Today’s customers expect seamless, fully integrated digital experiences in both the physical and virtual world. The digital products and services that tech giants like Tesla or Google offer disrupt entire industries. Frequent innovations from such tech champions put pressure on incumbent non-tech companies to keep up.
A catalyst to digital innovation is to move towards new operating models with long-standing cross-functional teams organised around business outcomes (‘products’). Our research shows that companies with teams structured around value tend to be financially more successful than their competitors. For incumbent firms, however, establishing a product-aligned organisation isn’t easy.
From our experience, there are three core things that need to be done thoroughly and correctly, to get the benefits out of such a transformation. All too often these key activities are not given enough time and attention and then cause many shortcomings in the new operating model:
We frequently experience that organisations simply take existing IT team that are e.g. grouped by location or system, and ‘transform’ them into a new operating model by changing job descriptions into agile roles. To truly change for the better though, you need to understand your desired organisational outcomes that reflect long-standing sources of business value. Once you have an overview of all the systems and people involved in those value streams, it becomes clear what capabilities need to be regrouped to optimize for fast value delivery. Only if you get a complete end-to-end view of your organisation, you can avoid the common trap of forming ‘agile silos’.
To get the benefits of the new operating model, make sure that there are no critical dependencies to outside your product teams. Many times, we have seen how newly formed agile teams were dependent on critical business resources whose unavailability significantly slowed down delivery. To avoid that fallacy, your product teams should be self-organised and committed groups of people who have all capabilities needed to deliver on their ‘product’. This might include business analysts, UX designers, developers, data scientists and other functional experts like marketing, R&D or legal. The idea is to focus on one ‘product’, minimise handover and shorten decision-making time to quickly plan and deliver incremental value directly to your customer.
For maximum impact, organisations usually decide to implement the entire new operating model design. Most times, this includes several cross-functional product teams grouped into delivery units. A lean leadership team then governs each delivery unit by defining the shared vision, prioritising work and facilitating the delivery. Often, however, organisational leaders decide to scale too quickly and forget to prove the assumed benefits of the new operating model.
To avoid that mistake, leaders can quickly and inexpensively form first pilot teams in a selected value stream. We recommend to only scale if the pilots proved the assumed benefits and confirmed inter-dependencies between teams within a delivery unit that need to be managed by a shared leadership team.
That way, it is much easier to get more buy-in and support for the delivery units in the new operating model from all change recipients.
At PA, we used this proven approach to accelerate the ambitions of the Danish energy company Ørsted. The green energy leader recognised the need for a product-led operating model to rapidly innovate and deliver new technical capabilities, and to be responsive to emerging sustainability trends. With the new operating model, tasks that used to take up to two years now take as little as two months.
In a world of rapidly improving digital experiences, traditional organisations need to accelerate their digitalisation efforts to keep up with rising customer expectations. By focusing on shortening time to value through customer-centric, value stream-oriented cross-functional teams, even the most cumbersome organisations can deliver digital innovation at pace.