Your Product Operating Model Teams Start with a Taxonomy
Note: this article first appeared in Medium.
Intention is the key to how far an operating model will take your company. It’s like the difference between an organized pick-up league and a professional sports league. A pick-up league will enable athletes to play, venues to be available for games to take place, officials to referee, and even fans (let’s be honest — your family) to watch. But a professional sports league? That will raise the bar (on all fronts) by several levels. It also requires a greater intentionality to make it happen.
Which one do you want your company to be?
When it comes to the product operating model (POM), a clear product taxonomy is the essential first step to intentionally enhancing your company’s game.
The What and Why for a Product Taxonomy
What is a product taxonomy in the context of a product operating model? See the definition I generated using Perplexity below.
A product taxonomy within a product operating model is more than just a system for organizing product categories—it’s a foundational structure that connects business strategy, team alignment, and value delivery across an organization.
A product taxonomy is the building block for transforming how your organization operates. It’s often the first step needed in a product operating model transformation. If done right, the product taxonomy will help align your business strategy, team structure, value delivery, and ways of working across your organization. In other words, a product taxonomy will help your company establish a coherent product structure that will help you go from pick-up league to pro in no time.
That’s great, but why do we need to be so intentional about a product taxonomy?
A product taxonomy is a foundational element in your operating model for several reasons. Your company’s reasons and goals for moving to the product operating model may vary, of course. But generally speaking, this type of operating model transformation can enable the following:
Clearly defined product ownership and responsibilities.
Increased agility and reduced redundancy across teams.
Teams are empowered to make decisions autonomously and quickly.
Connected outcomes, business value, and customer experience.
Going pro, however, means you will first need to decide how to decide.
Three Essential Lenses — A Decision Framework
When you are ready to start tackling product taxonomies at your company, there are three lenses or organizing principles you can use to structure your taxonomy.
Value: Prioritizing and aligning products to business outcomes.
Audience: Organizing products around customer segments.
Journey: Structuring around stages of customer interaction and experience.
The reality is that these are more like a ratio of ingredients than discrete choices. Like with various cake recipes, you may have a different ratio of key ingredients depending on the type of cake. But those ingredients will be in almost every cake (e.g., sugar, flour, eggs). The difference is what is the right mix of each of these for your taxonomy? You may not be able to identify every ingredient just by looking at the outside of the cake. Still, you know it’s there, even if 1–2 other ingredients are more prominent and visible.
No matter what ingredient you lead with, however, you need to ensure that you are aligned with outcomes that matter to the organization and that you establish a key metric for each product that the product teams can rally around. You might be surprised by how much focus a “north star” metric can provide. Think of it as a motivational saying posted on a locker room wall or a rallying cry for your team to conjure in the heat of battle.
Aligning to enterprise outcomes at the right level of each part of the business will be critical. If these are unclear or not well-documented, start here and do some pre-work. You should be able to identify how the business outcomes connect to different elements of your product taxonomy. Having the outcomes clearly defined will also help you focus your conversations as you work with stakeholders to determine what products are in their portfolio.
How to Decide if it’s a Product or a Process/Task
One of the more challenging questions — and one where you could spend some time debating — is what is an (internal) product vs. simply a process or task. I say internal because anything customer-facing is usually easier to categorize. This question can be challenging, though, because, hopefully, all of the work/output of your teams is valuable and contributes to an outcome. Right? If this isn’t the case, you need to have a different conversation.
Assuming that the output from your teams is valuable and directly or indirectly contributes to an outcome, the distinction between a product/capability and an operational process can be as amorphous as a thick fog. For my sanity, I have been working on a simplified list of questions to help designate if work output is a product or an operational process. It’s still a work in progress, but it’s a good start.
As with many frameworks and definitions, there are likely other ways to frame this question. However, this one is the simplest framing I could devise that would also help teams navigate decisions effectively. If you have a different framing, I would love to see it. Having a framing tool like this that your leaders can align with will significantly streamline conversations and decisions at your company.
Impact on Team Topologies
Once you’ve established a product taxonomy, one of the direct effects will be on team topologies — i.e., how your teams are structured to own and support your products. Note that this is NOT a 1:1 relationship. Your product taxonomy will influence your team structure, but they are not one and the same.
Thinking through how your teams are structured around your products is critical, though. Assuming your company wasn’t already working within the product operating model, this will undoubtedly require some realignment and restructuring across your teams. Your chosen taxonomy shapes team boundaries and interaction models. It will also determine if you have all the talent you need in-house, or if you will need to sign some “free agents” and bring external talent in.
Critical Question: How Far Should You Extend the Taxonomy?!?
The biggest question leaders will have to wrestle with when undergoing a product operating model transformation is how far to extend the taxonomy — and therefore product teams — throughout the company. There is no single right answer here. You can keep it focused on external-facing experiences only, include internal capabilities as part of the taxonomy along with external-facing products, or extend it to every part of the organization, including corporate functions. The middle option is the one I’ve seen gain the most traction in recent years — but I’ve seen every one of these scenarios. They all can work.
While you can probably make the case that one approach is more optimal than others (depending on the company context), the important thing is that you’re adopting the product operating model.
Summary
When you have settled on a product taxonomy and aligned your organization to this structure, take a victory lap! Establishing a product taxonomy is no small feat, to say the least. It will take purpose, patience, and perseverance (and possibly even bribes or blackmail) to complete this important milestone. However, you also need to realize that you have only won your conference at this point. You have further to go to win the whole proverbial championship.
More importantly, remember that the product taxonomy or the product operating model itself is not the ultimate goal. They are the method to achieve some combination of outcome-focused, accountable, and empowered product teams. You want to enable your entire organization to solve the right problems at the right time in the right way, driving the right business outcomes.
At the end of the day, you want the product operating model to deliver value faster and more efficiently for customers, shareholders, and internal stakeholders/employees. The clarity gained from a structured taxonomy creates a pathway and accelerates your product operating model transformation, and helps your teams reach that next level of performance.
