Product Organization Structure: How to Build it?

When running a startup or a small family business, it is easy to divide tasks and manage your product, as there are only a few employees. But as your company scales up, the processes become more detailed, roles and responsibilities become unclear, and the product management team needs new guidelines and hierarchy to remain effective. This is where the product organization structure meaning comes into light. 

An organizational structure is a hierarchical wireframe that defines what employees do, who is responsible for an outcome, and how the decisions are made. It includes rules, determines the communication channels, and helps companies remain focused and achieve their goals. 

Throughout five years of working with product design, the Arounda team has collaborated with numerous SMEs and startups. As a result, we have experienced how different organizational structures work from the inside, and in this article, we give fundamentals and practical approaches to product management organization structure.   

Product Organizational Archetypes 

There is no universal recipe for an ideal organization or the one and only best product management org structure. Instead, when developing a company structure, stakeholders and founders have to consider several factors: 

• the present state of affairs, 

• long-term strategy, 

• talent in the company, 

• current environmental circumstances.     

The key criterion for one or another structure is the degree of centralization. According to the Frederic Laloux model, companies have evolved throughout history from autocratic ones with a strict top-down hierarchy to more democratic types where decision-making power is spread among numerous organization levels. The later agile approaches work excellently in digital product management organization structure. 

We distinguish three organizational archetypes depending on how centralized or decentralized companies are.  

Functional structure

If you have just begun googling, “what is product structure in management,” and feel puzzled, the functional model will be a safe choice for most companies. This is the most traditional and reliable organization type. 

A CEO leader is at the top of the pyramid, monitoring all aspects of the company's performance and striving for profit, growth, and long-term prosperity. The product and the engineering functions are separated. There is a chief product officer (CPO) and a chief technology officer (CTO). Both report to the CEO and occupy the second hierarchy step. 

The product leader's responsibilities include product strategy and roadmap, pricing, packaging, and marketing as well as user interface and design. CPOs can also interpret the customersʼ needs for the rest of the team and experiment with go-to-market planning. 

In their turn, CTOs secure a robust and responsive platform. Although engineering departments are often larger than product squads, the most vital company growth metrics depend on product management teams.  

Functional structure works well for organizations that:

• manage operations, such as e-commerce, or logistics

• purchase a stable product

General manager structure

In the GM model, one person takes over product and engineering resources and is totally responsible for the company's results. When all the threads are in safe hands, processes become more agile and fast. GM has all the information to set priorities and powers direct teams to the emerging tasks. 

Here the CTO operates within a smaller engineering team that takes care of the core infrastructure. CPO owns the product and often leads a front-end development team. This way, the go-to-market time lessens because the product manager can adapt the result to different buyer personas or geographical regions independently from the engineering department. 

GM investigates and analyzes the client's needs and transmits a customer's voice to the whole company. Thanks to the centralized structure, GM can rearrange resources according to the business emergency and clients' demands and build a product-centric organization structure. 

GM structure is efficient for innovative or flexible organizations in the IT industry or other fast-evolving fields. Many young businesses also stick to the GM model as it works well until one person has enough mental capacity to hold the whole company in one head. 

Holistic Organization Model

The holistic model (HOM) is a relatively new approach to the organizational structure that answers the challenges of the unstable modern world with Covid-19 and Artificial Intelligence. It provides a framework where the organizational structure is an entity that can be modified and upgraded and not only observed as an enduring reality. 

The HOM describes a company as a system of four components: structure, individuals, technology, and process, which are connected by six relationships. If all four parts are well-aligned, the organization works effectively. Otherwise, the system is unbalanced, and the breakdown is inevitable. 

The holistic model gives the algorithms to bring your organization to the right amount of complexity. When analyzing relationships or components separately, owners can come to clear conclusions, unlike evaluating the company as a complex mesh. The result will look like a list of priorities and initiatives to achieve stable and predictable results. 

A great holistic product organizational structure example is a Buurtzorg healthcare net in the Netherlands. In 2006, Buurtzorg established a nurse-led holistic care model and has spread over 24 countries, witnessing the highest client satisfaction rates in the industry.  

Approaches to Creating a Product Organization Structure

There are four basic forms of organizational structure: flat, functional, divisional, and matrix. Articles on product management suggest numerous derivatives, but we describe the initial examples of product organisational structures.

Flat Structure

In the early stage of business, where you have less than 20 employees, the flat structure is a native and reasonable choice. Team members have a direct link to the company leaders and enough autonomy to solve tasks in their competence effectively. 

Cross-functional structure 

You can often notice cross-functional teams in the digital product organization structure. IT specialists in one unit have different functional expertise, such as design, programming, marketing, or business. The right combination of skills allows teams to operate independently in various situations. For example, they can shorten the product iteration cycles and deliver products to users faster. 

When you form a team of specialists, there comes a perpetual question, ʼHow many would be enough?ʼ Amazon has noticed that the smaller the team, the better collaboration. They scale teams with the “two-pizza team rule.” The rule states that teams should be small enough to be fed with two pizzas.  

Divisional Structure

Itʼs crucial not to miss the point where your business overgrows the startup state and needs an explicit hierarchy. In a divisional mode,l company has departments or divisions that fulfill certain functions. Divisions can base on:

• products

• user-personas

• markets

• metrics

• missions

• geography

Each division has several specialists or even functional departments to realize their goals and a product manager to control the process. 

Matrix Structure

While in functional and divisional models, team members report to one person on the next hierarchy level, in a matrix structure, department and project managers lead employees. For example, a programmer of the IT department reports to the head of the IT department and the manager of the NFT project he is currently working on. 

The matrix model is a sophisticated approach with some obvious drawbacks, like potentially conflictive leadership and doubled documentation. There are also strong advantages of product organization structure of this type. For example, project objectives are well-defined, and the information circulates freely within the organizational matrix.

Conclusion

When we start a business with enthusiasm, energy, and flat organization, we hope it will allow us to be creative, flexible, and productive. But then, when the company grows, we face an unspoken hierarchy and feel like a jellyfish trying to compete with a killer whale. 

As a product agency for startups and SMEs, which has contributed to more than 130 projects, Arounda dealt with many product management teams. Design and technical issues often have roots in an implicit organizational structure. Our whole experience proves that it can’t be an afterthought. So if you feel that current roles and processes slow down your ability to execute, this will be the best signal for change in the product organization structure. 

Whenever you want an independent view of your product strategy and business competitiveness, just drop us a line!