’s agreement on the flow items an organization wants to track, teams then analyze those items to identify bottlenecks and opportunities to remove them. Then, organizations can formalize the emphasis on flow by making important shifts in the four core areas below.

People: Teams, roles, and responsibilities

Reorganizing teams around products requires a significant shift. Unlike project models that “bring people to the work,” product models maintain persistent, stable teams organized around value streams with clear ownership and accountability for specific products or services. This reduces time wasted on context switching and ramping up new resources for each project.

Product-oriented teams need three things to be successful:

• Cross-Functional Composition: Create teams that include all skills needed to deliver value independently, reducing handoffs and dependencies between functional silos. See Product Operating Model Roles for specific roles needed on a team.
• Product Manager Empowerment: Ensure that an empowered product manager owns the complete product lifecycle with authority to make strategic decisions, ultimately accountable for meaningful outcomes rather than just project completion.
• Leadership Alignment: Prioritize alignment between business and technology leaders on objectives and outcomes to break down the traditional “black box” perception of IT.

Process: Workflows, ceremonies, and decision frameworks

Product operating models transform how work flows through the organization.

• Iterative Delivery: Work in short cycles that incorporate continuous customer feedback rather than following rigid project plans with predetermined requirements. Use regular “standup” meetings and bimonthly team planning sessions to keep teams engaged and aligned with outcomes. At the end of each cycle, share and socialize the value delivered among cross-functional teams and their stakeholders.
• Outcome-Driven Planning: Move from annual planning to quarterly planning – also known as Big Room Planning or Program Increment (PI) Planning – to maximize your ability to pivot when the market changes. Use cascading Objectives and Key Results (OKRs) that connect strategic goals to team-level targets, creating clear alignment between daily work and business objectives while focusing teams on measurable outcomes rather than task completion.
• Flow Optimization: Measure and optimize how efficiently work moves through value streams using metrics that track velocity, time, load, and distribution of work items. This approach connects technical outputs to business outcomes, making delivery bottlenecks visible and actionable. Use standups to surface risks, issues, and bottlenecks at the individual team level. Hold regular leadership huddles to discuss unplanned work, pivots, and abandoned work that occurs between quarterly planning sessions.
• Customer Feedback Loops: Build mechanisms to rapidly collect, analyze, and act on customer feedback, shortening the time between identifying customer needs and delivering solutions that address them, which creates stronger customer relationships and more responsive, customer-centric products.

Technology: Tools and systems that support the model

The technology infrastructure must evolve to support continuous integration and delivery (CI/CD).

• Automated Delivery Pipelines: Automate the software delivery process from end to end so teams can deploy code to production independently and frequently without manual interventions, ensuring reliable and consistent releases.
• Value Stream Visibility: Adopt tools that provide transparency into the complete workflow from idea to implementation. This allows organizations to track how value flows through the organization and identify bottlenecks or inefficiencies.
• Integrated Toolchains: Connect systems across development, operations, and business functions, sharing data seamlessly to eliminate silos and provide comprehensive information for more effective decision-making.
• AI-Ready Architecture: Set up the technical foundation to organize work and data in structured ways so that teams can leverage artificial intelligence to enhance productivity, automate repetitive tasks, and provide predictive insights for better product decisions.

Governance: Oversight and accountability mechanisms

Governance models must shift from controlling outputs to enabling outcomes.

• Unified Business and Product Reviews: Adopt regular, integrated review sessions where business and technology stakeholders jointly evaluate progress against outcomes, make resource allocation decisions, and align on priorities.
• Balanced Investment Portfolio: Develop a structured approach to funding that intentionally allocates resources across innovation, maintenance, technical debt reduction, and risk management, ensuring long-term product health alongside new feature development.
• Structured Dependency Management: Establish formal processes and tools to identify, track, and resolve dependencies between teams and value streams, minimizing bottlenecks and enabling faster flow of work.
• Profit Center Approach: Create a financial and cultural framework that positions product teams as value generators rather than cost centers, measuring their success through customer satisfaction and business outcomes rather than budget adherence.

Core teams focused on a product are an essential feature of the product operating model. Here, learn about the necessary roles and responsibilities needed on these teams.

Product Managers: Responsibilities and impact

An empowered product manager is a critical component of the product operating model. They are the gatekeeper for all the work that the engineering teams do, linking engineering capability and business results. For example, in Planview, product managers can review task age and capacity constraints. Then, armed with the knowledge of what matters most to customers, product managers can funnel only the most valuable work to development.

“Reviewing team productivity and finding capacity mismatches is one of the skills that the modern technology executive needs to enable for his or her entire organization at scale.”

– Alan Manuel, GVP Product Management, Planview

Engineering Roles Within the Product Operating Model

Engineers serve as dedicated members of persistent product teams rather than moving between projects. They build deep domain expertise while collaborating directly with product managers and designers in continuous feedback loops. These engineers own their work end-to-end, taking responsibility from design through deployment and maintenance. Their focus extends beyond implementation to understanding business impact and customer experience.

Design and UX Integration

In product operating models, designers and UX specialists work as embedded team members collaborating continuously throughout development rather than as temporary project consultants. They conduct ongoing user research, tie decisions to business outcomes, and develop deep product knowledge that enables effective balancing of user needs with technical constraints.

Supporting Roles

Product operations, data scientists, and DevOps engineers function as specialized contributors directly enhancing product team capabilities. Product operations establish scalable processes and manage dependencies, while embedded data specialists provide actionable insights that drive prioritization decisions. DevOps engineers enable continuous delivery through automation, working collaboratively with product teams rather than as gatekeepers.

Harmonizing Your Product Operating Model

In effective product operating models, teams are aligned around shared objectives. This connects everyone’s work to strategic goals, transforming fragmented efforts into cohesive value delivery.

These organizations master the balance between centralized product vision and strategy and decentralized execution: Leadership defines clear direction and outcome metrics while empowering teams with decision-making autonomy to determine implementation approaches.

This creates a harmonized approach where traditionally separate functions like product, engineering, and marketing operate as integrated components of value streams with shared accountability for customer outcomes, eliminating the handoffs and misalignments common in traditional models.

Planview’s Strategic Portfolio Management solution offers a comprehensive approach to organizational alignment. The five areas of focus help businesses realize strategic objectives quickly:

1. Cascading Objectives: The platform enables organizations to cascade and roll up OKRs in the systems where work happens to ensure strategy directly informs execution and vice versa.
2. Focus on Outcomes: Planview emphasizes focusing on outcomes rather than outputs by leveraging cascading goals and OKRs that align the organization to what matters most.
3. Cross-Functional Alignment: The solution drives business outcomes across multiple functions by connecting strategy to execution across the entire organization.
4. Dynamic Planning: Planview provides scenario modeling to visualize trade-offs, reprioritize, and fund strategic investments incrementally based on quantifiable business outcomes.
5. End-to-End Visibility: The platform analyzes performance data across the organization to measure the success of strategic initiatives.

With those elements in place, organizations can improve speed-to-value, increase confidence in strategic investments, and unlock organizational capacity for priority initiatives, ultimately enabling them to stay competitive in rapidly changing environments.

Successful implementation of a product operating model can take time, as evidenced by the industry examples below—but it also produces significant benefits.

Vanguard accelerated meaningful technical change by 5x using the product operating model.

Vanguard

Vanguard, a leading investment management firm managing $9.5 trillion for 50 million investors, recognized the critical importance of exceptional digital experiences, given that nearly all their customer interactions occurred digitally.

In 2019, they realized their project-based model was causing problems. Teams averaged 50 concurrent epics alongside an overwhelming 6:1 ratio of proposed to completed work, and on top of that, only 16% of proposed work could actually be completed.

In 2020, Vanguard launched a modernization initiative. They moved to a public cloud infrastructure, adopted microservices, recommitted to Agile practices, and formed dedicated product teams.

By 2024, they had realized significant transformations: technical change accelerated by five times, major incidents dropped 75%, and customer satisfaction reached record highs.

Vanguard continues to advance its Digital Product Development program to optimize product ideation, enhance value streams, and strengthen capital allocation decisions.

Read the Vanguard story

Vanguard’s Susan Schweitzer, Senior Flow Advisor, shared their step-by-step journey at the 2024 Project to Product Summit, including how they avoided disrupting business operations by starting with a 10-team pilot and scaled to implementing the project operating model with 750 teams.

Watch the Vanguard session

Verizon

Verizon’s Consumer Group is another example of an enterprise that’s shifted to the product operating model. Verizon’s Abby Knowles, Vice President of Global Technology Solutions, and Archana Prabhu, Senior Director, Solution Architecture, explained their multi-year journey to adopt agile methods and a product-driven model at scale.

Watch the Verizon session

Spotify

Unlike many companies, Spotify didn’t have to shift its operating model from project to product—they adopted product-focused principles early on. Hear Spotify’s former Senior Product & Agile Coach, Rachel Dubois, explain how they use OKRs, agile practices, data insights, continuous discovery, design thinking, and lean UX to drive business outcomes.

Watch the Spotify session

According to the 2024 Project to Product State of the Industry report, 97% of organizations face at least one obstacle in implementing product operating models. These project-to-product roadblocks include:

• 50% still measure success primarily with cost and quality metrics instead of business value
• Only 15% can incorporate customer feedback within weeks
• 65% cannot see their organization as a value stream network
• Only 35% have properly empowered product managers
• Just 15% have automated, independent paths to production for all products
• Only 10% have structured approaches to managing dependencies

These statistics are rooted in underlying causes that are all too common in large organizations, including: organizational resistance to change, scaling challenges, cross-functional collaboration hurdles, and measuring effectiveness.

Planview enables organizations to overcome project operating model hurdles by:

• Creating alignment between technology and business through board-ready metrics,
• Facilitating incremental scaling by integrating data across the entire product development lifecycle,
• Streamlining collaboration through automated handoffs between teams
• Implementing measurement systems that focus on business value rather than traditional cost and quality metrics

Organizational Resistance to Change

One of the primary roadblocks that organizations face is not having a clear, shared vision of their product operating model. Resistance often manifests through “relabeling” — changing titles without changing responsibilities, particularly with product manager roles. To overcome this, elite organizations focus on executive-led transformation rather than delegating change to teams.

Success requires top leadership to actively drive the change, expanding portfolio management to encompass both projects and products, replacing traditional project plans with roadmaps and OKRs, and shifting incentives and funding models from output-focused to outcome-focused approaches. This creates alignment throughout the organization and breaks down the traditional “black box” perception of IT.

Scaling Challenges

Scaling requires incrementally building persistent, cross-functional teams organized around value streams rather than temporary project teams. Typically, successful organizations start with small pilots – like Vanguard’s 10-team flow measurement pilot — before expanding to hundreds of teams.

Viewing the enterprise as a value stream network — a connected web of value streams across teams and functions — enables leaders to identify dependencies, balance resources as needs change, and spread successful practices organization-wide.

Cross-Functional Collaboration Hurdles

Siloed functions and dependencies across teams are two examples of challenges faced by cross-functional teams. Elite organizations address this by implementing integrated planning processes where business and technology leaders jointly review progress against outcomes and make resource allocation decisions together.

They create unified product teams where designers, engineers, and product managers collaborate continuously throughout the development lifecycle rather than operating as separate service organizations. (This approach works equally well for aligning teams and addressing collaboration challenges among sales, marketing, and customer success functions.)

Successfully addressing cross-functional challenges requires building stronger relationships between employees and customers, with elite performers being twice as likely to be customer-centric compared to low performers.

Measuring Effectiveness

Elite organizations measure success differently by implementing Flow Metrics® that track the efficiency and effectiveness of work moving through value streams. They focus on five key metrics:

1. Flow Velocity (acceleration of value delivery)
2. Flow Efficiency (upstream work bottlenecks)
3. Flow Time (time-to-market)
4. Flow Load (demand vs. capacity balance)
5. Flow Distribution (investment balance across different work types)

By connecting flow metrics to customer experience and business outcomes, organizations create a direct link between technical activities and business results, enabling better decision-making and resource allocation.

If your organization is experiencing any of these challenges, consider Planview’s value stream management solution. It provides the visibility, integration capabilities, and expert guidance needed to create a common language for prioritizing investments for both executives and implementation teams and measuring success based on customer outcomes rather than project outputs.

Dr. Mik Kersten outlined five patterns for leaders to follow when building a product operating model in his 2024 Project to Product Summit presentation, Five Steps to a Product Operating Model.

1. Deploy product operating model top-down

Rather than delegating change to teams, focus on executive-led transformation. Top leadership should actively drive the change, expanding portfolio management to encompass both projects and products, replacing traditional project plans with roadmaps and OKRs, and shifting incentives and funding models from output-focused to outcome-focused approaches.

2. Define product value streams bottom-up

Rather than pushing demand down to teams, build up from teams to the portfolio. See the enterprise at a high level as a connected web of value streams across teams and functions, enabling leaders to identify dependencies, balance resources as needs change, and spread successful practices organization-wide. Rewire and evolve your structure quarterly.

3. Unify cadence for business and product reviews

Implement integrated product planning processes where business and technology leaders jointly review progress against outcomes. Dr. Kersten suggests making value stream reviews part of quarterly business reviews. Make resource allocation decisions together, discussing and negotiating prioritization and tradeoffs.

4. Use Flow Metrics to connect outputs to outcomes

Avoid measuring metrics simply because they are easy to track. Instead, measure success differently by implementing Flow Metrics® that track the efficiency and effectiveness of work moving through value streams from end to end. Connect flow metrics to customer experience and business outcomes to create a direct link between technical activities and business results. Use them as leading indicators and add flow optimization to planning to enable better decision-making and resource allocation.

5. Empower and enable product and engineering leaders

Rather than focusing on team tools, invest in product talent and tools. Connect all data for product leaders, training and empowering product managers, and accelerating their enablement with AI.

Watch Dr. Mik Kersten’s full presentation here.

Planview’s subject matter experts have developed a project-to-product maturity assessment to help leaders benchmark their progress, along with practical recommendations for moving forward.

This assessment is just one of many available to leaders through our executive briefings and workshops offering. Our team of enterprise strategists will meet with you and provide benchmarked analysis, leadership consensus suggestions, success factors, and a personalized roadmap. You’ll take away a custom, cohesive assessment of your organization and a path forward for the short and long term.

A product operating model centers teams, processes, and metrics around customer value, driving continuous delivery through aligned structure, empowered decision-making, and flow measurement and optimization. The model continues to grow in popularity for its ability to deliver transformation. In fact, data shows that half of organizations expect 80% of their work to be product-oriented within five years—a 60% increase over today’s levels.

For leadership teams ready to accelerate transformation, now is the time to redefine planning, funding, and product delivery models. Explore our resources for transformation leaders and digital innovation leaders or take a look at Planview’s comprehensive solutions to implement and optimize your product operating model.