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Organizing by function creates overhead you don’t need

This is a post in a series about the 80% Rule for Designing Teams. As a recap, the rule is that “each team should be equipped with the resources and authority to deliver 80% of their mission without outside dependency”.

In this post, let’s take a look at why organizing by function might be problematic. Upfront, I want to acknowledge there are situations when it is a good idea. We’ll cover these later.

For now, let’s take a fictional startup called EdCo, which sells online courses for primary school kids. On day 1, the team is made up of a business guy, a techie, a learning expert, and a marketer.

Functional organization makes sense in the early days

As EdCo finds early success and hires 10 more people, it makes sense to group these people by function. The developer needs more help, so he hires someone. They form the start of the Engineering Department. The marketer brings on another pair of hands, which is the start of the Marketing Department. And so forth.

At this stage, the dominant organizational principle is function – and it works. The company is small enough that working relationships across functions are strong. Everyone essentially has the same mission.

Many companies stick with the same template as they grow

The issues of organizing by function appear as the next 500 employees are hired. By this point, EdCo has branched out into offering courses for secondary school, university, and adult education.

Since EdCo is still organized by function, the Primary School Marketer doesn’t sit next to the Primary School Product Manager or Ops Manager. He’s sitting next to the Adult Education Marketer. And they report into the Chief Marketing Officer.

While there are some benefits to organizing primarily by function, those benefits are outweighed by the costs.

Organizing by function = constant lobbying and coordination across teams

Question: if EdCo is organized by function, how are they successfully selling their courses for primary school children?

Answer: a lot of meetings and process.

Fred is the head of the Primary School business. Fred’s problem is that his software developers sit in one department, his course designers in another department, his product managers in another, marketers in another, etc.

Therefore he spends his time lobbying the heads of the different departments. They need to buy-in. They need to agree a process. And as they move through this process, he needs to coordinate across the teams, so one team doesn’t bottleneck the other. The logistics get so complicated that he hires a project manager.

Life within a functional department is like juggling balls

Let’s look at the other side of it. Life isn’t particularly straightforward for Anne, the Head of Engineering. As a “cost centre”, Anne is told to keep costs down. But Fred is actually pushing for more people.

And Fred is the easy one. Matthew, Vidya, and Francis are other business unit heads, asking every month for more people. There are too many demands! Not everyone can get priority. Who wins? Who loses?

Anne’s logical response is to setup hurdles to limit demand from Fred and others. Write me a business case! Get sign off from 5 people! Stick to the process!

And because it’s taking up so much time to run these processes, she hires a manager or two as well.

No one is truly responsible

EdCo may say that Fred is responsible for the Primary School business. But without real authority over the people needed, is he really responsible? The University business might have a crisis, causing Anne to pull a couple key engineers away from Primary School, which in turn misses its targets. Who’s responsible? It’s no one’s fault. It’s the system’s fault.

There has to be a better way

Entire man-hours get sunk into managing each other. And no one really controls the outcome. It’s a bit soul destroying – to put so much energy into solving issues of our own making.

Now imagine putting that energy into serving customers. Solving their problems, not your process. Outmaneuvering competitors.

This isn’t just the stuff of five person startups. It’s how larger companies should be. They just need to organize differently.

GS Dun works with existing companies to launch and build new ventures. Our name is short for “get sh** done”, so while we can talk the talk, we prefer to keep our meetings short and just get on with it.

Setting up teams to get sh** done: the 80% Rule

Years ago, I was stuck in a long-ass meeting. The sort of big company meeting with a dozen people sitting around a long table. I was both bored and frustrated. “We have a lot of smart people in here – and we’re not going anywhere.”

The meeting might euphemistically be called “building consensus”. But really it was teams butting heads, pushing their agendas. And it was a waste of time and talent.

But how could we avoid it? Isn’t regular impasse an inevitable part of large company life?

No, it isn’t inevitable. After many years working with companies big and small, it is clear to me now that organizational structure is at the root of these deadlock situations.

The problem is organizing by function. Consider that the toughest challenges for any company are multifunctional. Organizing by function leaves no one with enough control to tackle these situations. It’s like the separation of powers in American government. While this is great for preventing acts of tyranny, it is crap for a company taking actions of decisiveness.

Rather than organize by function, companies should organize by “mission”. This means setting up teams based on serving customers, external or internal. And making them mostly self-contained.

To put it more succinctly, here’s the 80% Rule for Designing Teams.

Each team should be equipped with the resources and authority to deliver 80% of their mission without outside dependency.

Think back to the last time your company faced an urgent situation: Christmas sales season, a major product launch, a PR disaster. Everyone likely got together, regardless of their team, and pulled together.¹ The key organizational ingredients were that a) everything needed to tackle the problem was in the room and b) there was a clarity of purpose at that moment.

Best of all, there was probably a bit of thrill, despite the pressure and stress. That was the thrill of getting sh** done.

The aim of the 80% Rule is to make sure you and your teams feel that thrill every day.

The next several posts in this blog will explain this in more detail.

  1. Organizing by function creates overhead you don’t need
  2. Litmus tests: are your teams set up well or badly?
  3. Functional organization can sometimes be good for you
  4. Summary: responsibility and authority should sit together

¹ Or maybe they didn’t, the company went under and you’re now looking for a job. Ouch. My sympathies.

GS Dun works with existing companies to launch and build new ventures. Our name is short for “get sh** done”, so while we can talk the talk, we prefer to keep our meetings short and just get on with it.