I have worked for a handful of companies in different roles and positions. I have helped to build startups and assisted established companies go digital. During the time, I was able to learn a lot in different areas, but one of the most valuable lessons I learned was how important it is to not only build a world-class product but also to build a company around that product to carry it and bring it to success.
This might sound very obvious, but building a company is a very difficult thing to do. Many companies fail to achieve this and kill the product because the organization that carries that product doesn’t scale. Delivering new features takes too long or doesn’t have consistent quality or reliability. The room for error is vast, and it becomes an art to run a high-performing organization.
Everyone talks about product-market-fit (PMF), but no one talks about organizational-market-fit (OMF). They go together. PMF comes first, but without OMF you won’t be able to build and scale the company around it to successfully market it and to make sure that you keep being successful and always a second quicker than your competition.
In the digital age, speed means a lot more than in the past. Deploying a piece of software can instantly reach millions of people. If your organization is not built to act and react to these new mechanics, you will lose in the long run. Being fast is not just a competitive advantage, it will become more and more a key factor in the survival of a company. Going fast and doing stuff wrong is easy. Going fast and doing the right stuff is hard. This is where organizational design comes into place.
There are very good examples out there, especially in the internet tech industry, but with the right tools, mindset and a little bit of patience, everyone can reach organizational-market-fit.
This article intentionally focuses only on organizational design, not on the product.
A bit of biology
Organizations are made up of humans who compete with other organizations to strive for success. Markets are limited and constantly changing. This means that only the organizations that fit their surroundings best will survive and we all know to well about the theory of evolution and how natural selection makes sure that only the best survive. These principles also apply to the economy. The only difference is that we are able to actively design our organisms aka. organisations and don’t have to wait for a genetic mutation. Businesses have the advantage of actively mutating themselves. This is also the difference between successful and mediocre companies.
Finding the niche
I like looking at nature for solutions simply because it has been around for quite some time and has managed to find fascinating solutions to be able to survive and find and fit its niche. Niche doesn’t mean small, but rather a perfect fit. There are species found around the globe, and so large corporations can be found around the globe. Companies that have hit their niche are successful and can become very large. Companies that don’t keep hitting their niches, such as Nokia, Kodak, and RIM, will vanish or become meaningless.
Baseline Organisational Design
There is no such thing as a perfect state in business, and as today's globalized and digital world interacts increasingly faster, you don't have the time to reorganize your company top down on a frequent basis by yourself, especially as the company grows (fast). An organization must therefore run on a set of behavioral rules so that it can self-organize itself to ever-changing outside factors. Take a colony of ants for example. There isn't one CEO ant that redesigns the nest every time it gets damaged. Every ant follows a set of rules to fix the nest in order to ensure its survival. Rules on their own are worthless, though. They only have a purpose if there is a greater meaning, also known as a mission. The ants' mission is to make sure that the nest is in perfect condition to ensure the survival of the queen and the offspring. It is impossible to create a rule for every situation, especially if the external factors keep changing fast. The rules and the mission statement keep an organization together to achieve something. You could also call it distributed decision-making or distributed intelligence. The very best companies have a vision and a mission statement. Why you should have them and what they look like is enough of a topic for another article. A vision shouldn't change, but missions change. In the ants' case the vision is to ensure survival. The mission changes based on events. For the ants it might be finding a new place for a nest.
Vision and Mission keep everyone working towards the same targets, but now there needs to be some sort of social rule book to ensure, that ensures that everyone follows a social norm. This is where core values come in. They play an important part because they define who to hire and how to behave. They help to form and maintain a culture. They make sure that everyone sticks to the same rules. If you want to know why culture is mission critical, feel free to listen to this podcast of YCombinator, where Brian Chesky, the founder of Airbnb, explains how it was a huge part of their success.
It is not by mere chance that the most successful companies in history always had a clear vision and a mission statement. Add company values to that and you are off to building the basic blocks of success. If you now are able to find very smart people who share the same vision and mission and behave according to the company's values, you just increased your chances of succeeding exponentially.
The job of the CEO is to continuously ensure, that the mission is right and that everyone has understood the mission. His/hers job is also to ensure to eradicate anything that might endanger the culture.
Default Rules of Organisational Design
The process of organizational design starts with your product. If you have hit PMF you will have found out how your business works. Your organization will have to be built around that. Just like a product is designed outside in, the organization is also built outside in.
While in the product world, everything is "customer-centric”, in the organization world everything should be “employee centric” because it is the employees that deliver your product. So if you don’t reach a high-performance organisation, you will never become a high-performing company.
The first thing is to make sure, that the working place feels like a safe haven. If you don’t feel comfortable, you will never perform at your best. It is basic human need. Company culture plays heavily into this. If you need to go fast, it becomes more important that your employees perform constantly at 100%. So, investing into this is like making sure your engine is well-oiled.
In the end it boils down to a few fundamentals, but there are in my opinion, four core rules that must be woven deep into any organizational design. These have nothing to do with your vision, strategy or a special function within a company, they should be found everywhere throughout an organization:
1. Speed: The ability to find and then execute a strategy at maximum velocity without tripping (velocity has a direction, speed doesn’t)
2. Agility: The ability to respond to unpredictable events
3. Flexibility: The ability to execute hypothesized plans
4. Autonomy: The ability to make a decision within certain boundaries to save unnecessary feedback loops.
There are arguably more, but they can be derived from these four. These four main ingredients are the building blocks for any type of organization. Everyone within the company should also be made well aware of these.
Distributed Decision Making
Achieving all of the four basic rules mentioned above is tough but doable. There is a system that fulfils these four criteria. It is an agile methodology called “Squads & Chapters”. This methodology was made popular by Spotify, who are successfully using it. Spotify has great videos on its YouTube channel where you can learn everything about it.
The methodology incorporates the four elements by creating little cross-functional squads that own a certain mission end-to-end within the company’s overall mission. The squad is like a mini-organization within a larger organization. Squads are created and dissolved as required. The decision-making is outsourced to these squads. You can run large organizations with this system without slowing down. What is important is, that each squad is completely independent from other squads and can deploy software without waiting for others.
This methodology has a great impact on operational speed and efficiency. Introducing it to an organization needs to be done in baby steps because people have to get used to autonomy and more responsibility and your infrastructure has also to change to being fully decoupled.
I talked earlier about vision and mission statements as well as core values. Culture is a bit like a manual for employees. Some of it can be written on walls, but 90% of it is conveyed by employees themselves. The reason for this is very simple. We’re social beings and we, therefore, strive to belong to a group. This is a very powerful dynamic and can result in a desired outcome to align an organization toward their goals, but it can also go the other way. Management cannot obsess enough about making sure that they have a “high-performance culture”. There are many good reads and talks about this. My favorite founders talking about it are Jeff Bezos and Brian Chesky. It is impossible not to have a culture, so constantly investing into your culture is one of the top priorities of the CEO and managers.
Great managers are perspective chameleons because they think before they act on how it will affect the target, the non-targets as well as themselves. They will also think on how it might affect the culture. Living and managing culture is a tough job for management but pays of a manifold when done right.
Let me give you an example. If you want to go fast, you’ll have to take the fear of your employees to do so, because when you go fast, you will make mistakes. Establishing a culture where errors are accepted, talked about and not shamed or even punished is vital. If a manager doesn’t lead by example on talking about his fuck-ups, do you think his team will do? I highly doubt it. Taking time to talk about errors and how to prevent them together gives the team the confidence to go fast and not sandbag.
Changing a bad culture is very difficult. Keeping a good culture is the easier choice.
An organization goes through different stages of growth and maturity. Recognizing these stages and making the appropriate changes to the organizational design is difficult. When and how to change what depends on many things, but managers have to pay close attention and need to redesign the organization to fit this stage. Let me give an example: A startup that just started building its product should focus on finding product market fit. Investing in a highly scalable organization would be wrong. If you don’t realize that you have found product market fit and forget to switch into a scalable organization that carries the growth of your product, you will most likely fail. Anticipating the right timings is therefore an important skill.
Getting your head around designing and building a high performance team that succeeds to find hypergrowth and reach profitability is not doubt difficult, but it involves a methodological approach. You can see the same patterns in the most successful companies which therefore cannot be a statistical error.
I hope, that I could draw a clearer picture on what from my experience organizational design should look like and how a company should be run. There are many things I couldn’t include to keep this article reasonably short, but I would like some feedback in order to learn from the experiences of others and to find out what I maybe haven’t experienced yet.