Meditations on Organizational Design and Measuring Performance (Part 1)
Thinking out loud about how organizations align with their mission
Here's the setup: There's a medium-sized company with several teams, each focusing on a specific component of a larger product. We can suppose that one team is responsible for finding and onboarding customers, one team is responsible for creating a good user experience once customers arrive, and the last team is responsible for monetizing users by convincing them to spend on premium features.
Each of these teams has a goal, hopefully a goal that can be pursued in parallel, with the ultimate goal of helping the company realize its mission.
What is this company's mission? For simplicity, let's suppose that it is to "maximize its longterm value". This is not the goal for every company, as various circumstances, values, can cause companies to pursue short term goals or to overlook their long term objectives, but it seems like an appropriate starting point. These overall objectives are usually framed as a company's mission, which are typically some declared intent like "organize the world’s information and make it universally accessible and useful" (Google) or "make the world a kinder place" (Nextdoor) or "help people get jobs" (Indeed) or "bring the best user experience to its customers through its innovative hardware, software, and services" (Apple).
How these mission statements cascade into actionable and time-bound plans is somewhere between an art and a science. Decomposing grandiose mission statements into composite parts, and then setting achievable objectives in line with each of these parts, is super challenging, and is the core part of company strategy and organizational design. Evolutions in strategy get reflected through changes in company internals, such as changes in success metrics, reorgs, hiring/firing, etc. At any organization larger than a 10-person team, these are the primary vehicles by which leadership attempts to align the work with the mission.
But this alignment is hard. In our example above, where a small company is divided into three product components, it's easy to imagine edge cases that might confound this division of concerns. For instance, if the onboarding team is goaled on new accounts created, that could lead to the perverse incentive of getting new users who don't go on to use the product, or users who don't exhibit any tendency to spend money. Or, if the team responsible for creating a good experience is goaled on daily active users (DAU) or weekly active users (WAU), that might disincentivize the creation of set-it-and-forget it tooling that helps users or maximizes revenue. Finally, the pressure on the money team to monetize user behavior could result in compromising the non-paid user experience.
The same types of pressures and tensions exist at every organization. The more complex the organization, the more potential for cross-team or cross-org or cross-product tension. Like a fractal, these tensions exist at every level, no matter how far you zoom in or zoom out.
But not all organizations have equal tension, and not all attempts at alignment are doomed to fail. It is possible for organizations to achieve a level of synchronicity between teams. Better organizational alignment produces less friction, less waste, and more surplus value. Worse organizational alignment produces more friction, more waste, and can create pits of lost value. Some degree of internal politics is inevitable at any organization with more than three people, but a potential difference is whether that jockeying for status and territory is associated with value gain or value loss. Better alignment and organizational design results in more value creation.
So, what's the secret to good organizational design? How can an organization choose the right structure, the right metrics, and the right team makeup to achieve its mission?