How to: Structure Your Organization to Support Your Product Vision
The most successful productizing companies have a product organizational structure that is driven by and aligned with a well-articulated vision and goals for the productization strategy. A product org structure that is misaligned with the goals of the productization strategy puts great product ideas at risk of lackluster performance, racking up costs, or never making it to launch in the first place.
Organizational structure has been a hot topic in our Product Leader Peer Groups for several sessions now.
- Should product report into business or functional heads or into a central head of product/CTO?
- Who should have responsibility for new product ideation and assessment?
- Who owns product marketing?
- How to integrate product into the existing sales process?
The participants represent a variety of organizational structures, but one takeaway has been consistently clear:
To successfully productize, you need an organizational structure that flows from your product vision.
A case in point: a large global consulting firm recently asked for our help in helping them develop the best org structure for both existing product management and the development of new products. They had modest success in developing a portfolio of productized solutions but leadership recognized that to accelerate productization and deliver on their ambitious growth goals, the firm needed to make substantial changes to their product org structure.
We found that our clients’ structure wasn’t operating with the agility they sought. The current structure dispersed accountability for each new phase of product development to more than one individual. And conflicting ideas about who was responsible for the components of existing product management made it difficult to oversee the entire product portfolio. For example, when we surveyed the leadership team about who was responsible for customer discovery (customer research, competitive landscape assessment, etc.) for one particular line of business, at least four different people/parts of the organization were cited.
The result? Duplication of efforts, under-performing and under-resourced products, and a glacial pace for new product launches and releasing existing product improvements. None of these outcomes spoke to the successful implementation of a market-responsive product vision.
To effectively redesign their structure to support the velocity of new product development and the management of established products, our client needed to redesign their structure to support both activities. This is not easy. Restructuring product org structures brings disruption to daily workflows, operations, reporting lines, and job descriptions, and we risk losing key staff and delaying new product releases.
That said, choosing the right org structure for product management and new product innovation can go a long way in improving time to market, increasing the likelihood of developing products with strong product-market fit, and growth of existing products.
In this article, we describe 3 basic organizational structures that support product development and management activities, how they support specific visions, and some of the risks and benefits of each. These structures include:
- Centralized structures are ideal for organizations that want a dramatic shift in their product strategy, want to disrupt the market, and are prepared to make large seed investments.
- Decentralized structures support organizations that want to develop incrementally, and/or want digital products to be sold primarily as part of existing services. These structures also work well for organizations with very mature product strategies where products are now a significant part of revenue.
- Hybrid or Mixed structures are best for those firms that want to centralize new product development in order to incubate new products and/or sell them standalone. They also work well for organizations with an existing, decentralized product management structure, but that want to sell products as part of bundled services.
3 Basic Organizational Structures For Productizing Services Firms
Successful productization requires organizational structures that make it easy to generate, design, and test new product ideas at the outset, and which can evolve to promote strong oversight over the existing product portfolio as an organization’s maturity advances. There are nuances to getting org structure right, not least of which is your company’s current architecture and strategy. That said, most product development and management activities can thrive within a centralized, decentralized, or hybrid/matrixed organizational structure.
- Centralized structures assign accountability for both new product development and existing product management to the Head of Product or Head of ‘Digital’, who typically reports to the CEO (or other C-level executive such as a COO). Product managers report to the Head of Product in a simple, linear reporting line. This structure tends to be more agile, because decision-making lies with a single person, and because processes and language are standardized within the product function and the organization as a whole. Often, businesses utilizing a centralized structure can see a faster time-to-market cycle and higher returns on product investments. Centralized structures are most useful for firms that want a dramatic, accelerated shift in their product strategy, want to disrupt the market and are prepared to make large seed investments If you are a non-digital business seeking to disrupt the market, then you need to learn and launch more rapidly and a centralized structure
makes that possible.
The downside? Because it's designed to help an organization move quickly, centralized structures can result in culture shock as the Product team works with other functions and lines of business to develop, integrate and sell products. Your firm will also likely need to hire a Head of Product from outside the organization who can effectively oversee what can be a significant change–but they will likely bring a very different way of working to your company. It also helps to have a dedicated tech, ops, and even sales team, because products developed in this structure are less likely to be designed or sold as integrated solutions with existing services.
As such, products developed in a centralized structure are also less likely to be embraced by the sales channels for the more traditional service lines. Also, good product opportunities that help the existing lines of business run more efficiently may not get priority and there is also less collaboration with the existing lines of business, which may result in rework in the future.
- Decentralized structures position product functions within lines of business or functions, with Product Managers devoted to their divisions’ products (either internal or external). In this architecture, products are often integrated into existing service bundles and, in the early part of the productization journey, are focused more on improving efficiency and margins, rather than generating new streams of revenue. Engineering teams may be a shared resource or dedicated to each division, depending on the size of the firm. In early days, the engineering resources are typically outsourced.
As an organization’s productization strategy matures and products become a larger source of revenue, an organization that started with a centralized org structure may migrate to a decentralized structure. The product managers are typically operating as P&L owners at this stage.
The advantages of this structure is a higher likelihood that new digital products will serve the needs of existing products and customers. Divisions also determine their own product budgets, potentially simplifying the budgeting and review process. We like decentralized structures for organizations that are developing incrementally and want digital products to be sold as part of existing services, as well as for organizations with very mature product strategies where products are now a significant part of revenue.
Decentralized models come with some risks too: duplicating efforts across the organization can be common in a decentralized structure because it is harder to ensure communication across the company. New products are likely to be more incremental, rather than disruptive, especially when product goals are tightly aligned to existing line of business goals, which tend to be more near-term in nature. To mitigate these risks, we recommend a strong governance structure to prevent silos and stalled product management. If the productization strategy is moving too slowly, organizations may move to a centralized model when it is time to accelerate product development.
- Hybrid (or Matrixed) Structures aim to combine the strengths of both centralized and decentralized models. With a dedicated product department, led by a Head of Product, and with Product Managers embedded within other departments who report both to their department head and the Head of Product, hybrid structures win at standardizing authority and processes while keeping product activities closely tied to division needs and strengths. The best benefit of a hybrid structure is that keeping some central oversight helps avoid subscale development and killing good ideas too early. As one leader remarked, “when we are developing new products in a decentralized fashion, you get a lot of good long-term innovations that appear not to be making much money in the short-term, and you get a lot of work on your teams that can be removed. Your teams teams can become very disengaged.”
For organizations that want new products to be incubated but also have existing products that are sold as part of or alongside existing services, hybrid structures can be extremely effective.
But it is important to note that matrixed structures may also bring the less attractive features of both centralized and decentralized models to the table. Matrixed org structures take more time to manage across because there are multiple priorities to be weighed. As such, the product managers in the business need to be more experienced, influential and politically savvy. Firms may need to fund a dedicated product sales team, while products get traction in the existing divisional sales channels. This model also requires additional governance to ensure comprehensive oversight of the product portfolio as innovation activities flourish across the organization.
Organizational Structures Are Neither Standard or Static
These models are a starting point, and it is important to recognize that your organization will very likely need to customize a centralized, decentralized, or mixed structure to best fit your vision and existing needs. They are also simplified: the right structure for your firm will need to account for business complexity, geography, and the structure of existing product roles (if applicable).
Keep in mind, too, that your organizational structure will likely evolve over time. Product development and management actually require, at least for a time, slightly different organizational models that can facilitate the varying activities that are associated with each. Moreover, as businesses mature in their productization capabilities, their org structures must evolve too.
For example, if your organization chooses to go big now and make product a significant part of revenue, you will need a centralized, incubated structure to start. But as product becomes more established, you should anticipate a shift to a more decentralized model. If your organization is starting slow with plans to accelerate product later, a decentralized model will work well at the outset, but you may want to shift to a centralized model to speed up. And there may be a need to downshift back into a decentralized model as product becomes a significant source of revenue.
The key point here is that as the vision and strategic goals for product changes, the organizational structure should evolve in response. The best product leaders understand that organizational structures are fluid, because goals change over time.
We love thinking through the intricacies of organizational structure, and can help your firm design the structure that best fits your product vision and strategy. If you would like to learn more about how we can help you design your product structure, please reach out to Jaime.