AI and the Art of the Product Operating Model
Photo by Colton Sturgeon on Unsplash
Note: This article also appears in Medium
Product-led. AI-first. Agile-at-scale. Digital Transformation. Is it time to drown out the buzzwords? Always. But buzzwords aren’t the problem, per se. The fact that they are so loosely and gratuitously used in every LinkedIn post or Medium article (except mine, of course!) is the problem — which perhaps is the very definition of a buzzword! Either way, it’s concept overload. When the constant onslaught of buzzy, must-do-now ideas overwhelms you, balancing these big concepts is a struggle; it’s time to revisit “first principles” to cut through the noise and return to a more zen — and balanced — state of mind.
I think now is a great time to revisit what first principles really mean for product teams and set the context for the product operating model. Why? Generative AI can be a powerful accelerant for transformation. But right now, it’s mostly a disruptive wind, blowing the unsteady parts of business strategy off-balance and creating turbulence in an already chaotic environment. From a product development perspective, AI will undoubtedly increase the velocity of output, but it will also magnify every organizational gap in your product development process simultaneously as it transforms employees’ ways of working.
So, how do leaders find their center amidst this storm? How do they harness the potential of AI to transform their organizations without making the gaps in their processes worse? The product operating model is, of course, the answer — the organizational equivalent of a meditation practice to find your center. Luckily, the fundamentals of product management and the product operating model will remain the same before and after AI disruption.
Understanding and implementing these fundamentals in the new world order will be crucial to your company’s success as your business navigates a rapidly changing landscape. To be blunt, you can’t automate on top of a chaotic, ineffective process and expect it to create value. Let’s quiet the mind and calm the disruptive forces by returning to the first principles of a product-led development process.
Defining First Principles
First Principles: the fundamental concepts or assumptions on which a theory, system, or method is based.
Put another way; first principles are the underlying truths that are the foundation for a discipline, a practice, a philosophy, or a scientific field. In our case, we are specifically speaking about the practice of the product operating model.
A product operating model is a strategic framework that organizes a company’s structure, processes, and culture around delivering continuous value through enduring products rather than temporary projects. It shifts focus from output (e.g., meeting deadlines) to outcomes (e.g., customer satisfaction and business impact). We’ll get to more of the specifics later on in this article.
While a product operating model may seem like an obvious choice for modern tech-enabled companies, the truth is that most established companies still focus on a command-and-control, output-over-outcomes, project-focused model. There are many reasons why this is the case, but one of the main reasons is that a traditional project-based operating model gives the illusion of control to leaders.
When a company goes through its annual planning cycle, a project-based operating model gives the impression of certainty with fixed timelines and budget. Leaders believe they know what to expect regarding a specific return on their investment, the timing of when they’ll get it, and how much it will cost. Simple, right? The reality is that many companies are realizing this model does not deliver on the certainty it promises.
Furthermore, despite everyone’s best intentions, a project-based model (oftentimes coinciding with a waterfall project management methodology) encourages a focus on output over outcomes. Many established, mid- to large-sized companies now recognize this is ineffective. An ineffective approach to product development has never been more of a liability as advances in modern software development, digital experiences, and AI-enabled working methods accelerate. To slow down the spinning and quiet the noise, let’s dive into the first principles of the product operating model.
First Principles & the Product Operating Model
Here is a comprehensive list of the product operating model's first principles. You will find slight variations of this list depending on where you look. But the list below is pretty consistent with what you will find, regardless of the source.
Customer-Centricity & Value-Driven Approach — Solve real customer and business problems, not just ship features.
Outcomes Over Outputs — Measure success by impact (e.g., increased customer retention, higher conversion rates, reduced service costs) rather than feature delivery.
Fund products, not projects — Shift from fixed-scope initiatives to iterative, customer-driven product evolution by creating enduring product teams.
Empowered, Cross-Functional Teams — Align product, tech, and business teams with end-to-end ownership and accountability.
Continuous Discovery & Iteration — Work in short feedback loops (i.e., continuous delivery), experiment, and adapt based on data.
Strategic Prioritization & Portfolio Management — Prioritize and invest in the highest-impact work based on the company’s vision and goals, ensuring solutions are valuable, usable, feasible, and viable for the business.
Technology as a Business Enabler — IT is a core part of the business, with modern architecture enabling speed, scalability, and flexibility.
Metrics-Driven Decision-Making — Use both leading and lagging indicators to guide product decisions, track progress and improve outcomes.
These are not the Ten Commandments and are not written in stone. While this list of first principles may seem overwhelming to a leader who knows they need to initiate a change at their company, they are not rigid and should instead be adapted to fit your company’s specific context. The core elements can be distilled into three macro-level action items for companies wanting to adopt a product operating model.
Move from a feature/project-driven mindset to a problem/product-driven development approach.
Prioritize deep customer understanding, insights, and data as inputs for the decision-making framework.
Pull risk forward — and learn rapidly — by experimenting and releasing iteratively.
How to Tame the Frenetic Energy Around AI
Again, adopting a product operating model is often a large part of a company’s digital transformation initiative. A successful digital transformation hinges significantly on the product operating model. When a company evolves how they get work done in the modern product development era, these first principles become the foundation upon which all transformation initiatives must stand. Without this foundation, digital transformation efforts risk becoming merely cosmetic changes that fail to deliver meaningful business outcomes - like building a house on shifting sand instead of solid ground.
Fortunately or unfortunately — depending on how you look at it — there is no escaping the disruption that advances in AI will bring about in the next 3–5 years and beyond. No core discipline may be affected more than digital/software product development teams (made up of engineers, product managers, and designers). I am not offering some grand, new insight when I say there is A LOT of frenetic energy and noise around how companies need to adopt AI as quickly as possible.
The reason why I’m bringing this up is that the foundation I described above — the first principles of the product operating model — becomes even more critical as this will provide the stable ground on which companies can stand during periods of significant transition like we are now entering. Like a zen garden that provides order and tranquility amidst the chaos, the changing landscape will cause instability, and it’s important to have a solid operating model as the foundation even while the proverbial structures around us shake (and, for some companies, crumble).
I will go as far as to argue a company MUST adopt the product operating model BEFORE incorporating AI… or run the risk of accelerating your company off the road via flawed processes, prioritization, and misguided output. Just as a zen master must perfect basic postures before attempting advanced techniques, a company must master product fundamentals before leveraging AI’s power. Gen AI is not a stabilizer — it multiplies what’s already present in your product org, for better or worse. Going all in on AI to revamp how your company operates without putting the fundamentals in place (i.e., a product operating model transition) is like going from a Toyota Highlander to a Ferrari with 10x the power but a loose steering wheel and brakes — you undoubtedly will careen off the road at some point.
Will AI automate/eliminate jobs, accelerate innovation, or amplify ability? Yes — all of the above. The exact mix is still TBD. But making sure you have the fundamental elements of a sound product operating model in place will position your company for success, regardless of what the mix looks like. More importantly, this foundation creates the organizational muscle memory and adaptability needed to absorb AI’s revolutionary impact while maintaining strategic direction and customer focus — the corporate equivalent of mindfulness in the face of disruption.
The Path to Business Enlightenment
The journey toward a product operating model isn’t just another transformation initiative — it’s the prerequisite foundation for staying balanced in an AI-accelerated future. When implemented thoughtfully, this model delivers value faster for both customers and the business by creating a coherent operating and decision-making framework — transformation zen!
This framework enables organizations to develop:
The right strategy
To solve the right problems at the right time
By building the right (digital) products and features
To achieve the right outcomes
Using the right process and technology in the most effective way for the company
As AI continues to reshape how we work, the companies that will thrive won’t be those with the most advanced AI implementations but those with the strongest product foundations. First, principles of product thinking aren’t just theoretical concepts — they’re the competitive advantage that will separate the winners from the also-rans in the coming years.
The challenge for leaders isn’t choosing between embracing AI or improving product operations. It’s understanding that excellence in the latter is what enables true transformation through the former. By grounding your organization in these product first principles, you create fertile soil in which AI capabilities can take root and flourish rather than wither from organizational dysfunction.
The buzzwords will change. The technologies will evolve. But the fundamentals of creating value through product excellence will remain. That’s not just good product thinking — it’s the path to business enlightenment.
