(2024-06-25) Lenny General Management Functional And Hybrid Models Which Org Design Works Best For Top Companies

General management, functional, and hybrid models: Which org design works best for top companies? Much of your time as a senior leader is spent figuring out how to organize your people. And one of the most common and consequential questions that company leaders face is whether to move to (or from) a GM organizational model.

Today’s guest authors, Rohini Pandhi and Mary Liu, have witnessed firsthand how reorgs transformed the way six different prominent companies operate, including Square, Shopify, Dropbox, Meta, Google, and Mercury.

Late last year, Block (formerly known as Square) made several striking announcements about its org structure. The company laid off about 10% of its headcount and moved Square from a general management (GM)-led organization to a functional model, which was a surprise to most employees and the press. For years, Square’s product and engineering teams had been organized into separate business units, each led by a general manager who owned the business outcomes and related product mandates. Now product and engineering are centralized into functional organizations, where engineering, product, and design discipline leaders co-lead product metrics that drive specific business outcomes.

Jack Dorsey underscored the change to his shareholders: "The past organizational structure was holding us back, slowing us down, and weakening our skills. I want Square to be a leader in engineering and design again. A team people point to as an inspiration, and aspire to join."

While there is no perfect organizational design, the optimal organizational structure involves carefully weighing the pros and cons that align with the company’s current lifecycle, values, and offerings. (see tables)

How company stage informs organizational design

In the early stages, companies almost always adopt the functional structure model. Since general managers are responsible for business P&L, the founder essentially plays the role of a GM. The rest of the organization focuses on finding product-market fit, scaling the core product, or building new product functionality.

To scale the founder’s role, companies consider GM models typically after they have multiple proven product groups, predictable business outcomes, and significant scale. For example, Block transitioned to the GM structure close to its IPO, when it had hundreds of millions in revenue, an extensive portfolio of product groups (e.g. Cash App, Capital, Invoices), and thousands of employees.

About 10 years after founding, Airbnb restructured to a GM-led model when the company was a few thousand employees strong and started expanding beyond accommodations (e.g. experiences)—all of which ran differently and required fast decision-making. Interestingly, after Airbnb divested from these new business bets (as a result of the pandemic), they’ve reverted back to a function-led structure. ((2024-10-28) Airbnb CEO Brian Chesky Says Founder Mode came from Studying Steve Jobs)

In practice, most companies operate in a hybrid model but skew toward the GM or functional mode. Depending on what is needed for specific products and teams to succeed, some parts of the company are GM-led, with P&L accountability, and some are function-led, with product success metrics. The approach marries GM-model advantages in speed and agility with functional-model benefits in product cohesion and organizational alignment.

How product and business model inform organizational structure

Factor A: How close is the product North Star metric to revenue?
The closer your North Star metric is to revenue, the more suited your organization is to a GM model.

For instance, many payments and commerce platforms (e.g. Block, Coinbase, Amazon) have a North Star metric of transaction volume, which directly drives their business topline.

Conversely, companies with product metrics that are a few levels removed from direct revenue impact often work better with functional structures. For example, most ad-based businesses

A hybrid approach could work for companies somewhere in between. For instance, DoorDash’s product and operational metrics are both equally important to business topline and margins, given the incredible complexities of its go-to-market and logistics operations. So the company pairs product leaders alongside GMs. Product leaders are responsible for product growth and engagement, with the typical engineering, product, and design triads. GMs lead go-to-market and operations (e.g. marketing, sales, partnerships, physical micro-fulfillment centers) and have P&L responsibilities. (What does "pair" mean? Does each "product leader" report to its GM? Or do the 2 share a manager? Or separate hierarchies?)

Factor B: How critical is the holistic customer journey to the product’s growth?
Functional models optimize for product growth through cohesive customer journeys. This is especially critical for growth-stage companies. When the customer journey is seamless, organic flywheels emerge. The core product’s reach and distribution enables new products to be surfaced organically in user journeys. Those new products then increase core product stickiness and retention.

For example, Shopify’s core product is a single “back-office” that makes it easy for e-commerce merchants to operate their online store.
The shift from GM to functional model in 2020 made it easier for the company to deliver a seamless merchant experience across the suite of products that are part of the core back-office.

Organizational structure’s downstream impact on teams and talent

Factor A: Can the business support redundant teams?

GM organizations often have redundant staffing across functional disciplines so that business units can operate as independently as possible... functions like compliance, communications, and marketing. They even had separate physical office locations

That said, most GM companies take a hybrid approach. For instance, Coinbase and Intuit both have centralized platform teams alongside GM business units. Platform groups build shared services and infrastructure, especially where there are data network effects (e.g. AI modeling, identity and security) to enable more intelligent and consistent application layers. GM-led business units build platforms and products unique to distinct customer segments, with dedicated resourcing for the business unit to move nimbly.

On the other side of the coin, companies like Meta and Shopify use a hybrid approach to help leaders move quicker within the functional structure. Leaders set company-level priorities and pull together a special task force, with a champion or captain for each priority to drive critical decisions. Those champions are GM-like. They have the vision and strategy chops to consider the end-to-end product journey and business “system.” They influence and debate with their peers and executive teams to win sponsorship and resourcing across various product and business organizations.

Factor B: What type of talent is the company aiming to retain?

In GM organizations, leaders with depth of expertise in one specific domain are crucial, because they are responsible for the success of their business area alone. For example, a GM leader you may consider hiring for an e-commerce lending business would have a vastly different profile than a GM leader focused on building payment infrastructure.

In functional structures, the core engineering, product, and design triad is more fungible and can be placed in various projects that need their discipline expertise, rather than specific business or industry domains. It’s more important to have strong and flexible crafters for a functional structure.

another consideration is talent retention and career ladders.

How many of these "Hybrid" cases are de-facto "Matrix Management?"