Product organisations: Applying the value equation to drive value and reduce cost
When financial pressures build, a product organisation’s knee-jerk reaction might be to cut costs. But there’s a smarter way to drive down the cost-to-serve while increasing value. Instead of focusing solely on cost-cutting, let’s go back to basics with a fresh approach to organisation design and consider the “value equation.”
By strategically realigning resources, product organisations can streamline their operating models and unlock millions in hidden value.
What is the ‘value equation’
The value equation – which we’ll call Value = Outcome / Cost – serves as a guide for evaluating how resources and activities contribute to overall value. The goal here is to ensure that outcomes (like revenue, customer satisfaction, or market growth) are substantial relative to costs (time, effort, finances, and human capital). For a product organisation, applying the value equation means looking at high-cost areas (e.g., product design) and assessing if they deliver a sufficient return on investment.
Step 1: Know where value comes from
Before jumping into any redesign, start by clarifying your value chain. This is the core of your organisation – it describes how value is created and delivered. Your value chain should clearly articulate outcomes, identify how they’re measured, and show where resources can be most impactful. Without this, it’s hard to know where to focus. Read more about value chains here.
When your organisation knows exactly what outcomes it’s aiming for and how to measure success, the value equation becomes much easier to apply. You’ll see what areas drive value, where resources might be misaligned, and what costs can be trimmed without sacrificing outcomes.
Step 2: Use organisation design technology to guide decisions
Now, let’s add a little tech. Organisation design isn’t just an exercise in structure; it’s a data-driven effort that benefits from clarity and precision. This is where tools like Agentnoon come in. Agentnoon helps allocate activities across different functions and provides clear visibility into cost. You can see how resources are spread across boundaries and understand what each activity in the value chain actually costs.
Using a tool like Agentnoon lets you strategically align activities with outcomes, bringing the value equation to life. By mapping out resource allocation across functions, you can avoid over-investing in areas that don’t significantly drive outcomes – and redirect those resources to where they can add more value.
Step 3: Avoid the “quick fix”
Let’s be real – it’s tempting to jump straight to cost-cutting, but a blanket approach to reduction can do more harm than good. Instead, be strategic. Leaders should resist the urge to zero in on structure alone. Instead, look for opportunities to refine processes, reallocate resources, and identify where costs are justified by significant outcomes. In other words, “go slow to go fast.” A thoughtful approach ensures you don’t undermine long-term value for short-term gain.
Organisations that take the time to align their design with the value equation often find they can unlock substantial value. By focusing on high-value areas and avoiding indiscriminate cuts, they become leaner, more effective, and better positioned for growth.
A real-world example: streamlining product design
Consider a product organisation with $100 million in annual revenue from six core products. The product design team is comprised of 30 people, each making $200,000 per year, focused on innovation, testing, and refinement. On top of that, the digital function has “product squads” comprised of 15 team members, each being paid $175,000 and spending around 65% of their time on the digital aspects of product design. Altogether, these product design activities cost $7.7 million annually – a significant chunk when it comes to overall revenue.
Using the value equation, the organisation can assess whether the $7.7 million investment drives outcomes (such as faster time-to-market or better customer satisfaction) that truly justify the cost. If the design team’s work doesn’t notably improve revenue or market position, it may be time to rethink how resources are allocated.
Step 4: Embed efficiency into your operating model
Once you’ve applied the value equation, it’s time to embed those insights into your operating model. By aligning resources to value-driving activities and reallocating others, you create a leaner, more efficient organisation that prioritises high-impact work. For example, you might:
Focus Resources on High-Impact Activities – Concentrate resources on the activities (and products) with the highest impact and growth potential.
Engage External Partners or Freelancers – Bring in specialised talent only when needed instead of maintaining a full in-house team.
Automate or Streamline Low-Value Activities – Use automation for repetitive tasks, allowing teams to focus on creative and strategic work.
By taking these steps, you’ll create an operating model that’s not just cost-efficient but also flexible, adaptable, and ready to seize new opportunities.
Driving sustainable value with a strategic operating model
In a product-centric organisation, the value equation isn’t just a tool; it’s a strategic lens that helps leaders align resources with impact. Instead of defaulting to large, high-cost teams for every function, focus on outcomes that drive the most value. This approach doesn’t just reduce costs – it positions your organisation to meet challenges and opportunities with agility.
So, remember: a clearly defined value chain, smart use of technology, and a focus on strategic, gradual adjustments can help you unlock millions of dollars in value. By resisting the quick fix, and embracing a thoughtful, data-driven approach, you’re not just optimising – you’re setting your organisation up for sustainable success.
Find out more about our operating model and organisation design work here.
Want to talk to us about how we can help you with your restructure? Reach out to:
TYSON CORRIGAN