What is product based division structure?

Product Management Organization Structure: Which One to Choose?

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 had a chance to see various types of organizational structures from the inside. Companies divide their teams according to an individual product feature, customer type, stage of the customer journey, and more. In any case, well-defined roles and sound structure result in effective product teams.

The thing that makes this topic difficult is that there’s no universal answer on how to structure a product management organization. Therefore, in this article, we will discuss different approaches to organizational management structure and figure out what type of product company each approach fits the most.

Approaches to creating a product organization structure

One of the most common challenges that product companies at scale face is how to divide the product/s among product teams. Here are some of the most common ways to do it.

Flat structure

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.

Though, with a flat model, it’s very important 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.”

Functional structure

With a functional structure organization is divided 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 who implements the decisions.

In companies that use a functional model, the product leaders may have more product-focused duties. They may be engaged in developing product strategy, building product roadmap, creating go-to-market strategy, ensuring consistent UI/UX design, and in general 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 particular 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 fact it was a great risk for them. Such innovation was costly and in case 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 and, perhaps, this camera would have been never 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 has its disadvantages too: it increases the bureaucracy and may stifle employees' initiative.

Divisional structure

While in a functional model the company is divided into departments each with its own function, with a divisional structure you create big, self-contained business units (divisions) within your organization that may represent different categories. 

Example of a feature-based divisional structure. Image credit: Aha.io

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 own 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 take a deeper look at some types of the divisional structure.

Product/feature-based

This org structure separates your organization by products, projects, or features. Thus,  you assign one product manager per product/feature who makes sure that teams responsible for a specific product don’t overlook user research, feature prioritization, data analytics, budgeting, and achieve business and product goals. 

Also, it’s important to mention that product managers from different areas should communicate with each other to discuss issues that are common for the whole suite of products.

A product-based structure is mostly used by companies with a wide range of products that are produced 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. As well, 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 org structure helps the company to enable a holistic approach to deliver products to customers. 

Do mind, however, that by applying product/feature-based structure you duplicate resources across business units, which can be costly, with 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 various different 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, but as SevenRooms has grown, it became clear that there are three main types of customers that use the platform: consumers, marketers, and restaurant hosts. Each type of customer uses different product tools and has its own 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.

Using this type of 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.

Metrics-based

One more way to structure your product management is by 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 those companies that have clearly defined metrics that influence the success of their product.

With a metric-based model, the teams have clear objectives of aligning new features with user needs to reach high KPIs. However, it’s not that easy for a company to outline such a set of metrics that is not going to change soon.

Cross-functional structure

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 that 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 market.

Because of the small team size, employees' expertise in different areas, and the freedom of action, the cross-functional organizational structure makes product development more efficient, speeds up the process of exchanging feedback, and releasing updates. And the quicker your team releases the updates, the faster they are able to 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, mind that in case you have a set of interrelated offerings, giving your team the autonomy to make live updates to one product can negatively affect the others. And if you have one complex product with many components that depend on one another, 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 take a look at some well-known companies for whom this structure works great.  

Squad structure by Spotify

Squads at Spotify are small cross-functional teams that consist of 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 for 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 came up with the “two-pizza rule”, which means they keep each internal team small enough to fill up on two pizzas (that is about 6 people in a team).

They believe that 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

At Zapier they have cross-functional teams of 3 to 8 people that work on one specific task. Teams have full autonomy: the responsibility for failures and successes lies only on them.

Though teams work independently, once in a while they have to present their projects to the whole company. It helps to spread the knowledge and keep transparency across the company. 

Evolve your team structure according to your business needs

As you may have understood, product management departments can have different structures and it’s difficult to state which one is the best for your company because all business models are set up differently. Besides, effective organizational structures aren’t static, they tend to change. As soon as it doesn’t satisfy your company's needs, you should reconsider the way you organize your teams.

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 to each your team. Learn what makes a good product manager to cope with this task.

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