As technology becomes more integral to business, every company is becoming a software company. But if you want to be a software company, you need to act like a software company (ideally, a digital native).1
That means launching software features faster, improving code quality while increasing developer velocity, building world-class user experiences, and freeing up development time for work that has business impact. But how can this be done?

A core component of successful software companies is the product (and platform) operating model, which empowers cross-functional teams from the business or product, engineering, operations, and other functions to work autonomously to create and deliver solutions.2
These teams build software platform components that are scalable, reusable, and able to be externalized, enabled by APIs and service interface calls (see sidebar “What is a product and platform operating model?”).

This speed and flexibility lead to more bottom-line value. Our analysis shows that top companies in terms of product and operating model maturity have 60 percent greater total returns to shareholders than bottom-half companies and 16 percent higher operating margins (Exhibit 1).

Despite the familiarity with the product and platform concept, two questions still hold companies back from committing to it: is it really worth shifting to this model, and what are the key moves to scale this model? Building up a product and platform operating model is much more than changing reporting lines and team structures. It requires a commitment to do organizational surgery at the process, performance, and talent levels to enable hundreds and even thousands of teams to work effectively and quickly, as detailed in the book Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI (Wiley, June 2023).3

To help better answer these questions and understand the business and financial implications of a product and platform operating model, we analyzed more than 400 publicly traded companies. We designed the Operating Model Index (OMI) survey, which helps measure an organization’s operating model maturity across five core areas (structure, strategy and governance, ways of working, culture and talent management, and tooling). We then looked into the relationship between operating model maturity and business and financial outcomes (see sidebar “More about the research and methodology”).

Our research clearly shows the following four takeaways:

Organizations with high product operating model maturity across geographies and industries have 60 percent higher returns to shareholders and 16 percent higher operating margins than bottom-half performers. Our analysis further showed a strong overall correlation between OMI scores and key business outcomes (Pearson r = 0.64):4
top-quartile OMI companies overall have 38 percent higher customer engagement and 37 percent higher brand awareness, as well as higher levels of innovation in product development (Exhibit 2). While results vary across sectors and organizations, the underlying correlations remain consistent.

This should be welcome news for senior executives, 70 percent of whom rank customer experience as a top priority.5
A core tenet of a product and platform operating model is customer centricity—that is, understanding customer personas, building as-is and to-be journeys, developing a minimal viable product to test with customers (via A/B testing, for example), and quickly iterating to deliver products that meet user needs. Strong product teams measure success by customer outcomes (for example, customer satisfaction score), track customer data rigorously, and use it for continuous improvement.

Among the five core areas of a product and platform operating model, “ways of working” has the strongest correlation with overall business performance (Exhibit 3). “Ways of working” covers three dimensions: managing cross-product and platform dependencies, defining clear roles and responsibilities for each step of the product development life cycle (PDLC), and adopting modern product management and engineering practices. It's worth noting in our analysis that, even though “ways of working” has the largest impact on business outcomes, its OMI maturity scores are among the lowest across all sectors.

To improve their ways of working, companies need to do the following:

As might be expected, some correlations are stronger than others. When it comes to innovation, the correlation is particularly strong with an organization’s culture, talent management, and tooling (Exhibit 4). The core elements of culture and talent management include key behaviors (for instance, psychological safety, cross-functional collaboration, and inner-source and open-source adoption), a strong value proposition that appeals to top talent, career paths, and capability building and upskilling opportunities for product managers and engineers. Tooling encompasses planning and collaboration tooling, software development tooling, and DevSecOps tooling, such as continuous integration/continuous delivery (CI/CD) pipelines.

To establish culture, talent management, and tooling that support product and platform development, companies should consider the following:

There is a wide range of tasks at hand, so naturally, it’s hard to know where to start or what will have the greatest effect. Our research shows that five capability areas have the greatest gap between top- and bottom-quartile companies, and our experience validates them as important for companies to focus on developing early (Exhibit 5):

One retail brand had seen the share of order volume via digital channels rise significantly. However, accountability and ownership for delivering the end-user experience was inconsistent because responsibilities across business units and roles overlapped, leading to confusion on decision rights. The absence of a way to prioritize initiatives across functions led to disjointed planning. It routinely took the organization up to two years to bring new user experiences to market.

Leadership realized that the brand needed to overhaul its operating model, starting with a detailed review of the current processes to identify the biggest issues to solve. One issue was that business and IT had separate reporting and management structures, which created confusion and delays. The organization selected multiple pilot software products and assembled integrated teams with experts from technology, business, user research and design, and data and analytics, among others. Each product team had full autonomy for developing the solution. The teams were trained in the key practices in the PDLC (for example, product management ownership of the entire product’s development), product management (such as product road map development), and engineering (for instance, code reviews and high levels of automation in testing).

The result was a 60 percent improvement in innovation times, a 20 percent improvement in self-reported customer centricity, and an improvement of 30 basis points in employee satisfaction scores. On top of that, the initial pilot products are on track to deliver tens of millions of dollars in combined revenue uplift and cost savings. The organization decided to scale these benefits by establishing a transformation office, which developed a playbook from the results of the pilot product effort to roll out to the rest of the organization.

An operating model transformation can seem daunting, but it’s a necessity for companies looking to survive the software transition. By prioritizing those actions that deliver the highest impact and making targeted improvements, companies can build a product and platform foundation for long-term success and growth.