Insights
Rise of the Product (Re)Organization
July 15, 2024
Why A Brave Rethink Is Your Only Means of Survival
So, product organizations rise or fall based on the quality of the products they sell, right?
Not so fast. The consumer landscape is no meritocracy. A product can succeed through business acumen, good planning, and clever marketing—even without addressing what consumers want, need, and don’t want to live without.
However, many product organizations have sacrificed the careful planning and the focus on user centricity that can sell or set customer expectations. As complex digital products became exponentially more difficult to manage, product organizations have embraced the Agile and Minimum Viable Product (MVP) cultures that moved them from thinking to doing. The focus on features, iteration, and incremental improvements has created more complexity and silos for organizations—while eliminating the opportunity to develop an effective vision for the future of their product.
Product Runway
So, how do we define a product?
Here, it’s anything an organization creates and offers to its customers, including traditional physical products, digital products, and services. Things like websites are components of channel experiences, but are often not considered products, per se. However, for the purposes of this piece, websites are considered digital products. The loose nomenclature of what is considered a product has contributed to organizations losing their focus.
Should my company be a product organization?
Structuring a company as a product organization can make sense, but not every company should. If the core strategy of your business is to focus on developing, selling, and improving products, it aligns the organizational resources to the product with a clear focus that drives market success. In considering how to structure your business, product companies should consider these factors:
- Market dependence: Success is tied to market demand and shifts, or technological changes can affect profitability.
- Innovation Pressure: To stay relevant, there is a need for continuous innovation and iteration which can require considerable resources.
- Risk Concentration: If the company’s offerings are not diversified, more is at risk if a product encounters major challenges.
- Product Lifecycle Management: Launching, growing, maturing, and sunsetting a product requires strategic planning.
- Competition: Competition can be fierce, and differentiation is not optional.
Over time, the traditional structure of product organizations became inefficient, which led many to break out into functional silos such as design, engineering, and marketing. This division of teams produced a host of problems:
- Communication and collaboration challenges: It was difficult for teams in different silos to communicate and collaborate effectively. This led to delays, rework, and frustration.
- Slow decision-making: Decisions in traditional product organizations often went through a long chain of command. This slowed down the decision-making process and made it difficult to respond to changes in the market.
- Focus on features, not on customer outcomes: Traditional product organizations often focused on delivering new features, rather than solving customer problems. This led to products that were overloaded with features that customers didn't need or use.
- Misaligned metrics: Product orgs that developed silos often had a mismatch in expectations between one group and the next. In the absence of a holistic view, groups aligned to metrics that didn’t tell the full story of success.
Another contributor to the problem is that product managers bore the dual responsibilities of delivery and iteration while also taking on the long-term product vision—something that couldn't be done well without business strategy chops. The efforts to improve through continuous delivery became more tactical and less strategic. The product manager sat several tiers below those who fashioned the long-term digital product strategy, and product team become disconnected from shaping the strategic vision.
"Product strategy has to exist as a horizontal layer that touches every part of the product organization.”
Going forward, product orgs need to break out of the trends they’re entrenched in and reimagine what a product company should be. Rethinking how they behave means embracing new frameworks, methodologies, and mindsets that promote innovative thinking. It will require strategic thinking from the entire team that puts the focus back on the end user.
Anticipation can’t be the only change product organizations make. The digital landscape continues to evolve with new demands and requirements that require organizations to excel at adaptation as well. Product strategy needs to exist as a horizontal layer that touches every part of the product organization. The next big shift in organizational structure will be to focus heavily on flexibility, collaboration, and technology-driven models. Here are several key trends:
- Flat organizational structures: These types of organizations place emphasis on self-management, maintaining small teams, and frequent reiteration. They favor flexibility and adaptability, and they tend to have fewer hierarchical levels.
- Emphasis on purpose and values: Organizations are starting to form around a core purpose or set of values. This purpose-driven structure can help attract and retain employees who align with these values, boosting morale and productivity.
- Use of artificial intelligence (AI) and automation: This is being used to streamline basic tasks, allowing employees to focus on more strategic initiatives. It also helps companies to stay connected in the modern remote work environment.
- Decentralization: Enabled by advanced technology, companies are allowing decision-making power to be distributed throughout the organization, rather than being concentrated at the top. This improves agility and responsiveness.
- Product-led Growth: PLG focuses on using the product as the primary means of acquiring and converting customers. It requires a deep and validated understanding of the various user journeys and a commitment towards responding to user feedback and behavior.
- Horizontality: Don’t silo product management apart from engineering, design, and marketing. The call for horizontal ownership and governance not only allows for greater priority and oversight of business driving "product" but also better oversight into how product ecosystems are working to achieve business outcomes.
- Education and iteration: Something of a classic trend, but learn to embrace the feedback loop – ideate, iterate, input, repeat. Make sure to know the difference between improvement and advancement.
- Focus on outcomes: Rather than chasing constant incremental improvements or new features, ensure that all product efforts are oriented towards commonly understood goals. This is a key area where product organizations fail – by structuring a siloed organization that impedes alignment on outcomes.
Several product companies have reevaluated their organizational structure.
Spotify: Dupery & Transformation Theater
In 2012, Spotify structured its product organization around cross-functional Squads, Tribes, Chapters, and Guilds. Each Squad is a nimble and autonomous team focused on changes and course-corrections for specific tasks or products, such as music discovery or personalization. Tribes are basically departments, Chapters are specialized groups that focus on skills or disciplines (such as design or development), and Guilds are more informal groups unrelated to the product work performed. This model is a flat hierarchy Agile organizational structure that encourages flexibility, collaboration, innovation, and engagement. Sounds good, right?
However, since adoption, the delegation of decision-making related to Agile processes was never fully adopted—at least partially because of an unmet need for Agile coaches.
Arguably, this was a case of “transformation theater” where a company claims to undertake a digital transformation but doesn’t enact substantive changes to enhance business outcomes. Some of the key characteristics of “transformation theater” are:
- Superficiality: Companies declare that they are implementing changes, but those changes are never fully integrated into the workflows of the business.
- Insubstantiality: An innovation mirage is created by promoting changes via press releases and other social channels.
- Prevarication: Despite announcing change through marketing channels, a lack of internal commitment—including all relevant stakeholders—can cause the transformation to fail.
- Cultural Stasis: When companies address surface-level tech alone and fail to grapple with comprehensive culture change.
Organizational change and digital transformation can be a long and grueling processes. It may take longer than expected to see the ROI. Producing “transformation theater,” however, can undermine a company’s credibility and make ROI unattainable. True and lasting change aligns people, processes, and technology to the organization’s strategic goals. In the most unproductive scenario, the focus will be on transformation as a process rather than a shift to valuable business outcomes.
A Better Way
Microsoft successfully restructured itself in the 2010s. Facing evolving market demands and technological advancements, CEO Satya Nadella led Microsoft to implement several strategic shifts. Nadella drove the move to cloud-based services and the redirection not only prompted internal change, it also catapulted the organization into a leadership spot in the entire space.
Dismantling silos was a key factor of Nadella’s success in reversing the trends of internal competition and inefficiency. Microsoft also had the vision to recognize that a shift away from desktop computing would unlock the potential to provide better experiences. By becoming platform-agnostic, Microsoft could now drive revenue growth with its applications, increase its stock value, and make the company more adaptable to market changes.
Unlike Spotify’s empty promises, Airbnb followed through with structuring its product organization around cross-functional "pods." By pioneering innovations in its business model, Airbnb began following the holocracy model—a kind of flat org—and teams were organized for projects that could be iterated upon. Each pod was responsible for a specific customer journey, such as the booking process or the post-trip experience. These small, nimble groups were empowered to make decisions and take actions on their own, without having to go through a long chain of command.
Finally, another giant in the industry, IBM, made dramatic changes over the past 5 years. What they did created a new standard for how a legacy product organization can rethink its business model and organizational structure. Rapid technology changes and increasing competition in cloud services, artificial intelligence, and data analytics forced IBM to focus on high-value, high-growth areas to stay competitive.
In April 2020, Arvind Krishna became CEO and led the restructuring. It began with the sale of non-core segments to focus on hybrid cloud growth and A.I. Fortunately, IBM had already heavily invested in its hybrid cloud platform gained from the acquisition of Red Hat in 2019. Much like Microsoft and Airbnb, the restructuring was used as an opportunity to become both nimbler and more thoughtful. These changes augmented financial performance and repositioned IBM in the market as a fierce competitor. The company was positioned to grasp the brass ring of so-called “digital transformation” and capitalize on enterprise trends like flexible and scalable solutions.
Rethinking the structure of product organizations is certainly a challenge, but the rewards will almost certainly justify the effort. It requires a significant change in mindset and culture. Orgs can adopt flexible strategies and structures, lean on existing technology investments, and focus on cross-functional teamwork and customer-centricity. This will likely require a courageous redefinition of roles and responsibilities across the company. However, as the examples of Microsoft, Airbnb, and IBM demonstrate, the benefits are clear: product organizations that are structured around cross-functional teams are more agile, adaptable, and customer-focused.
Product organizations must make a concerted effort to bring strategy back to product strategy. It is essential for success in the contemporary world. Whether an organization lacks alignment and vision, can’t get ahead of rapid market changes, or wrestles with resource constraints, boldly embracing these structural shifts can lead to significant competitive advantage—ensuring the product organization not only survives, but evolves and thrives in the digital age.