Introduction
Many organizations find that their traditional funding model, designed for large-scale, pre-planned projects, clashes with the needs of teams working in a more fluid, agile way. Allocating funds based solely on a fixed scope and set timelines undermines the very responsiveness these teams are aiming for.
To truly benefit from operational agility and accelerate value creation, companies need to rethink their funding and work-governance model, as this McKinsey publication suggests. This means shifting to a model that supports the continuous creation of value by product-oriented teams. The core idea is to move from funding projects to funding permanent teams focused on specific products. This isn't just an accounting change; it's a different way of thinking about investment, success and value, with operational and cultural implications.
Project logic versus product reality
Project funding works well for specific work with a defined scope and an end point. You estimate the cost, assemble a project team, and measure success by delivering that scope on time and on budget. Value validation typically happens upfront through a business case, with tracking then focused on budget consumption. Unlike continuous product delivery, where you expect to see value realized early, in projects value is often only realized at the end of the project, once the budget is spent and the team disbanded. Tracking real long-term value and return on investment beyond project closure generally doesn't happen.
Agile, product-oriented work operates differently. You expect to see value delivered quickly. Markets evolve, customer needs change, and the best path forward emerges through iteration. Here, funding needs to support a team that stays stable over time, letting it continuously discover, build and refine. Success isn't reduced to hitting milestones; it's measured by improvements in business outcomes, such as customer growth, revenue increase or operational efficiency. Value validation is continuous, drawing on tracked customer and business metrics, and on the repeated delivery of small, tangible improvements with demonstrated impact. The team persists for as long as the product remains relevant and creates value. Investment decisions need to weigh the product's strategic alignment, business impact and lifecycle. While major funding decisions can remain annual, product owners should be empowered to adjust their backlogs based on learnings within agreed budget limits.
On the project side, the logic remains: formal ROI evaluation before approval, tracking of consumption and deliverables, and generally little subsequent validation. On the product side, it becomes: validating plausible benefits upfront (customer feedback, analytics, etc.), then delivering small slices of value or iterations that demonstrate sound business progress.
Adapting your financial framework
Making this shift doesn't require completely abandoning your existing financial processes. The goal is to adapt current annual and quarterly cycles to accommodate this product-oriented approach.
This means broadening the budget planning model, where for projects the focus is on funding deliverables through to handover, to also include a model where, for products, the focus shifts to continuous return on investment from a long-standing, established team. Product planning, similar to operations, uses a stable base investment with flexible, value-based budget adjustments. Work previously planned as projects or operations now falls under product planning, reducing upfront effort and increasing team autonomy.
Impact on the broader operating model
The expected challenges when evolving the funding model and the operating model will overlap in some respects with the following common examples:
Permanent product teams and cascading accountability
Assigning permanent, dedicated product teams with empowerment and the ability to work autonomously, following the principles described by Harvard Business Review. Cascading accountability from senior business level down to product teams, with targets defined within that cascade and using success measures and continuous value tracking rather than cost tracking. Creating backlogs and roadmaps that evolve iteratively in slices of value. Authority to decide on tenders and spending, aligned with current business review cycles.
Annual planning adjustments
Your annual budgeting process needs to be updated to handle the mix of operating expenses and investment for long-standing product teams. One example is the need to plan continuous discovery work alongside delivery. This involves developing clear methods for stating a product's expected value, potentially using business-case templates specifically designed for permanent teams rather than fixed projects. Clear criteria are also needed to help prioritize investment across new products, existing projects and essential business-as-usual work. Here, the process change is to include products with clearly articulated value as part of the investment case. This creates a product landscape that, within the annual process, can then be compared and invested in strategically.
Quarterly governance changes
Throughout the year, quarterly cycles can be adapted for product teams. A central governance body, such as an investment committee, needs to review products' quarterly budget needs, which may change with roadmap updates or new insights (whether as a separate event or as part of a broader business review). Governance checkpoints need to be adjusted to allow regular funding calls based on demonstrated progress, not just fixed milestones. Roadmaps and product backlogs become key tools for planning and reviewing progress. Frequent prioritization (at least quarterly) ensures teams stay focused on the most valuable work. This also requires clearly defining roles within autonomous teams and giving product owners, or similar roles, the authority to manage their quarterly commitments. The focus of governance needs to shift from deliverables and costs to supporting regular reviews that compare actual value delivered against expectations.
Integrating funding into the target operating model
These funding adjustments are part of a broader shift in how the company operates. Your corporate strategy needs to explicitly name key products. Portfolio management needs to make clear funding decisions for these strategic items. Operationally, this means establishing permanent, cross-functional teams that bring together business and technology expertise for strategic products. Tracking systems also need to evolve to monitor product performance, feeding data for operational adjustments or even strategic changes. It's important to distinguish between different types of reprioritization. Adjusting product backlog items to better hit a target is an operational decision for the product owner. However, if value projections look unrealistic or strategic goals change, that requires a strategic reassessment involving central governance.
Actionable recommendations for leaders
Map your strategic products: Start by identifying your strategic products, those critical to your goals, requiring faster delivery, or with high innovation potential. Mapping these products helps align everyone, guides investment and provides a baseline for tracking progress. This isn't a one-off task; revisit this map regularly, perhaps every few months, as strategies evolve. Use the product map to guide investment: Moving beyond project funding allows your organization to consider and manage a portfolio of internal products. This lets you compare costs and revenue generation over time to make informed product investment decisions based on lifecycle, product potential and risk appetite. Adapt, don't replace: Modify your existing annual and quarterly budget cycles to incorporate product-team funding rather than building entirely new processes. Roll out new permanent teams in manageable waves to build capabilities progressively, as recommended by Forrester Research. Empower product teams: Clearly define the product team, its scope and its roles (such as product owner) and give it the authority to manage its backlogs and make operational prioritization decisions within its approved funding. Continuously measure value, not just cost: Implement a product operating model with regular value reviews (for example, quarterly) focused on business outcomes and progress toward goals, not simply spending.
Conclusion
Moving from purely project-based funding to incorporating a product-oriented model is fundamental for organizations seeking greater agility and value delivery. It aligns funding with how modern digital work often happens, iteratively and focused on outcomes. While this requires changes to financial processes, governance and mindset, adapting your funding approach provides the financial structure needed to support flexible, high-performing teams and, ultimately, compete more effectively. Assess where your current funding model creates friction for agile teams and start the conversation about how a product-oriented approach could unlock more value for your business and your customers.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Adservio.
STAY POSTED
Get our next analyses and field notes straight to your inbox.
