Originally published on Cooper Professional Education‘s Journal.
As a global strategic design firm, we work with organizations of various shapes and sizes. While many hail a nimble, flat organizational structure as a way to fight bureaucracy, we see many organizations (particularly startups) who have outgrown this model.
Many organizations are, understandably, focused on creating and maintaining a viable product or service, and this focus on product is how many first movers achieve success. However, a business is more than its product and funding. Fundamentally, it is a group of people working to align efforts toward a common goal. Having the right organizational structure is key to better alignment.
So, how do you know when it’s time to shift your organization’s structure? There are a few external and internal factors to watch for.
Externally, an organization should watch for changes in market forces
Are marketplaces converging such that efficiencies become the source of competitive advantage? Is your organization expanding into different industries or geographic markets, or diversifying business models such that a decentralized model with decision-making pushed closer to the front lines makes more sense?
There comes an inflection point where priorities expand from “get the next version out the door” to “let’s build this organization for the long term.”
All these are signs that it’s time to consider adding more formalization and specialization to your organizational chart. Moving toward a functional structure — grouped by job function, like design, engineering, finance — might make sense if you’re smaller. Moving toward a divisional structure — grouped by major project line, with all necessary functions included, such as healthcare, electronics, and airlines for General Electric — might make sense if you’re more complex.
Internally, startup leaders should watch for silos and a lack of sharing among functional experts
If you have Agile cross-functional product teams, it’s important that product managers, engineers, and designers have a mechanism to share learnings and questions with others in their domain. You’ll want to consider organizational structures that foster more sharing, such as a matrix structure — grouped by product line and by function, with employees reporting to both their function lead and their product lead.
Growing organizations will approach an inflection point
Many expanding organizations feel a tension between the desire of individual contributors to keep the organizational structure as flat as possible and the need to retain high-performers by offering them career progression, often through supervising a small team. This creates a conundrum: Do you keep an organization flat or develop your leadership pipeline by creating additional layers of hierarchy that will offer your star performers a concrete step upward in their career?
There comes an inflection point in every organization’s growth curve where the priorities expand from “get the next version out the door” to “let’s build this organization for the long term.” Watch for that inflection point closely and prepare your star performers with informal leadership roles so they’re ready to manage a team when the time comes.
If your executive team is becoming a decision-making bottleneck, you’ve already hit that inflection point. It’s time to introduce additional levels of hierarchy and provide people with the responsive management they need to do their work. Need more guidance? Reach out to Cooper Professional Education. Our training, coaching, and innovation programs can help teams speak a common, human-centered language so they can take their collaboration skills to the next level.
This is the first installment in a series on organizational change by Holly Thorsen.