Concepts of Prioritization — Chapter 5

Chapter 5— The Effect of Organizational Structure on Prioritization

Organizational structure has a huge influence on prioritization. The reason being prioritization is an act of decision making and effective organizational structures allow for effective decision makings. Structure of an organization, at its fundamentals, is the way an organization makes decisions. If you simply explain how various decisions are made to another person, you would have effectively conveyed your company’s organization structure.

While this is an advanced chapter, understanding this chapter helps one to understand the concepts of prioritization much better.

5.0 Types of Organizational structures

5.1 Functional structure

5.2 Divisional Organizational Structure

5.3 Comparison of Functional and Divisional Structures

5.4 Hybrid Organizational Structures

5.5 Other Organizational Structures

5.6 The two governing laws of prioritization

5.0 Types of Organizational structures

Historically, organizational structures have been categorized into 4 types — functional, multi-divisional, flat, and matrix structure. There are many more types such as swarm, circular, and network structures, which we will address in later chapters.

One key thing to note is that no organization is purely a functional or divisional, most of the organizations have a hybrid model where some teams are functional and some are divisional. Functional teams usually have higher TAT on decision making but help in better resource utilisation and Divisional teams have a common objective and have faster decision making but may have lower utilisation as the resources in the division are solely focused on the division’s objectives.

In this chapter, we will take two structures— a functional and a divisional team and understand the organizational structure’s impact on decision making and ultimately on prioritization.

5.1 Functional structure

A functional organizational structure groups employees based on their areas of expertise or function within the company. This structure is typically hierarchical, with a clear chain of command and reporting lines. Each function, such as marketing, finance, or engineering, is headed by a functional manager who oversees a team of specialists in that area.

5.1.1 Characteristics and Benefits of Functional Teams

Functional teams are characterized by their focus on specialized tasks and their clear reporting lines. Each employee is an expert in their particular area, which leads to higher quality work and faster completion times for projects. Functional teams are also efficient in their resource utilisation since each team member can be allocated to the most appropriate project or task based on their skillset. Additionally, functional teams allow for easier identification and resolution of issues since each area of the company has a clearly defined owner.

5.1.2 Decision-making Process in Functional Teams

Decision-making in functional teams is typically top-down, with the functional manager making decisions and delegating tasks to team members based on their expertise. This can lead to slower decision-making since there are more layers of approval needed before a decision is made. However, this approach is often more thorough and can lead to better decisions since multiple experts are involved in the decision-making process.

5.1.3 Impact of Functional Structure on Prioritization

The impact of a functional structure on prioritization is significant. Since functional teams are focused on their specific areas of expertise, their priorities will reflect those areas. For example, the marketing team’s priority will be to create effective marketing campaigns, while the engineering team’s priority will be to design and develop new products.

However, in a functional structure, it can be difficult to prioritize projects that involve multiple areas of the company. This can lead to conflicts between functional teams when resources are needed for competing projects. In this case, a project manager or cross-functional team may be needed to prioritize and coordinate projects across multiple functions.

Overall, the functional structure can be effective for companies with clearly defined areas of expertise, but may struggle when it comes to prioritizing projects that involve multiple functions.

For effective prioritization to happen in functional structure or what I’d like to call centralized decision making unit, A clear priority of objectives, not just objectives, but prioritized objectives have to be given to the functional unit. Only then, the functional unit can allocate resources to highest priority objective first and to the next and so on.

Example 1: Product team is not present and the company has only functional teams

Here’s an example of how multiple product feature enhancements from different divisions might be prioritized by a common functional engineering department:

Let’s say that a company has three divisions: marketing, sales, and customer support. Each division has identified a new feature enhancement that they would like to see added to the company’s product. The marketing division wants to add a new social media integration feature, the sales division wants to add a new customer relationship management (CRM) feature, and the customer support division wants to add a new chatbot feature.

The functional engineering department, which is responsible for developing and implementing these features, would first need to evaluate the feasibility and potential impact of each feature. They would assess the technical requirements, development timelines, and resource needs for each feature.

Based on this evaluation, the functional engineering department would then work with the company’s leadership team to prioritize the features based on their potential impact on the company’s goals and objectives. They might consider factors such as customer demand, revenue potential, and strategic alignment with the company’s overall vision.

In this example, let’s say that the functional engineering department determines that the CRM feature has the highest potential impact on the company’s sales and revenue goals, followed by the social media integration feature and then the chatbot feature. Based on this prioritization, the functional engineering department would allocate resources and development efforts accordingly, with a focus on delivering the CRM feature first, followed by the other features in order of priority.

Example 2: Product team is one of the teams providing feature requests to engineering

The marketing team submits a request to add a new feature to the product that would improve its overall user experience and make it more competitive in the market. The feature would require significant changes to the user interface and user flow.

The sales team submits a request to add a new feature to the product that would make it more appealing to enterprise customers. The feature would require integrating the product with third-party enterprise software and would need to meet certain security and compliance requirements.

The product team submits a request to add a new feature to the product that would streamline the product’s core functionality and improve its scalability. The feature would require significant changes to the product’s backend architecture.

The functional engineering department reviews each request and considers the impact of each feature on the product’s overall performance, scalability, and user experience.

Based on the potential impact and the complexity of each feature, the engineering department creates a prioritized list of enhancements. In this case, they may prioritize the product team’s request for scalability improvements, as it would have the greatest impact on the product’s long-term success. Next, they may prioritize the marketing team’s request for user experience improvements, as this would help keep the product competitive in the market. Finally, they may prioritize the sales team’s request for enterprise integration, as it would be important to meet the needs of a key customer segment.

The engineering department works with each team to define the requirements and timelines for each feature, and then allocates resources accordingly to ensure that each enhancement is implemented successfully.

Example 3: All the requirements are routed through Product team

1. The product team receives feature enhancement requests from the marketing, sales, and product teams. These requests are evaluated based on their impact on the product roadmap, user needs, and business objectives.
2. The product team then works with the engineering department to assess the feasibility of each request, taking into account technical requirements, resource availability, and potential impact on existing features.
3. Based on this evaluation, the product team and engineering department collaborate to prioritize the feature enhancement requests. The highest priority requests are those that align most closely with the product roadmap, user needs, and business objectives, and are also technically feasible and have sufficient resources to be implemented.
4. The prioritized list of feature enhancement requests is then presented to the various requesting teams (marketing, sales, and product) for review and feedback. This helps ensure that the requests are still relevant and aligned with their goals.
5. Finally, the product team and engineering department work together to create a detailed plan for implementing the prioritized feature enhancements, taking into account timelines, resource allocation, and potential impact on other projects.

Overall, the key to successfully prioritizing multiple product feature enhancements from different divisions is to have a clear and transparent process for evaluating requests, assessing feasibility, and prioritizing based on product roadmap, user needs, and business objectives. Communication and collaboration between the product team and engineering department, as well as with the various requesting teams, are also critical for ensuring that everyone is aligned and that the most important requests are given top priority.

5.1.4 Real-world examples of companies using functional structures:

• Coca-Cola: The company is organized into functional areas such as marketing, finance, and human resources.
• General Electric: The company has several business units, each with its own functional teams.

5.2 Divisional Organizational Structure

In a divisional organizational structure, the company is organized into self-contained divisions, each with its own set of functional units, such as marketing, finance, and operations. These divisions are usually organized around specific products, regions, or customer groups. The divisional structure allows each division to function as a separate entity, with its own set of goals, strategies, and resources.

5.2.1 Characteristics and Benefits of Divisional Teams

One of the main benefits of a divisional structure is that it allows for greater flexibility and responsiveness to changes in the external environment. Each division can adapt to changes in the market, customer needs, and competition in its own unique way. This also allows for a greater degree of innovation and creativity, as each division is encouraged to come up with its own unique solutions to problems.

Another benefit of a divisional structure is that it allows for a clearer line of sight between the division’s activities and its performance. This can help to motivate employees and create a sense of ownership and accountability within each division. In addition, the divisional structure can also help to reduce bureaucracy and improve communication within the organization.

5.2.2 Decision-making Process in Divisional Teams

The decision-making process in a divisional team is usually faster and more streamlined than in a functional team, as there are fewer layers of hierarchy and a greater degree of autonomy. Decisions are made by the divisional manager, who has responsibility for the overall performance of the division. However, divisional managers may consult with functional experts within the division, such as marketing or finance, to ensure that decisions are well-informed.

5.2.3 Impact of Divisional Structure on Prioritization:

The impact of the divisional structure on prioritization is that each division is focused on achieving its own specific goals and objectives, which may not always align with the goals of the organization as a whole. This can lead to a situation where different divisions are competing for resources and attention, and there may be a lack of coordination between the different parts of the organization.

For example, imagine a company that has two divisions, one focused on developing new products and the other focused on selling existing products. The product development division may prioritize research and development activities, while the sales division may prioritize marketing and distribution activities. This can lead to a situation where the company is not effectively prioritizing its resources, and may not be able to achieve its overall strategic objectives.

In summary, while the divisional structure can provide many benefits, such as greater flexibility and responsiveness, it can also create challenges in terms of coordination and prioritization. It is important for organizations to have effective communication and decision-making processes in place to ensure that each division is aligned with the overall goals of the organization.

For effective prioritization to happen in divisional units, clear methodology to assess impact of a project to be available so that they can assign resources first to the highest impact project first and to the next and so on

Example

Imagine a large technology company that has several divisions, each responsible for developing and launching new products in different markets. One division is focused on developing mobile apps for consumers, another on developing enterprise software, and a third on developing hardware devices.

Each division has its own budget, resources, and team, and is responsible for setting its own priorities and goals. However, because the company has limited resources and there may be overlapping interests, the divisions need to work together to ensure that the company’s overall strategic goals are met.

To prioritize projects, each division would evaluate its own set of proposed projects based on factors such as:

Based on individual division’s objectives, each division would prioritize its projects and submit them to the company’s executive team for review. The executive team would then evaluate the projects based on their strategic fit with the company’s overall goals, the resources available, and the potential impact on the company’s financial performance.

The executive team would then work with the divisions to allocate resources and determine which projects to pursue, based on the overall strategic priorities of the company. This process would ensure that the company is able to prioritize its resources effectively and make informed decisions about which products to invest in.

In a pure divisional structure, where each division operates independently, ROI calculation can be an essential tool for prioritizing projects, allocating resources, and evaluating performance.

5.2.4 Real-world examples of companies using Divisional structures:

• Procter & Gamble: The company is organized into several self-contained business units, each with its own teams and products.
• Ford Motor Company: The company is divided into divisions based on regions such as North America, Europe, and Asia-Pacific.

5.3 Comparison of Functional and Divisional Structures

5.3.1 Similarities between Functional and Divisional Structures:

• Both structures aim to create a hierarchical and organized approach to decision-making within an organization.
• Both structures may have teams that work on specific projects or initiatives.
• Both structures may have a clear chain of command and specific roles and responsibilities for team members.

5.3.2 Differences between Functional and Divisional Structures:

5.3.4 Implications for prioritization:

The organizational structure can significantly impact prioritization within an organization. Functional teams may prioritize objectives based on their specific functional area, while divisional teams may prioritize objectives based on their division’s area. Functional teams may be slower in decision-making, but their expertise can lead to more efficient resource allocation. Divisional teams may have faster decision-making but may lack consistency in processes and practices across divisions. Ultimately, the choice of organizational structure depends on the specific needs and goals of the organization, and the structure should be aligned with the organization’s prioritie

5.4 Hybrid Organizational Structures

In reality, many organizations have a mix of functional and divisional structures, leading to a hybrid structure. This is because organizations may have different departments or teams with varying goals and objectives, leading to the need for a hybrid structure to ensure that all teams are aligned towards the overall organizational goals.

5.4.1 Explanation of hybrid structures and why they are common:

Hybrid organizational structures are a combination of two or more types of organizational structures. They can be a combination of functional and divisional structures, or even matrix and network structures. Hybrid structures are common because they provide a balance between the advantages and disadvantages of each structure. This allows organizations to leverage the benefits of each structure while mitigating their disadvantages.

Examples of different types of hybrid structures:

One example of a hybrid structure is a functional structure with cross-functional teams. In this structure, each department operates as a functional structure but also has cross-functional teams that work on specific projects or tasks. Another example is a divisional structure with a matrix overlay. In this structure, the organization has separate divisions but also has matrix teams that cut across different departments to work on specific projects or tasks.

5.4.2 Advantages and disadvantages of hybrid structures:

Advantages of hybrid structures include increased flexibility, better communication and collaboration, and increased innovation. By combining different structures, organizations can create a more dynamic environment that fosters creativity and innovation. However, disadvantages include increased complexity, potential for conflict, and difficulty in maintaining alignment between different teams.

5.4.3 How hybrid structures impact prioritization:

Hybrid structures impact prioritization in a number of ways.

• First, they allow for more flexibility in decision-making as different teams can prioritize their own goals and objectives. This can also lead to potential conflicts between different teams, making it important to establish clear communication channels and decision-making processes.
• Additionally, hybrid structures require more coordination and alignment to ensure that all teams are working towards the same organizational goals.
• Prioritization can also be impacted by the level of autonomy given to each team within the hybrid structure. For example, in a functional structure with cross-functional teams, the cross-functional teams may have more autonomy in prioritizing their tasks and projects compared to the functional teams.

Overall, understanding hybrid structures is important for effective prioritization as it allows organizations to leverage the benefits of different structures while mitigating their disadvantages.

Example

Imagine a company that has a hybrid structure consisting of functional teams and cross-functional teams. The functional teams are organized around specific functions such as marketing, finance, and operations, and each team is responsible for carrying out tasks related to their function. In addition to these functional teams, there are also cross-functional teams that are created to work on specific projects or tasks that require input from multiple functions.

In this scenario, prioritization can be impacted by several factors. For instance, each functional team may prioritize tasks and projects that align with their specific goals and objectives. However, when a cross-functional team is created to work on a project, the priorities of the various functions may need to be coordinated to ensure that the project is completed efficiently.

Additionally, cross-functional teams may be given more autonomy in prioritizing their tasks and projects compared to functional teams. This can create a situation where cross-functional teams may prioritize their projects over functional teams, leading to potential conflicts and competition for resources.

To mitigate these potential conflicts, the organization can establish clear communication channels and decision-making processes to ensure that all teams are working towards the same organizational goals. The organization can also establish a clear methodology for assessing the impact of each project to ensure that resources are allocated to the highest impact projects first.

Overall, the hybrid structure can impact prioritization by creating more flexibility in decision-making and potential conflicts between teams. However, with effective communication and decision-making processes in place, the benefits of the hybrid structure can outweigh its disadvantages.

Example 2

At the highest level, Google has a functional structure, with teams organized around specific functions such as engineering, product management, and sales. However, within these functional teams, there are also cross-functional teams that work on specific projects or initiatives. These teams have more autonomy in decision-making and can prioritize their own goals and objectives.

In addition to the functional structure, Google also has a divisional structure, with separate divisions for different products such as search, YouTube, and Android. Each division is responsible for its own set of goals and objectives and has its own set of functional units such as marketing, finance, and operations.

Finally, Google also has a matrix structure, with employees reporting to both functional managers and project managers. This allows for better communication and collaboration across teams and facilitates the development of new products and initiatives.

This hybrid structure allows Google to leverage the benefits of different organizational structures while mitigating their disadvantages. For example, the functional structure provides stability and consistency, while the cross-functional teams allow for greater flexibility and innovation. The divisional structure allows each product division to operate as a separate entity, while the matrix structure facilitates collaboration and communication across teams. Overall, this hybrid structure allows Google to prioritize effectively and work towards its overall goals while still fostering innovation and creativity.

5.5 Other Organizational Structures

Aside from the functional, divisional, and hybrid structures discussed earlier, there are other types of organizational structures that some companies adopt. While these structures may not be as commonly used as the ones discussed earlier, they are still worth exploring as they can offer unique benefits and challenges.

5.5.1 Swarm Structure

A swarm structure is a type of organizational structure where employees are grouped into temporary, self-organizing teams that work on specific projects or initiatives. This structure is often used by companies that need to respond quickly to changing market conditions or customer needs. Swarm structures are known for their flexibility and agility, as well as their ability to quickly assemble and disassemble teams as needed. However, they can also be challenging to manage as they require a high degree of coordination and communication.

One example of a company using a swarm structure is Gore-Tex, a manufacturer of waterproof and breathable fabrics. Gore-Tex has a flat, team-based structure that allows employees to form self-organizing teams to work on specific projects. This structure allows the company to quickly respond to changing market conditions and customer needs.

Implications on Prioritization: In a swarm structure, projects are typically prioritized based on their urgency or importance, with teams quickly formed and disbanded as needed.

Pros: This structure allows companies to be highly responsive to changing market conditions

Cons: Can lead to a lack of long-term planning and consistency.

5.5.2 Circular Structure

A circular structure is a type of organizational structure where employees are organized around a central team or function. In this structure, decision-making authority is decentralized and teams are empowered to make decisions on their own. This structure is often used by companies that want to promote collaboration and innovation, as it encourages employees to share ideas and work together. However, it can also be challenging to implement as it requires a high degree of trust and communication.

One example of a company using a circular structure is Buurtzorg, a Dutch home healthcare company. Buurtzorg has a decentralized structure where nurses are organized into self-managing teams that are responsible for all aspects of patient care. This structure allows the company to provide personalized care to patients while also promoting innovation and collaboration among its employees.

Implications on Prioritization: In a circular structure, decision-making is decentralized, and teams are empowered to make their own decisions.

Pros: This can promote innovation and collaboration, as teams are encouraged to share ideas and work together.

Cons: However, it can also lead to a lack of coordination and consistency, as different teams may have different priorities and goals.

5.5.3 Network Structure

A network structure is a type of organizational structure where companies are organized around a network of partners, suppliers, and other external stakeholders. This structure is often used by companies that want to leverage the expertise and resources of external partners to achieve their business objectives. Network structures are known for their flexibility and agility, as well as their ability to quickly adapt to changing market conditions. However, they can also be challenging to manage as they require a high degree of coordination and communication.

One example of a company using a network structure is Nike, a global footwear and apparel company. Nike has a decentralized structure where it works closely with a network of suppliers, partners, and other stakeholders to design, develop, and manufacture its products. This structure allows the company to leverage the expertise and resources of its partners while also maintaining a high degree of flexibility and agility.

Implications on prioritization: In a network structure, companies work closely with a network of external partners and stakeholders to achieve their business objectives.

Pros: This can allow companies to leverage the expertise and resources of their partners while also maintaining flexibility and agility.

Cons: However, it can also lead to a lack of control and coordination, as different partners may have different priorities and goals.

Overall, prioritization in these structures often relies on effective communication, coordination, and collaboration. Companies need to establish clear goals and priorities, and ensure that teams are aligned and working towards those goals. Effective communication channels and decision-making processes are also critical to ensure that everyone is working towards the same objectives.

5.6 The two governing laws of prioritization

Considering all of the nuances so far, we boil them down to two fundamental laws:

1. Law of Organizational Prioritization: An organization must establish clear and measurable company-wide prioritized objectives in order to effectively prioritize tasks and projects for functional teams.
2. Law of Divisional ROI: An organization must possess the ability to accurately estimate the ROI of its divisions and their projects to ensure that resources are allocated efficiently and effectively.

5.6 Conclusion

This chapter has explored the different types of organizational structures and how they impact decision-making and prioritization. We began with the functional and divisional structures, which are among the most common types of organizational structures, and discussed their characteristics, benefits, decision-making processes, and impact on prioritization. We also examined hybrid structures, such as matrix and cross-functional teams, which combine aspects of both functional and divisional structures. Furthermore, we looked at other less commonly used structures, such as swarm, circular, team-based, and network structures, and how they impact decision-making and prioritization.

Key takeaways about how organizational structure impacts prioritization:

• Different organizational structures have different decision-making processes, which can impact how priorities are set and how decisions are made.
• Organizational structures can influence how information flows within the organization, which can impact how decisions are made and how priorities are set.
• Organizational structures can impact how resources are allocated, which can impact how priorities are set and how decisions are made.

Implications for managers and leaders in making decisions about organizational structure:

• Managers and leaders should carefully consider the needs and goals of their organization when choosing an organizational structure.
• Leaders should consider how different organizational structures can impact decision-making and prioritize effectively.
• Leaders should ensure that the chosen organizational structure aligns with the organization’s values, culture, and strategy.
• Leaders should continually assess the effectiveness of their chosen organizational structure and make adjustments as necessary.

In conclusion, the choice of organizational structure is a critical decision for managers and leaders as it can have a significant impact on decision-making and prioritization. It is important to choose and keep changing an organizational structure that aligns with the organization’s goals, culture, and values and continually assess its effectiveness to ensure that it supports effective decision-making and prioritization.