Why the Digital Product Model Beats Project-Based Approaches

Idea in Brief The Problem Traditional IT projects have high failure rates, suffer from a short-term focus, and generate little ongoing learning or adaptation. Only 31% of global IT projects succeed, and failure rates may rise as organizations experiment with emerging technologies like AI. The Opportunity Leading companies are moving away from temporary project-based IT teams and toward long-term digital-product-management teams. Such teams’ funding is ongoing and tied to generating measurable impact. They continually create new iterations of offerings based on user feedback. How to Realize It Create a product vision, form empowered teams, build permanent structures to support them, and treat the shift in approach as a journey, not a one-off initiative. In 2011, The New York Times was facing declines in both ad sales and print circulation, and it desperately needed to find new revenue streams. In March of that year, bucking industry trends, it decided to implement a paywall and begin charging users to read its content online. But its new digital subscriptions were slow to take off: At the end of the year only 406,000 had been sold, producing just $44 million in revenue, or 1.9% of the company’s top line. As the 160-year-old enterprise began focusing on how to aggressively increase those numbers, it realized it needed to find a different way to operate. Historically, The Times had relied on traditional methods of managing digital projects. Making its content accessible on computers, iPads, iPhones, and other devices required immense amounts of technical labor, so the company assigned temporary IT teams to work on it, asking them to meet predefined timelines and budgets. When a project ended, its team members disbanded and moved on to the next one. But that approach wasn’t working well, according to published reports and a member of the product management team that we interviewed. In many cases, leaders felt, the IT teams had too little stake in the long-term success of a new offering, and projects missed deadlines and went over budget too often. To fix this, the company decided to try a new approach: digital product management. As a first step, The Times assembled interdisciplinary teams, pairing editors with product managers, designers, engineers, and analysts. Then, instead of moving them from project to project, it gave the teams long-term assignments; after they launched a product, they’d grow it as a business with its own P&L. The product managers were given the authority to create product and tech road maps and to make decisions based on what they learned from experimentation. As the teams became skilled at this approach, the company’s ability to introduce successful offerings increased. In 2014 it launched NYT Cooking, an online repository of thousands of recipes, and a specialized subscription to its daily crossword puzzle. In 2016 it acquired Wirecutter, a product review website, which it aggressively expanded, and then moved beyond crosswords to create multiple games for readers. (Its game business grew even faster after its 2022 acquisition of Wordle.) In 2017 the company launched a new podcast, The Daily, and after its listenership exploded, expanded its podcast lineup. Today The Times is a rare media success story—one that illustrates how a digital product approach can help a company quickly grow beyond its legacy business. More than 12 million people now subscribe to its products, and it brings in more than $1.2 billion in digital subscription revenue annually—roughly half its top line. In the IT field, project management has long been the foundational operating model. The waterfall approach, a defined linear and sequential software-development process, became popular in the 1970s. Since 2000 it has been supplemented by agile and user-focused methods. Whatever the methodology, IT projects have traditionally been temporary initiatives undertaken to create unique technical solutions. There are several big problems with this model, however. First of all, only 31% of global IT projects are successful, according to the Standish Group, and other sources indicate that their failure levels may be as high as 85%. As companies experiment with emerging technologies like generative AI, failure rates will most likely rise if firms continue on the same path. Beyond that, IT projects have a number of drawbacks: They’re usually defined as efforts to build a system rather than to achieve a business outcome. Their focus is on pleasing internal stakeholders, and their customer or intended user is often ambiguous and engaged with only when necessary. Assuming the system is launched successfully, the project ends, the team that built it is redeployed, and there is little effort to learn how the new solution is being used or needs to evolve over time—much less any ongoing sense of ownership or investment. In response to those problems, a growing number of companies have adopted a product rather than a project approach to creating digital offerings. They may call them “data products,” “analytics products,” or “AI products,” but all essentially are technology-powered digital products. Digital products can be B2B or B2C. They can be internally or externally focused. And they may not be purely digital: Many are blends of online and offline experiences, such as apps that allow users to find a ride, get a home loan, complete a sales transaction, or send an overnight package. In some industries the digital product approach isn’t new. The commercial software industry began adopting it decades ago, and today digital-first companies employ thousands of product managers. In the past decade, however, the approach has moved beyond tech companies and into legacy industries; it’s been applied by financial services companies like ING, retailers like Target, and even government agencies like the U.S. Centers for Medicare & Medicaid Services. Still, many companies have yet to adopt it. A 2023 Planview report found that just 8% of enterprises had successfully made the move from projects to products. Most of the companies that haven’t made the switch lack a C-suite mandate for a product operating model. Our research suggests it’s time for senior leaders to give them one. In this article we’ll explore the difference between the project and product mindsets, and we’ll describe how the smartest companies we’ve observed made the shift from one to the other. Then, using examples, we’ll provide a step-by-step framework for setting up digital product management at your own company. What Is Digital Product Management? Traditional IT projects optimize for scope, schedule, and budget, and as we’ve noted, the work is complete when the new solution is launched—end of story. But when companies have a product orientation, they optimize for measurable business impact—such as an increase in revenue—across a longer horizon. They establish teams that continue to manage new applications after they go live. The focus isn’t simply on getting new products out there; it’s on delivering ongoing value to customers. Serge Hamad’s series Temporal Perception plays with color and form to create a dialogue between realistic photographs and digital abstractions. The differences extend beyond staffing models and goals. While IT projects are given onetime budgets that incentivize managers to ask for everything up front, IT products are funded with ongoing investment. Additional investments in them are tied to how users interact with the products and whether they generate returns. IT governance moves from milestone inspection to outcome review, examining questions such as, What changed for customers? What did the team learn? What should we build next? The differences also include organizational culture and language. IT projects treat change as scope creep; IT product teams treat change as discovery. The focus of risk management shifts from delivery issues (schedule slips and cost overruns) to value-related failures (building the wrong thing, poor usability, low willingness to pay, weak market fit). Managers shift from talking about “tasks” to “problems to solve” and from “new features” to “new outcomes.” Teams put less emphasis on coding speed and more on rapidly learning and achieving impact, which they measure by looking at customer retention, Net Promoter Scores, conversions, cycle time, and unit economics. The result of these shifts is a system tuned for durable advantage, not one-and-done delivery. Leaders that adopt a product mindset are more likely than project-oriented managers to succeed in their roles, according to both our observations and industry data. McKinsey research has found that companies with a strong digital-product focus produce total shareholder returns roughly 60% higher and operating margins 16% higher than those of their peers with a weak focus. In addition, the product-oriented companies report faster time to market for new offerings, with runways that are 40% to 70% shorter. They also build higher-quality solutions, align technology and business needs more closely, have higher employee engagement, and respond to market changes better. How to Get Started In our research on the experiences of hundreds of organizations in a variety of industries, we’ve discovered five essential steps for transitioning from IT projects to digital product management: 1. Start with small wins. Identify a few initiatives that could benefit from a product-oriented approach. Look for ones that require continual innovation, rapid customer feedback, and frequent updates or improvements. Some leaders have found that a product lens is a poor fit for short, one-off infrastructure work, such as a transition to the cloud or rewriting a program in a new language. Such efforts rarely have a well-defined internal or external customer and usually don’t justify a long-term, cross-functional team. They’re best run as time-boxed projects with a clear end state. Products, however, earn their keep by delivering, and improving, constantly. Next, set up one or two teams, give them the resources and support they need to succeed, and have them answer these questions: Will the product be of value to both the customer and the business? Will it help us achieve business outcomes? Do we have the technical capability to build it? If so, will it reach scale? Once the teams’ products are successes, share stories about them internally. That will demonstrate the value of the product approach, build momentum for it, and help you expand it across the business. CarMax, the largest retailer of used cars in the United States, adopted a digital product orientation in the early 2010s. With guidance from the product management expert Marty Cagan of Silicon Valley Product Group, CarMax started with small changes and scaled up as they succeeded. The very first pilot was a four-person, six-week experiment to test whether a product team could conceive, design, and release a meaningful improvement faster than the old kind of project team could. Leaders saw enough potential in that one sprint to keep going. After establishing more product teams, they institutionalized “open houses,” 15-minute show-and-tell sessions at which the teams shared what they had launched, what they had learned, and what they’d try next. Those biweekly sessions created significant momentum by providing a stream of visible evidence of, not opinion about, the success of the product approach. To prevent progress from stalling at the seams between functions, the company also set up “two-in-a-box” leadership, which paired product and technology leaders up and down the organization. Capital One, the large U.S. financial services firm, similarly staged its transition to a product operating model. In 2013 it created small, cross-functional, agile teams that tested new offerings’ value quickly and built momentum product by product. A year later the company doubled down on the product approach by acquiring Adaptive Path, a user experience technology that helped product managers discover new customer needs and develop solutions for them. This was another “start small, learn fast” move that raised the bar on customer-centric design. 2. Create a product vision. Begin by defining the high-level objectives of your digital products, along with the measures you’ll use to assess their success. After communicating them, collaborate with your teams to set more-granular goals and key performance indicators. The vision of The New York Times, for instance, was to become a digital media company. Its digital product managers pursued that goal by creating offerings that fit its traditional brand but could also be stand-alone products exclusively for digital users. For instance, people can subscribe to the NYT Cooking app or the NYT Games app without subscribing to the company’s news products. Before its shift to a product approach, CarMax—like many large companies—had followed annual road maps and had been driven by executives’ pet projects. Teams often built what had been requested months before, not factoring in newly arriving information. CarMax decided to incorporate real-time feedback from customers into its product vision and reframed it around fulfilling a simple promise to them: “Shop anywhere, finish anywhere.” That meant making CarMax’s national scale feel local. A shopper in Phoenix could fall in love with a car in Cleveland and click to have it shipped to a store back home. CarMax now has 255 stores across 42 states nationwide, and 80% of its retail sales are digitally supported. Sixty-six percent are a mix of online and in-store, and 14% of sales occur fully online. The company has successfully operationalized its product vision on a large scale and reinforced it quarter after quarter. Regions Bank likewise employs a product approach for most of its large-scale digital initiatives. The Alabama-based financial services company’s vision is to create internal products that deliver substantial economic benefits. One such product, an anomaly detection tool, is being used to find errors in the hundreds of thousands of ledger transactions Regions Bank processes daily. Given that volume, manual reviews for financial accuracy aren’t feasible, so the bank developed a general ledger anomaly detection (GLAD) application, which leverages advanced analytics to identify transactions deviating from established norms and business trends. The Regions Bank accounting team uses it as an intelligent, automated review and research tool, and it has helped reduce the average time to identify transaction errors from approximately 30 minutes to just five. The transition from a manual, reactive process to a proactive, data-driven approach has significantly improved operational efficiency at the bank and provided deeper visibility into transaction patterns across the general ledger. 3. Form long-term, cross-functional product teams. Each one should include a product manager, one or more product designers, technology engineers, and other critical players, such as subject matter experts, developers, and data scientists. Unlike project teams, product teams should stay together for the life of a product, and they need to have the autonomy to decide how to achieve their goals. Each team should be led by a digital product manager. This role is common in software companies but still relatively rare in organizations that use software rather than sell it. Product managers usually aren’t anyone’s boss; their job is to bring all the team members together to solve a customer problem. That requires a mix of skills, including design and engineering capabilities and diplomacy (for working with multiple stakeholders across lines of business). Good digital product managers will understand the problem their product addresses and the technologies that make the product work and will be fluent in design thinking, agile methodology, and DevOps approaches, which help teams deliver offerings faster and satisfy customers better. Business schools, including Stanford, Northwestern, MIT, and the schools where we work, the University of Virginia and Babson College, are training students for this role through hands-on projects that simulate the cadence, constraints, and cross-functional frictions of actual product work. The students end up with real skills and portfolios of work, not just a new vocabulary. Serge Hamad CarMax has built its product organization around cross-functional teams that have a stable core of a product manager, a designer, and a lead engineer. From a few early teams, it has grown to more than 70 product teams that span retail, supply, and operations functions. They work on multiple customer journeys in parallel—without the need for constant team reorganization. 4. Establish permanent team leaders, infrastructure, and performance metrics. It’s best to keep digital product managers on their products for the long haul. Otherwise you run the risk that products will be abandoned rather than iterated upon and improved with time. A digital product team works best when it sits on a product-friendly backbone. CarMax built business and tech applications that all its product teams could use to optimize search results, pricing, online sales, home delivery, and customer relationship management. These capabilities are available through easily connectable APIs and allow teams to make small changes quickly without having to rebuild applications from scratch. Gen AI helps the teams speed things up even further. For instance, the company uses it to create summaries of thousands of vehicle reviews, which capture reliability, performance, and other information. Thanks to gen AI, what would take 11 years of manual effort can be compressed into months. More recently, product teams began using it to spin out quick no-code prototypes of product concepts and run user tests in hours. And after delivering a product, they lean on low-code tools and gen AI assistance to roll out enhancements safely and quickly. At CarMax, measures of product health aren’t just financial. The company also gathers data on customers throughout their car-shopping journey, capturing their engagement levels, conversion rates, interaction behavior, and likelihood to recommend CarMax to other people, among other metrics. Vista, a global design and marketing firm, is another company that has created robust metrics and infrastructure for its digital product teams. When the company adopted a focus on what it calls “data products,” more than five years ago, it put each business unit in charge of managing its own data assets and making them available to the rest of the organization to use as needed. That required setting up processes to ensure data quality, consistency, and security for all the different units. Vista now has 25 teams overseeing roughly 200 digital products, 120 of which are in deployment. To gauge their success, the company developed a framework that measures their business impact. For instance, it shows that one of Vista’s products, which automates paid search across countries, helps users’ advertising campaigns achieve a 75% higher return on investment. Another digital product, which helps manufacturers with forecasting, reduces the error rate for labor and material planning in production plants by 20%. And a third, which combines customized product content with gen AI, can handle 33% of all customer support chat sessions. Overall, the framework shows, the data products have yielded $100 million in incremental profit for Vista. 5. Treat the shift as a journey. Transforming traditional IT strategies into product visions and road maps is a large-scale organizational effort that calls for changes in organizational structure, strategic planning, funding processes, and ways of working. It can be expensive and difficult to manage and requires the complete buy-in of top management. And it doesn’t happen overnight. Capital One approached its shift to digital product management as a multiyear operating-model change, not a one-off initiative. Its senior leaders publicly reframed the organization as a technology company that does banking and then backed that redefinition up with steady moves toward agile ways of working and in-house software engineering. Leaders’ top-down signals and patience in letting practices crystallize over several years created the air cover that product teams needed to form, learn, and scale up. CarMax’s transition has been a decade-plus journey of testing and learning. Teams piloted complex new offerings, such as the home delivery of digitally purchased cars, in a few stores to learn how to choreograph them operationally, then used what worked in a national rollout. After new capabilities launched, they refined the processes and systems involved to work well at scale. The “experiment, scale, and stabilize” approach helped turn a big physical network into a flexible digital business. Now when new technologies emerge, CarMax layers them into existing products or develops new ones based on them. Recent examples include Skye, a 24/7 virtual shopping assistant that helps consumers locate the cars they want and secure financing; and Rhodes, an employee-facing chatbot that puts information on policies and answers to questions at workers’ fingertips. . . . As companies like The New York Times have shown, digital product management can improve innovation, shorten time to market, and generate new revenue. Consider that while much of the media industry has faced revenue declines, The Times has been growing at more than 5% a year; digital products have been driving that growth. But a digital product approach must be adopted slowly, carefully, and in a coordinated fashion across a business. It isn’t simply another methodology. It’s a new mindset for technological invention. Successful companies choose their digital product initiatives and managers wisely. They start with small products developed by diverse cross-functional teams. They establish systems and infrastructure for building and managing digital products, and they experiment and adapt as needed. By adopting our framework, digital product managers can strengthen their companies’ ability to delight customers and increase revenue. Traditional IT project teams, meanwhile, may find themselves left to focus on service tickets and short-term tasks.

Why the Digital Product Model Beats Project-Based Approaches

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