Product Management Organization Structure: Which One to Choose?
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Structuring your product management (PM) team is easy when you are a small startup with a few employees. But as your company grows, the number of teams increases, and it's getting harder to coordinate them. It's time to slice up the pie and think of an effective product management organization structure.
As our designers at Eleken fully integrate into our clients' teams when they work on projects, we see various organizational structures from the inside. Companies divide their teams according to individual product features, customer type, customer journey stage, and more. In any case, well-defined roles and sound structure result in effective product teams.
This topic is complex because there's no universal answer to structuring a product management organization. Therefore, in this article, we will discuss different approaches to organizational management structure and determine which type of product company each approach fits the most.
One of the most common challenges faced by product companies at scale is how to divide the product/s among product teams. Here are the most common approaches to creating a product organization structure.
The first on our list of product management organization structure is the flat one.
A flat organizational structure has few or no middle management between staff and executives. Startups use this type of structure to grow as it is free of hierarchy-related pressure and increases the employees' productivity.
A flat organizational structure works well for small businesses where employees can have enough autonomy and direct access to company leaders without negatively affecting business efficiency.
However, with a flat model, it's essential to define the right time to reconsider the structure when your business overgrows the startup state. This usually happens when your company reaches 20-30 employees.
For instance, Cris Savage, founder and the CEO of a video hosting platform Wistia, states in his blog post that as the number of employees grew from 2 to 30 and then to more than 60 people, a flat organizational structure stopped being very fitting for his business:
“Every company has a structure. If you don't explicitly define your structure, then you are left with an implicit one, and that can stifle productivity. We had hoped that being flat would let us move faster and be more creative, but as we grew, we ended up with an unspoken hierarchy that actually slowed down our ability to execute.”
A functional structure divides an organization into various functions or departments. There's a person with the highest level of responsibility positioned at the top (CEO), and employees are positioned according to their skills and specialty in various departments (product, engineering, design, marketing, and so on).
Each department is managed independently by the head of the department (for example, the chief product officer (CPO) for a product department and the chief technology officer (CTO) for an engineering department).
The functional structure is hierarchical and centralized, which means employees in each team report to department heads and those to the top management. Top management analyzes data they receive to develop further plans and give directions to the middle management, which implements the decisions.
Product leaders may have more product-focused duties in companies that use a functional model. They may be engaged in developing product strategy, building product roadmap, creating go-to-market strategy, ensuring consistent UI/UX design, and representing customer needs within the organization.
Functional structure is suitable for companies that
- Deal with operations (e-commerce, manufacturing, logistics, and so on)
- Have a stable product, and define business scaling as their top priority
For example, Apple uses a functional structure for its product management organization, which helps drive the company's innovation success. The company is divided into departments, each headed by functional managers, who are experts in the fields they supervise. It ensures that people with the most expertise and experience in a particular area have the decision rights for that specific area.
This way, in 2016, a functional structure made it possible for Paul Hubel, a senior leader at Apple, and his team to introduce a dual-lens camera with portrait mode for the iPhone 7 Plus despite the significant risk for them. Such innovation was costly, and if people had been unwilling to pay extra for this premium feature, the team would have lost credibility.
The camera became a defining feature of the iPhone 7 Plus, while under a traditional structure, Hubel wouldn't have had the right to take such a risk and make the decision on his own. Perhaps this camera would have never been released as a traditional cost and price analysis would have lacked a deep understanding of users' needs.
Still, structuring your product team under this model also has disadvantages: it increases the bureaucracy and may stifle employees' initiative.
In a functional model, the company is divided into departments, each with its function. With a divisional structure, you create big, self-contained business units (divisions) within your organization that may represent different categories.
Depending on the category, there are different types of divisional structures, like product-based, feature-based, based on user segment, and so on. In their turn, these units consist of functional departments needed to support this or that division. Each business unit has its product manager. Some companies also assign a CPO or VP of Product to ensure a common product vision and consistency across all divisions.
Now, let's look deeper at some types of divisional structures.
This org structure separates your organization by products, projects, or features. Thus, you assign one product manager per product/feature who ensures teams responsible for a specific product don't overlook user research, feature prioritization, data analytics, budgeting, and achieving business and product goals.
Also, product managers from different areas should communicate to discuss common issues for the whole suite of products.
A product-based structure is mostly used by companies with a wide range of products created in different production facilities or under different conditions and for companies with complex offerings.
Structuring your product management with a product-based model helps you meet customer needs more effectively and extend expertise within specialized divisions. Also, a product-based structure prevents mixing up the product development lifecycles while making it possible for small businesses to deploy new offerings to the market faster.
For instance, DomainTools, a software that helps businesses detect and analyze malware, has feature-focused product managers who work to improve customer experience. Applying such an organizational structure helps the company to enable a holistic approach to delivering products to customers.
Do mind, however, that by applying a product/feature-based structure, you duplicate resources across business units, which can be costly, with the risk of overemphasizing divisional goals over company goals.
Based on user personas
Under this PM structure, the area of responsibility of each product manager is divided by the types of user personas your company serves and, therefore, by the problems these users face.
Organizing by user personas helps you satisfy the needs of different customers by creating relevant products and features focused on a specific user type. In companies with such a structure, product managers are responsible for keeping the team well-informed about user needs and pain points. They choose which features to propose, prioritize, and release.
Thus, this model makes sense for companies that serve the needs of the varied markets and industries.
For example, product managers at SevenRooms, a guest experience and retention platform, lead teams structured by customer segments. In the early days, SevenRooms' co-founder and CPO Allison Page was a "Jack of all traits" for her company and performed the roles of a product manager, designer, and QA specialist. Still, as SevenRooms has grown, it became clear that three main types of customers use the platform: consumers, marketers, and restaurant hosts. Each type of customer uses different product tools and has its distinct challenges. Therefore, it made sense to create separate divisions for each user persona to be able to solve real-life problems for their customers.
This divisional structure makes your team more empathetic since focusing your research and strategy on a specific user persona helps create a better user experience. However, keeping the wishes of just one customer type in mind can stifle innovation.
One more way to structure your product management is by using performance metrics that show business and user results (for example, acquisition, activation, retention, and so on).
With this structure, you create teams for each separate key performance indicator, which is aimed at improving some specific metrics. Each team has a product manager, developer, UI/UX designer, and marketer who then reports to the CPO or VP of Product. CPO ensures a common vision for the whole product.
The metric-based structure is suitable for companies with clearly defined metrics that influence the success of their product.
With a metric-based model, the teams clearly aim to align new features with user needs to reach high KPIs. However, it's not easy for a company to outline such a set of metrics that will not change soon.
A cross-functional team means that it consists of employees with different functional expertise that work together to reach a common goal.
A cross-functional type of organizational structure in management implies having a product manager who leads a small team (it may consist of developers, designers, and analysts) that works on some specific functional areas within the product.
The main distinctive characteristic of this model is the autonomy that the team gets: they don't have to ask any executive stakeholder or general manager for approval to push new features out to the market.
The cross-functional organizational structure makes product development more efficient because of the small team size, employees' expertise in different areas, and the freedom of action. It speeds up the process of exchanging feedback and releasing updates. The quicker your team releases the updates, the faster they can identify what improvements are still to be made and the better product you get.
A cross-functional organizational structure is used by businesses that want to get free from hierarchy, shorten their product iteration cycle, and quickly push products out to users.
Still, keep in mind that if you have a set of interrelated offerings, giving your team the autonomy to make live updates to one product can negatively affect the others. Suppose you have one complex product with many components that depend on one another. In that case, there may be situations when one team has to wait for assistance from another team, which results in you losing the ability to move fast.
Now, let's look at some well-known companies for which this structure works great.
Squad structure by Spotify
Squads at Spotify are small cross-functional teams comprising a few developers and a product owner/product manager. Squads don't work on the entire product. Instead, they focus on a specific functional area.
Also, teams have the right to independently choose the area of functional responsibility and release updates whenever they want: they write the code, test it, and if it works well, release it to the live product.
Goal-focused squads by Buffer
Buffer's teams focus on a variety of different areas within the product. For example, there are separate teams that work for Android and iOS. Each group includes 1 or 2 developers, a product manager, a designer, a product growth analyst, and a customer development specialist, organized in squads.
Such a structure lets Buffer quickly create and launch relevant and interesting features.
Two-pizza rule by Amazon
To help its teams act fast and effectively, Amazon developed the "two-pizza rule," which means they keep each internal team small enough to fill up on two pizzas (about 6 people in a team).
They believe smaller teams are more engaged and innovative as they are not limited to the company's senior leaders.
To cut a long story short, according to Amazon, your team should be as small as possible, with just enough resources and skills to perform their tasks.
Mission-based teams by Zapier
Zapier has cross-functional teams of 3 to 8 people working on one specific task. Teams have full autonomy: the responsibility for failures and successes lies only on them.
Though teams work independently, they have to present their projects to the whole company once in a while. It helps to spread the knowledge and keep transparency across the company.
To sum up: evolve your team structure according to your business needs
The success of any product management organization hinges on its ability to adapt and evolve its structure according to the business's changing needs. From the flexibility and autonomy of a flat structure to the specialized focus of divisional setups, each model offers unique advantages and challenges. As your company grows, it becomes crucial to identify the structure that best aligns with your business goals, team dynamics, and product complexity.
Remember, there isn't a one-size-fits-all solution. The key is to remain agile and responsive to the shifting demands of your market and internal operations. By carefully considering your organizational structure and being open to change, you can create an environment that not only fosters innovation and collaboration but also drives your product towards success.
To get a better idea of which approach to choose when organizing your product management, first of all, try to define:
- Your current and future business goals that your product team should achieve
- The duties you want your product team to perform
- Your target audience (find out whether their needs vary)
- The number of products needed to be managed
- The resources you are ready to dedicate to each team
Correctly structuring your product management organization is only half the battle; the next essential step you need to overcome is finding an appropriate product manager for your team. Learn what makes a good product manager to cope with this task.
Eleken's designers integrate well with any type of organization and become indispensable members of your team, however large or small. So, if you need design help? Contact us today to take the load off your shoulder when it comes to product visuals!