Design, refine your accountability structure

Some novel organizational structures have emerged in recent years, especially among forward thinking tech companies. A few of the more well-known concepts include Holacracy, Sociacracy 3.0, and various other approaches that involve task forces or ‘squads’ that constantly spin up and disband. In our view, these are all interesting but unproven.

It’s worthwhile to read up on these org experiments and maybe even cherry pick a few transferrable practices. Otherwise, we suggest sticking with a more conventional, level-based framework: in most structures, priorities flow downward and accountability flows up from individual contributor to manager to executive leadership to CEO to board to shareholders. The reporting lines change as needed, but not too often.

Once your company exceeds ~50 people, you will necessarily start building out the middle layers. Certain functions need it sooner than others – this is often an “a-ha” moment for one or two leaders when re-evaluating organizational needs. When you add mid-management, beware of stifling cross-department collaboration or organizational agility.

Tips for avoiding the pitfalls of additional management layers:

• Allow/encourage dotted lines: in a cohesive organization, it’s natural for individuals to report to different people for different things, often across department lines. This facilitates the cross-pollination of ideas and offers career development opportunities. Just ensure everyone knows exactly to whom they report for each project/task and limit everyone to just one solid reporting line at any given time. The manager at the receiving end of this solid line should have the best pulse on the overall workload, development, and wellbeing of their direct report.
• Avoid managing by committee: each employee should have a single direct manager who trumps all other dotted line managers of that employee (see commentary above). Management by committee (i.e. multiple managers taking partial accountability for an employee) generally does not work because it leads to accountability cracks and confusion at all levels.
• Connect individual objectives to company-wide objectives: this will discourage silo mentality and spur people to work across groups.
• Adopt select practices from more avante-garde systems: as mentioned above, we don’t advise full adoption of these systems, but there is something to be said for the spirit of individual empowerment and organizational agility behind them. Leaders will do well to selectively implement a few specific practices that can successfully transfer to their own company culture, just as long as they remain grounded in reality vs. aspirations.

The other key structural consideration as your company scales is whether to remain a functional or divisional organization. Functional organizations are organized by functions which work across all product lines. Divisional organizations are organized by product lines, each running semi-autonomously with their own P&L and dedicated functional support.

Source: Ben Thompson, Stratechery

Nearly all startups begin as functional organizations by definition because they have a single product line. As companies launch new and distinct product lines, divisional separation starts make sense. This is the typical evolution. Of course, there are notable exceptions such as Apple. (sidenote: there is an interesting history behind this, starting with Dupont Chemicals nearly a century ago. You can read that story as well as some excellent, albeit dated commentary on Apple and Microsoft’s org structures here and here).

There are many factors to consider when deciding which structure is right for your org, some of which are listed below. As you can see, functional structures are much harder to pull off at scale. Regardless of the decision you make, making it deliberately and at the appropriate crossroads will put you ahead of the pack. Most rapidly scaling companies ultimately stumble into some hybrid by accident.

Further reading:

• https://www.process.st/organizational-structure/
• https://medium.com/target-teal/scalable-organizational-structures-for-your-startup-6c3da9ffeaac/
• https://stratechery.com/2016/apples-organizational-crossroads/
• https://stratechery.com/2013/why-microsofts-reorganization-is-a-bad-idea/