There are only two ways to build an organization: Vertically along the value chains or horizontally according to the different capabilities. Agile doesn’t help either; they just name it differently. My old company changed the organization from one dimension to the other every 5 years. This also made sense for a consulting firm to ensure a breath of fresh air in each change.
But what do you do in a more complex company or program? There, the mixed form is often used as a matrix – and that’s not so easy in real life.
The employees in a company need a structure that is as clear as possible. They should know who their supervisor and who their team is – their home. The larger the organization, the more important the orientation becomes. Of course, every organizational structure bears the danger of creating silos. The more the employees withdraw to their area of responsibility, the greater the friction losses are at the boundaries of responsibility. As a leader, it is important to intervene and to secure the inter-connections.
If an organization is set up vertically along value chains, then the customer side is optimally serviced. After all, everyone in this organizational form is dedicated to create customer value. In an IT organization, the departments are specialized according to the business domain and each one services one business department as a customer. Business departments are cut according to client segments.
Especially in Agile organizational forms, this squad structure is preferred. After all, the Product Owner is the helmsman in charge. The disadvantage of this form of organization is above all the duplication of effort and the lack of a uniform methodology. In this form, it is difficult to leverage synergies between the value chains, and communication is maintained more informally through interest groups.
If an organization is set up horizontally, then it is optimally set up for its product portfolio. The departments can optimize their methodology and compensate for workload peaks through flexible shifts in production. The sticking point here is, of course, customer interest. Particularly in the case of strictly separated departments, they can feel like they are in Asterix’s house of madness.
As always in life, there is no right and wrong here. Both forms have their advantages and disadvantages. As always, it is important to find the right balance for the respective use case. This is then addressed in mixed forms in the matrix. For example, areas close to the customer are set up vertically, while “the factory” is set up horizontally.
As always, it depends on the employees and their role in the company. If, for example, I have a project manager, then it will be important that he masters his methodical craft and develops the appropriate communication skills. In this role, he will be able to switch between different customer segments, because the business understanding will be delivered by someone else. It is also helpful for a software developer if he understands the business side, but even more important is that he develops his programming knowledge. Both roles might be more suitable for a horizontal form of organization.
If I have a business analyst or an application manager, then this is strongly connected to specific business domain expertise. The methodical harmonization across the value chains will be of secondary importance – a topic for corresponding interest groups. Therefore, it makes sense to organize these roles vertically.
We have had endless discussions about this, which will take place in every organization. After all, it’s all about who has got the disciplinary responsibility and how to establish the power play within the organization. At the latest during the regular performance evaluation process, this will also become very relevant for the employees.
I see this pain not only in old, grown line organizations, where managers define their importance by the distance to the board and number of direct reports. Young Agile companies also face the same challenge – they only usually feel the effects more quickly.
So, unfortunately, there is no panacea at this point. Every organizational design must be tailored to the respective organization and the respective time. And ideally, it fits the current strategy.
What about you?
- Have you ever taxed your brain about organizational structures?
- Have you also observed the effects described above in your organization?
- What does your optimal organization look like?