Every Agile pilot team eventually bump up against other non-Agile teams. Maybe they have a shared resource that's scarce, or maybe the rely on other teams to complete their work.
Whatever the scenario, at some point they'll have to answer the question: do we need to change our organizational structure?
In most cases, yes you should.
However, every Agile organization will eventually come to a point where, in order to reap the full benefits of Agile, they need to spice up their structure by leaving hierarchical management behind. Some team structures simply work better than others.
Organizational structures typically align to common management approaches. One of the most common org charts looks like a pyramid, with C-level executives at the top followed by middle management and everyone else.
The problem is, this hierarchical organizational structure is not really compatible with Agile ways of working. Often it comes saddled with unnecessary bureaucracy, silos, communication barriers, controlled and unequal employee treatment, and no room for collaboration. So what should you do?
Before you blow up your org chart completely, there are other important steps you need to take on your Agile journey.
The first step in determining what kind of organizational structure you need and how to make that transition, is understanding how others have handled those exact questions. Below, we break down many Agile organizational structure examples and show you how you can more effectively adapt yours.
Agile vs. Traditional Organizational Structures
Understanding the difference between these structures starts with understanding how Agile and traditional companies function differently.
Traditional companies are defined by their siloes, rigidity, and hierarchy. Systems in traditional organizations are resistant to change, don’t adapt quickly, and generate endless frustration.
By contrast, Agile organizations are based around quick learning and decision-making cycles. They foster a common purpose, using transparency and visibility to empower teams to make better decisions. In the process, they constantly strive for the right balance between speed and adaptability, as well as stability and efficiency.
So what transition do you need to make to achieve this Agile way of working? In short, it’s a shift to thinking about organizations as “organisms” instead of “machines.” (Image adapted from McKinsey.)
“Machine” Organizations Require Individuals Be Aligned to Managers
The idea behind a machine-like organization is that executives and investors expect staff to operate with minimal emotion and a high feeling of control. This arose during the industrial revolution of the 19th century, and it’s no exaggeration to say that these “machine organizations” transformed the world.
Closed systems, standardization, and orderly relationships between defined pieces are important to organizations that use a mechanical approach. Executives often make decisions at the top of the hierarchy, which are then transmitted down the chain of command.
Great examples of machine-like organizations are automobile manufacturers such as Ford, steel companies, and large government organizations.
Machine organizations work great if the environment around them is stable and predictable, and if efficiency is a key driver of success. In the 21st century, however, neither of these conditions is common.
“Organism” Organizations Require Teams Be Aligned to Goals
The phrase organizations like organisms isn’t random; similar behaviors are observed in nature. For example, a flock of birds or a shoal of fish adapt and react to changes in their environment as one highly synchronized being.
On an organizational level, this means looking at the Agile organization as a whole, knowing that value comes from the relationships between different elements within it. In order to maximize those relationships and the value they produce, we need to use a holistic approach rather than a hierarchical one.
According to Complex Adaptive System theory, the organization is viewed as a constantly changing living organism in which different sections are interconnected and change is emergent. Thus, this organization strategy is driven by the constant change in our environment.
This kind of system is in a constant self-organized flux, where each part of the Agile organization is able to adapt to changing situations autonomously. Leadership shows direction and enables action.
Instead of hierarchical silos, teams are focused on action, connected around common goals and end-to-end accountability. To do so, they concentrate on brief feedback loops, which are critical for organizational flexibility and evolution.
Machine-like and organism-like organizations are some of the most common concepts to define your structure. Each of them responds to different needs and has its pros and cons. In terms of agility, organizations like organisms tend to fit better with the Agile mindset, values, and principles.
From Functional to Cross-Functional
What makes an organization function like an organism or machine is the teams and their processes inside of it. They can be functional or cross-functional; both have their place in the Agile picture. Let's see where they fit.
A cross-functional team is a group of people with different functional expertise working toward a common goal. For example, functional teams include finance, marketing, operations, and human resources departments.
Team members from various vertical levels of the organizational structure establish functional teams to execute certain organizational initiatives. Usually, they have various tasks, but they all work to complete the same departmental function.
The biggest shift in Agile organizations is moving to cross-functional teams for better results.
Cross-functional teams on an organizational level are formations of team members from different departments within a company such as marketing, product development, quality assurance, sales, and finance. Together, they collaborate to achieve a common goal. It can look something like this:
On the other hand, there’s cross-functionality on the department level as well. In particular, cross-functional marketing teams can be formed by bringing together experts from different disciplines within the department.
This helps teams to be more self-sufficient and to stay together as a cohesive group in the long term.
Depending on your organization's level of Agile maturity and the appetite for change, you may want to start with cross-functional teams within each department before jumping to teams that span multiple departments. Both steps will increase adaptability, as well as the speed with which you can deliver value to customers.
The Role of Functional Teams in an Agile Organization
Functional teams also have a place in an Agile organization, just not in the way you might think. You can have functional groups that act as shared services teams.
Shared services teams are used by businesses to concentrate and integrate several units' operations. These teams can assist sales, marketing, finance, legal, and other departments.
Some reasons to implement them in the Agile organization structure can be that you don’t have enough of this skill to distribute in cross-functional teams, or you don’t need these functional experts the entire time.
Shared services members can be assigned to an Agile project for a limited duration. As a result, Agile teams work together to create products that are collaborative, rapid, and high-quality. It also enhances the flow, which can produce more corporate value by operating collectively.
Embedding shared services teams also allows information to be transferred, decreasing the need for specific expertise.
From Hierarchical to Flat Structure
Organizations with a hierarchical structure are prone to bureaucracy, as well as communication silos and a lack of cross-departmental collaboration. Bureaucracy can also create bottlenecks that stifle innovation and make it difficult to complete tasks efficiently.
Transforming a highly hierarchical organization into a flat organization is known as delayering. Many large institutions like Spotify, Amazon, Google, etc. have experimented and adopted such Agile organizational models.
Agile organizations are designed to be fast, resilient, and adaptable. One of the common reasons for an Agile transformation is to create a shorter time to market.
That’s why delayering is an essential step to achieve faster delivery.
This can be achieved by cutting down at least one management level and creating functional and cross-functional teams.
A flat organizational structure (also known as a horizontal organization) is one in which there are few or no tiers of middle management between executives and employees.
There are several great advantages of flat structure, such as making the business more responsive to change due to the reduction of layers of management and increasing the employees' level of responsibility in the Agile organization.
In addition, delayering removes excess layers of management and improves the coordination and speed of communication between employees.
The Role of Chapters in an Agile Organization
When we move to cross-functional team structures, individual contributors' connection to their specialty can get lost. That's why Agile organizations introduce Chapters.
These groups have rich skill sets in specific areas and collaborate to improve those functional skillsets. Chapter participants work with their core cross-functional team, but they’re also part of a chapter where they’re able to knowledge-share and ensure consistency across teams.
Also keep in mind that individual contributors should remain focused on their areas of expertise, even if they are serving their cross-functional team first.
For example, Spotify implements Chapters as visualized below:
In addition, chapters help senior experts evaluate more junior members, even if they aren't in their cross-functional core team. Cross-functional Agile organizations can make 360 evaluations of visibility into performance, perception, and proficiency by collecting feedback from employees at different levels and in various departments. These 360 assessments are a growth tool and a method to increase employee self-awareness.
When most companies begin to implement Agile, they tend to concentrate on teams. To get them up and running according to the Agile mindset, time and effort are spent ensuring the Product Owner and Scrum Master roles are established and supported.
Sometimes, the Chapter Lead's role is brushed off and not well understood. This can lead to conflicts and a lack of clear accountability. Make sure your structure and roles are defined and understood across the organization.
Stable, Persistent Teams vs. Project Teams
In Agile structures, cross-functional teams get together and stay together longer than in a traditional organization.
In traditional organizations, teams are formed for a project, and when a project is over they disband. This doesn’t allow them to improve over time and reach a high level of performance.
In Agile organizations, teams will stay together around a goal and receive different projects related to this goal. Over time, they become more high-performing and build good rapport, becoming a more efficient group.
Start Small, Test Smart, Grow Fast
Steadily, traditional organizations are shifting towards a more flat and Agile structure.
If you think your organization could benefit from making this shift, be sure approach your Agile transformation with the end in mind, and a good idea of how to test into the destination. Most Agile transformations don’t happen overnight, so you don’t need to rush into flipping your org structure.
The best way to approach the transition is by crafting a pilot to test the waters and then loop more teams in as you figure out what works.
Transforming the organizational culture and structure can only support your Agile ways of functioning. Aligning with the adaptive Agile mindset comes from the team level and works its way out to the whole organization.
Shifting the whole organizational structure calls for responsible and informed strategy. Sometimes, finding all the right tools and making countless decisions is overwhelming. You can relieve some of the pressure around this big transition by enrolling in a special course on Business Agility designed by experts to support your journey to ultimate agility.