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When should you change your organization structure?

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Under what scenarios and conditions is it appropriate to change the organization structure?

Organization structure is one of the important aspects a founder or CEO should think about. This applies not only when the company is growing and employees are increasing in number, but also in the very early stages, when there are only a handful of people in the company. While a great structure, by itself, may not ensure success, it can improve the odds.

However, my hypothesis is that changes to organization structure are typically reactive. While I don’t have hard data regarding this, (if anyone does, please let me know in the comments), this is based on my experience working at a growth stage company and also some of the cases we have studied at HBS. For example, organization structure gets attention when important initiatives or products fail or when senior leaders are replaced. Since organization structure changes affect people directly and significantly, the general tendency is to not change until it’s absolutely necessary (which leads to being reactive). In a case we discussed in class, when the organization structure in a company was changed 4 times in 2 years, the initial reaction of most of the class was negative.

In the interest of being proactive, founders and CEOs should consider changing (or at least evaluate) the organization structure when the scenarios below arise. Even if they are being reactive, evaluating if the scenarios below are true can help them get clarity on whether it’s the right time to change the structure.

  1. When the current structure was not thoughtfully and deliberately decided

Organization structure decisions may not always be thoughtful, especially in the early stages. For example, founders and other employees may initially just divide work functionally, and before they realize the consequences, a functional organization is formed.

In such cases, the existing structure should definitely be evaluated thoughtfully and changed if required.

  1. When the current structure does not support what the company needs for the next stage of growth

There are times when a company needs to get a single product right. There are times when there is product-market fit but the company needs other functions (e.g. operations, marketing, sales) to execute well to take the product to market. There are times when a company needs to simultaneously build multiple products that are at different stages. There are times when different strategies are required for different geographies (e.g. aggressive expansion in one and profitable and sustainable operations in another).

Each of these cases may require different organization structures. Founders and CEOs should consciously decide what is absolutely needed for the next stage of growth and change the structure if it is not aligned with these needs. Organization structure has tradeoffs and knowing what is absolutely needed can help decide if the structure should be changed.

  1. When the change is appropriate given the nature of the people in the company

Since organization structure affects people directly, an important consideration should be the nature of the people in the company. For example, there are times when people in the company are comfortable with uncertainty or frequent changes in structure (typically in early stages). There are also times when people want stability and certainty in their reporting structure. Founders and CEOs should be cognizant of the people in the organization as they evaluate whether a change is appropriate. For example, changing an organization structure 4 times in 2 years may still work if the employees are comfortable with that change.

  1. When other aspects such as technology are in place to support the change

Organization structure decisions should not be made in isolation. For example, having a product-based organization does not work well if the underlying architecture and technology does not support multiple product teams working independently on the same code base. Founders and CEOs should ensure other functions and capabilities are in place to support the change. If not, they should enable those changes and only execute the change when the new structure can actually function.

What do you think? Are there other scenarios or conditions that can help founders and CEOs determine if it’s the right time to change the organization structure?

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