Achieving Digital Proficiency with the Product Operating Model (POM)
(originally published March 1, 2024)
A well-proven but underutilized method for achieving digital change and transformation success.
As featured in my blog post on Why HR Struggles to Become Digitally Proficient, the Human Resources (HR) function has several challenges to overcome when it comes to thriving in the digital age. This post seeks to explore a digital operating model that has helped HR organizations overcome these challenges and become more digitally proficient. It is called the Product Operating Model - or POM. First, we will investigate what the POM model is all about and why it has proven to be particularly effective for improving digital proficiency. Then, based on personal experience, we will explore ways to implement this model in the HR context.
Digital Operating Models
According to CIO.com, a digital operating model is a “defined approach for aligning execution strategy to deliver customer value by leveraging digital capabilities and technologies for business success”. More traditional operating models are generally designed for static and stable times and do not account for the high pace of change and disruption facing today’s organizations. They also do not account for the customer value proposition, innovation or partner and alliance considerations. Using this logic from an HR perspective, we need a digital operating model that:
is more agile, innovative and responsive to change
that puts more focus on the employee experience and delivering HR-driven business value
is more collaborative and inclusive of partners and alliances.
can scale to become a common, disciplined approach to digital HR change and transformation
The POM is designed to integrate and empower cross-functional teams from business domains like HR (the ‘Product’ team), IT and Operations (the ‘Platform’ team), Finance and other functions to work more autonomously to develop and deliver digital solutions (products and services) over an extended period of time. Organizations should therefore designate a team responsible for productizing and continually improving the candidate and employee experience for such subprocesses the candidate application process or the new hire onboarding process. As a result, organizations adopting POM will deliver digital transformation initiatives more quickly and efficiently, launch software features and functions faster, increase developer accuracy and velocity (where applicable), and provide solutions that employees actually want to use - at the point-of-need. According to McKinsey the benefits realized by companies with integrated digital (e.g., HR) and IT operations models like the POM are:
30% less likely to face program challenges
50% less likely to have integration issues
60% more likely to say their investments in technology created business value
It is because of results like these that we are seeing the POM grow in popularity. According to McKinsey research, one-third of respondents say their organizations are already “integrated or fully digital”, and another third are in the process of achieving this. We are beginning to see this model appear in modern HR organizations.
Here’s how the POM varies from more Traditional Operating Models (see Figure 2).
Figure 2. Comparison of Traditional vs. Product Operating Models
Now that the POM has been defined and its benefits outlined, let’s take a deeper look into its components and how they work together as an integrated model to deliver digital initiatives.
Product (and Platform) Operating Model Components
There are a number of common components organizations put in place when setting up their POM (see Figure 3).
Products have their roots in the software industry and refer to a technology-enabled service, experience or solution used by customers (internal or external). In the case of HR, a product could be the sourcing or recruiting solution as experienced by candidates.
Product Groups are two or more Products that support the same end-to-end customer journey. For example, the Talent Acquisition Product Group could be comprised of candidate sourcing, recruiting and new hire onboarding products.
Pods. The foundational organizational unit of the POM is the ‘Pod’. A Pod is a self-sufficient, cross-functional team with end-to-end accountability for the design, delivery and maintenance of a product, experience or service over an extended period of time. There are two types of Pods. A Product Pod is focused on the end-to-end delivery of a digital product or service to an end-user community like employees or managers. In the case of HR, the Product Pod’s priority is improving or productizing the employee experience and delivering value to the business (e.g., improve efficiency, reduce costs). These Pods would reside within the HR Ops or Digital HR organization (refer to the next section for an expansion of this topic). A Platform Pod, by comparison, is a group of related technology assets, people and funding that provides platform services to one or more Product Pods. In other words, Platform Pods supply and support the underlying technology needs of Product Pods. Platform Pods reside in IT and interface with the infrastructure services teams as appropriate.
Practices or Chapters. A Practice (also known as a Chapter) helps ensure consistent use of tools, methods and standards for a given digital job family like Product Managers, Business Analysts or System Engineers. The Practice is responsible for ensuring professional development occurs consistently within the job family.
Digital Delivery Office (DDO, PMO) ensures the right levels of executive sponsorship and alignment are in place to prioritize, fund and deliver the digital HR roadmap. The roadmap determines which HR products and services will be delivered and when. The DDO monitors progress and helps eliminate roadblocks. They also help mitigate dependencies and conflicts between Product and Platform teams (there will be a number of these in the early days of the POM). Project and change management teams are generally coordinated through the DDO as well.
Figure 3 is a summary table of key components for a Product (and Platform) Operating Model.
Figure 3. Product (and Platform) Operating Model Components
Bringing the Components Together into a Common Operating Model
A Product Pod or Team is a cross-functional group of between five and ten people responsible for the design, development, production and sustainment of a given digital HR product or service over an extended period of time. The Product Pod is led by a Product Manager. A Product Manager (always from the HR Product team) leads one or more Product Pods depending on the scope, complexity and maturity of each pod. A Product Pod will often have Business and Functional Analysts that are ideally part of the HR Operations team so they are closest to their HR customers and stakeholders (e.g., HR leadership, COEs, HRBPs). Depending on the scope, the Product Pod may also have team members from Platform teams (e.g. Platform Managers, System and Technical Analysts, System Architect, Developers), Legal, Regulatory, Diversity & Inclusion, Finance, Supply Chain, etc...
In the early stages of establishing a POM in HR there will likely only be a few HR Product Pods as the model is introduced and begins to take shape. Such an approach is ideal as opposed to a ‘big bang’ approach (building out all pods at once), as it gives the teams time to implement change management and make the necessary operational and behavioral adjustments for the new model. Over time, as the model matures, there can be dozens of Product Pods - each representing a process (or sub-process) of the hire-to-retire lifecycle. A new or less mature Product Pod will require a lot of effort and investment to standing up a new pod. A more mature Product Pod on the other hand, will generally require less attention as the focus will have shifted to release management of a few features here and there. The delivery method will likely vary as well based on pod maturity. A new pod may involve the implementation of a new HRIS module requiring a combination of waterfall and hybrid methodologies, while a mature pod may be better suited for a more agile approach to support the release of a few system features on a bi-weekly basis.
Figure 4 provides a high-level diagram of the integrated Product (and Platform) Operating Model. Included are a list of responsibilities of the integrated teams to understand how they work together (and with their respective stakeholder groups) to identify, prioritize, fund, deliver and sustain digital initiatives. Product Pods (black triangles) are shown across the Product Teams sphere of influence to illustrate how each pod is comprised of different multi-disciplinary team members depending on the purpose and scope of each pod. For example, a Product Pod appearing only in circle ‘b’ might deliver bi-weekly feature releases that do not require input from either DDO or Platform teams. Whereas a Product Pod appearing in the middle of circles a, b and c might deliver the implementation of a new recruiting module - a high complexity project requiring team members from all three teams (and beyond).
Figure 4. Sample Product (and Platform) Operating Model, Illustrative
With a greater understanding of the POM components and how they work together, it becomes easier to appreciate how this model can improve HR’s digital proficiency. According to recent research, organizations that achieve higher POM maturity realize several business benefits over their peers with less mature models:
60 percent higher returns to shareholders
16 percent higher operating margins
38 percent higher customer engagement and 37 percent higher brand awareness
Higher levels of innovation (48% correlation)
Knowledge of the POM components and interactions in turn helps us to understand how it help organizations overcome the challenges of the three aforementioned key challenges. In terms of Complexity, the POM allows HR to decompose large sub-functions into more manageable products. So instead of managing large, complex and siloed project teams, they can empower smaller, cross-functional, self-managing Product Pods to leverage the right tools, methodologies and technologies to deliver appropriate solutions - quickly. POM provides HR with a digital operating model that is truly HR-driven and puts HR on the path to establishing digital HR as a core competency.
In terms of Capability, the POM provides several advantages. First, it brings accountability and primary responsibility for digital HR initiatives squarely into the hands of the HR function. The HR Product Manager, as leader of the Product Pod, is instrumental in achieving this. However the HR Business and Functional Analysts play critical support roles to making this a reality. By bringing digital into HR it also creates natural opportunities for HR to develop its digital proficiency (e.g. digital mindset and capabilities). Next, the nimble and responsive Product Pods allow HR to work more effectively in uncertain and changing conditions. It is much easier to pivot with the smaller sized Product Pod team vs. a large program team and associated Steering Committee that, together, can easily exceed 100 members.
Finally, for Discipline, the POM provides a formal mechanism for HR to insource key aspects of digital delivery: product roadmap, problem identification, business requirements definition, solution design, user experience testing and ongoing backlog/demand management. It allows HR to establish a standardized and disciplined (yet flexible) approach to digital delivery for all Product Managers and their Product Pods to follow. Since Product Managers and their Platform Pods are formalized and in place for an extended period of time, there is less reliance on third party support which means a lower cost model and a much smaller risk of knowledge loss as experienced by traditional operating models.
It would appear that the POM does provide a compelling alternative operating model for those HR organizations looking to overcome the key challenges, establish its digital proficiency and deliver more successful digital transformations.
Now that we have explained what the POM is and why it is beneficial to business and transformation outcomes, let’s examine implementation considerations from real life.
Guidance for Achieving Digital Proficiency Using a POM Model
Below are a number of lessons learned from implementing the POM based on direct client experiences.
Start small and scale. Changing your entire digital operating model at the same time as implementing a digital transformation program is like running two massive transformations at the same time; it’s too much change and disruption for the teams to absorb all at once. Both initiatives will suffer as a result. It may take more investment to implement the POM foundations first (Phase 0), but it’s worth it. Put the model in place first with a few Product Pods and then use the first digital initiative (phase 1) to bring the model to life. For example, if Phase 1 of your multi-year program is Core HR, you may first want to stand up organization management, job architecture management and position management Product Pods. As a result, you will be ready to establish early stage Chapters (for professional development and standards) and for your digital teams to grow into their new roles and responsibilities over the course of the first transformation initiative. It also gives time for the Digital Delivery Office to help navigate the challenges and friction points that will naturally surface. Once phase 1 is complete (and Core HR is live), conduct a thorough lessons learned exercise to further tune the model. Then, for each subsequent program phase, you will be in a better position to stand up and onboard of new set of Product Pods for Phase 2 implementation efforts.
Define your capability and capacity needs. It is critical to get clear on the target state HR/IT roles and responsibilities (e.g., RACI) as well as your headcount needs and estimated start dates (based on your program roadmap). Do not hesitate to develop Service Blueprints that illustrate the new ways of working under the POM. They will not only help with your planning efforts, but your teams will find them to be an invaluable onboarding resource. Capability, capacity and program phasing drive your change/training and recruiting investments. So be sure to map them out clearly. For example, don’t hire all your Product Managers at the start of the program knowing most ‘Products’ won’t come online until year two or year three. Capability and capacity forecasts are key for your business case (see #6 below).
Invest in your Product Managers. By design, Product Managers play a pivotal role in the success of the POM. This role owns the entire product lifecycle from product roadmap to design, development, testing, launch and sustainment, backlog grooming and demand planning (e.g. feature requests or new project justifications). They straddle HR and IT domains so must be highly conversant with different domains (functional and technical), different methodologies (e.g. hybrid, agile) and different audiences (from analysts to executive level stakeholders). As such, they should be staffed, trained and rewarded accordingly.
Do not underestimate the change impact of the POM. New roles and changes to existing roles and responsibilities for both HR and IT is a lot of change to absorb. Many friction points will result; especially if traditional portfolios are at risk of shrinking. Executive sponsorship, alignment and communications are essential to success. So too is having a dedicated change team right from the start. They are critical for developing a change strategy and delivering stakeholder communications to help transition HR and IT teams to the POM and to neutralize friction points.
Stand up your Communities of Practice (COPs) from the start. When you bring the POM to life, that’s the perfect time to begin establishing your professional COPs. These groups are key to establishing repeatable leading practices and developing standardized tools, templates and processes for use across the Product Pods. Thus, you can ensure efficiency, consistency and quality across all products and initiatives. It is also a great forum for COP members to field questions and concerns and to reinforce learning and standards/policies during the onboarding process.
Build a case for the POM. You will most likely need a business case to enroll and align leadership as well as to justify the organizational investments needed to bring your new POM to life. In all likelihood, the POM is already operational in your organization in places like Sales, Marketing and/or Operations (the front office functions). Leverage what’s already in place and the champions behind it to help build the case for levering the POM to achieve digital HR proficiency . The POM value proposition for shared service functions like HR is critical to organizational success, particularly given the impact digital HR proficiency will have on delivering employee experience benefits (attraction, engagement, retention and employment brand) and broader business outcomes (e.g., efficiency, cost savings, capability and capacity). Your business case will need to account for organizational adjustments, including the addition of Product Managers, Business Analysts, and the associated change management efforts.
Remove as many dependencies as possible. By definition Pods are self-sufficient, self-managing teams that are accountable for the end-to-end design, development, production and sustainment of a given digital product or service over an extended period of time. As such, Pod team members will need the right access to the right resources, when it is needed. Unnecessary siloes, centralized decision making, and excessive risk aversion are behaviors we are trying to leave behind from the traditional digital operating models. Do not underestimate how difficult it is to leave the past behind! For example, avoid the tendency to require all Pod members (including technical) to attend all functional review discussions with system vendors. It is a waste of valuable resource time and creates unnecessary scheduling delays.
According to research by McKinsey, POM practices that best predicted higher performance (and should be prioritized) include:
product management practices that include employee centric ways of working and of measuring performance
enhanced interaction between teams
backlog prioritization
adequate funding
technical debt management
When implementing POM for achieving digital HR proficiency there are certainly many considerations to take into account. These suggestions should provide a useful starting point for further exploration.
Conclusion
To overcome the key challenges of complexity, capability and discipline, HR teams must develop their digital proficiency now more than ever. Moving to a product-based digital operating model like POM has been shown to have great promise for helping digital teams like HR address the challenges, and become more effective in the delivery of superior digital change and transformation outcomes.
The research and lessons learned also revealed that there certainly are challenges to consider before introducing POM to your HR organization. Building a business case and taking a graduated approach to introducing POM may be good considerations given the paradigm shift that they introduce. The change impacts are significant and should not be underestimated.
If you would like to explore how to develop your team’s digital proficiency, please contact us.
- Kevin Copithorne