Products, not permission slips: A new way to pay for digital value

We have helped dozens of organizations make the leap from project to product. Most of the time, the new product teams launch with great fanfare. They’re cross-functional. Agile. Empowered. They’ve got the right tools and a healthy backlog. It feels like all the ingredients are there for the best meal of their lives. 

But eventually, they run into the same old bottleneck: the funding model. Even after they’ve shifted the operating model, funding remains stuck in the past. Product teams are still forced to navigate the approval gauntlet every time scope shifts or priorities evolve, undermining the autonomy and agility that was promised in the first place. 

Time and again, we hear from digital and IT leaders that this is the biggest missing piece. They know the funding model is the least mature, least understood element of the product operating model, and maybe the biggest unlock of all. 

They tell us they plan annually, even though work gets delivered in sprints. They say budgets are fixed at the start of the year and don’t evolve with the business. They love the idea of investing in capabilities and outcomes, but still plan as if every move is a one-off. And from a finance lens, they struggle to quantify total cost of ownership or link spending to actual results. 

Sound familiar? 

The irony of it all 

The biggest challenge with modernizing the funding model usually isn’t the concept, it’s the org chart. Finance still holds the keys…which is ironic, because the finance team, the one that always asks tech to speak the language of the business, is the one group that stands to benefit most. Maybe they just need it explained in their own terms. 

The goal: IT financials without the noise 

Shifting the funding model is no different than shifting the operating model. Just like product teams are oriented around business capabilities and value delivery, financial models should be too. 

That means no more budgets sliced by platform, middleware or tool. No more endless line items for niche SaaS products or integration frameworks that only obfuscate true value. 

Instead, imagine a clean, business-facing view: a single budget line for each capability — commerce, fulfillment, billing — with one dollar figure representing all labor, tools and infrastructure required to deliver that capability. Each one paired with the business metrics it’s meant to move. 

Now you’re not defending the cost of seventeen tools. You’re talking about the total cost of ownership for your fulfillment capability. And you’re evaluating that investment against improvements in delivery time or customer satisfaction. In short, you’re finally speaking finance’s language. 

So, how do you get there? 

Step one: Establish your guiding principles 

First, define the shape of your portfolio. Many of our clients target an 80/20 split: 80% of the work is driven by perpetually funded product teams. These teams manage their backlogs and sequence work based on business needs across run, grow and transform domains. The remaining 20% covers traditional projects — things like ERP overhauls or standing up entirely new business models — which will still require standard business-case funding. 

Our focus here is the 80%. 

Step two: Determine your TCO approach 

The next step is to calculate total cost of ownership for each product team. Think of it like activity-based costing: you’re mapping inputs and processes back to outcomes. 

We always recommend starting small. Begin with direct costs — internal labor, contractors and product-specific software — those items that easily map to only one product team. Then, as you mature, layer in shared tools, infrastructure, travel and services. At the most advanced stage, you might include shared functions like cybersecurity, cloud, end-user services, telecom and even the business and functional resources contributing to the tech agenda — though, like any overhead mapping exercise, it gets political fast. 

For anything you can’t allocate, put it in a tech overhead category, or assign it proportionally across product teams based on headcount. Don’t let perfection get in the way of progress. 

Once you’ve defined your allocation model, you’re ready to begin what we typically see as a three-year journey. Why three years? Because the old ways of working are so entrenched that even a crawl, walk, run is likely to be a hard pill to swallow. Also, the launch of a new funding model will typically need to align with your annual budget cycle. 

Year 1: Determine costs and start the conversation 

With a portfolio view and allocation approach in hand, start modeling your new financials — at least on paper. 

Build a simple version of your budget with three sections: product teams (80%), initiatives (20%) and tech overhead (if you didn’t choose to allocate it back to the products). For each product line, include the total cost of ownership and the business metrics the team is driving. Show this quarterly. Share it with your tech leaders and finance partners. Get them used to seeing costs this way and using it to influence decisions on capacity and prioritization. 

The goal in year one is not to overhaul the funding process, it’s to shift the mindset. To move from a view of “what we’re spending on marketing software and data” to “what we’re investing in customer acquisition.” Importantly, in this phase, you’re only allocating IT costs. Functional or business-side resources embedded in teams stay in their existing cost centers for now. 

Year 2: Pitch your product teams as ‘projects’ 

Now that you’ve got TCO in place, plus strategic roadmaps and metrics co-authored with your business partners, you’re ready for the next step. 

Each product team goes into annual planning as a “project” — because that’s the language finance still speaks. Tactically, the project is called by the capability or product name: “improve customer acquisition,” as opposed to the “integrate third-party data for personalization project.” That detail may be one opportunity on your roadmap, but it is a means to an end and subject to change. This gets you the full year’s funding in one go. No mid-year scrambling. No fits and starts. Your teams can flex scope as needed and prioritize outcomes, not just output. 

Governance becomes much simpler. The 80% of work that lives in product teams gets approved up front and measured by results. The 20% continues through traditional review. Remember, the up-front funding of product teams is a privilege. It can be revoked if, for example, the benefits do not justify the TCO for multiple quarters. 

You can stop here. This is a huge win. You’ve modernized the way product teams are funded, made life easier for finance and created a more coherent conversation about value. But if you want the full unlock — if you want end-to-end clarity — there’s one more step. 

Year 3: Integrate with the business and the GL 

The final stage is full cost transparency at the enterprise level. 

That means allocating business and functional spend to the same product capabilities. It means cost-center owners are charged based on their contribution to product teams. It means embedding this allocation logic into your general ledger to automate reporting and show real-time ROI. For example, the “improve customer acquisition” team will include software, infrastructure, data, IT labor, marketing team labor, licensing for imagery used in marketing content, digital ad spend and other related costs. The metrics are “cost of customer acquisition” and “marketing qualified leads.” The engineer on the team knows the status of these metrics daily — because the business functional and technical resources are working toward shared outcomes — not just outputs. 

Done right, this is the holy grail: product-level TCO, enterprise-wide. Side-by-side with metrics. Always up to date. Always tied to outcomes. 

Funding the way you work 

Product operating models are built on autonomy, speed and shared ownership. But those ideals don’t reach their full potential if legacy funding models force teams to ask permission every time priorities shift. 

If you’ve already evolved the way your teams work, it’s time to evolve the way they’re funded. 

Because the ability to modernize your funding model, especially in a way that brings finance along, isn’t just a win for IT. It’s a signal that you’re ready to drive transformation across the business.

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