Introducing the Lean Team Organization

Why a New Organizational Structure?

Over the last 15+ years I have worked in most of the existing organizational structures currently known. This includes the line, matrix and project organization and numerous kinds of hybrid structures.

In technology companies which operate in a fast moving and a highly complex environment, all these classical structures are a setup for failure. Originally, they all were designed and chosen to provide more efficiency by separated and specialized disciplines. The price to pay for such specialization is the inability to stay innovative. This becomes especially visible when politics prevent the organization from moving forward or when silo building is used as an excuse for not seeing the complete picture. Another indication that the ability to innovate has been lost is the fight for resources in an environment where too many projects run in parallel and where it is never possible to equip them with a reasonable amount of people. I call this “filling the holes” by creating new holes. The result is that management and employees become frustrated and, more importantly, customer schedules repeatedly slip. Worst of all, this environment leads to the degrading of the product quality and starts a vicious circle.

The standard behavior of companies which recognize this is the call for an agile concept. Usually, the traditional organizational structure remains untouched or, sometimes, it translates from one classical structure to another. The outcome is just more complexity during the transformation and lower probability to succeed. After several months of transformation to an agile mindset (and hoping for the best), it becomes evident that the organizational efficiency is worse than before and, unofficially, the working behavior falls back to the old approach. For me, this is no surprise at all because old departments and silo thinking has never been removed and is still inherently built into the organizational structure.

The Lean Team Organization

I propose to tackle this problem by its roots. I believe that it is time to use a completely new organizational structure which is built in such a way that it focuses naturally on the following two goals:

  • Provide customer value
  • Continuously stay innovative

 

First, in order to provide customer value, the structure should align on the product provided to the customer instead of building departments. They lay the foundation for silo thinking and prevent multi-discipline developments.

Second, to remain innovative it is essential that there is enough freedom to experiment. New ideas must be openly discussed within many different disciplines. In other words, the creative mind needs new and open discussions instead of silo thinking. A McKinsey survey found out that 84% of worldwide executives believe that innovation is extremely important for their business but only 6% are satisfied with their innovation performance (“The eight essentials of innovation”, McKinsey, April 2015). I state that this is related to current company structures which support mono-environments (dedicated departments) instead of heterogeneous environments where new ideas flourish and innovation is created. To keep innovation high, it is essential to have cross-functional teams.

Based on this idea I propose the Lean Team Organization (LTO).

Don’t get me wrong, I don’t want to throw away any of the existing organization structures completely. There might be companies which make use of them very successfully. However, in case your organization provides innovative products and you must rely on doing so in the future, you might think of re-organizing into a Lean Team Organization (LTO). Some areas of your company might not be touched by the LTO, e.g. the production facility where the target is to build hundreds of units with the same quality standards. A lot of good and proven approaches are available and should be used. Also, company internal support structures like Human Resources or IT departments might be better off with a line organization.

The Lean Team Organization replaces departments which are primarily and secondarily responsible for innovation. Namely, the R&D departments, Product/Portfolio departments, Purchasing departments, Quality departments and Service departments. They are replaced with the following cross-functional teams:

  • Product Owner Team (POT)
  • Feature Innovation Teams (FIT)
  • Feature Optimization Teams (FOT)
  • Product Portfolio Team (PPT) – optional
  • Workflow Teams (WFT) – optional
  • Product Service Teams (PST) – optional

Three teams build the core of the Lean Team Organization. They are linked together and form the center of innovation and customer value creation. Namely, the Product Owner Team (POT), the Feature Innovation Teams (FIT) and the Feature Optimization Teams (FOT). The idea relates to the Lean Startup approach described by Eric Ries and more practically put in place by Ash Maurya in his excellent book „Running Lean“ (ISBN: 978-1449305178). But I go even further. Maurya/Ries don’t talk about the underlying organizational structures. I believe behavior follows structure. Therefore, it is essential to build the company structure around cross-functional teams and completely eliminate the so-called innovation departments.

The following picture shows a generic Lean Team Organization organigram. The must-have-teams are highlighted in orange. The optional teams are highlighted in blue and the elements which remain in their classical form are in black.

Generic Lean Team Organization

Product Owner Team (POT)

The Product Owner Team (POT) provides the vision for a new product. Members are the product manager, the leads of the FI/FO-Teams, marketing & sales, controlling and eventually legal and logistics. The POT does not develop the product directly but provides an outside view in order to decide whether the product provides customer value or not. In other words, the main objective of the POT is to guide the Feature Innovation Teams / Feature Optimization Teams and decide when to pivot or persevere. For every product only one Product Owner Team (POT) exists.

Product Owner Team (POT)

The Product Owner Team (POT) provides the vision for a new product. Members are the product manager, the leads of the FI/FO-Teams, marketing & sales, controlling and eventually legal and logistics. The POT does not develop the product directly but provides an outside view in order to decide whether the product provides customer value or not. In other words, the main objective of the POT is to guide the Feature Innovation Teams / Feature Optimization Teams and decide when to pivot or persevere. For every product only one Product Owner Team (POT) exists.

Feature Innovation Team (FIT)

The Feature Innovation Team (FIT) is responsible for innovating and validating new ideas in the market. The team consists e.g. of a mechanical engineer, electrical engineer, software engineer, technician, vision engineer, purchaser and other individuals who represent a specific discipline needed to build the product. The Feature Innovation Team builds a minimum viable product to validate new features quickly. This is done through a validated learning process. The goal is to find the best problem/solution fit. I refer to the terms and procedures defined by Eric Ries („The Lean Startup“, ISBN: 978-1524762407, Oct. 2017) and Ash Maurya („Running Lean“, ISBN: 978-1449305178). The process of validated learning is described as the implementation of a new feature combined with the validation of whether the customer finds it valuable or not. Only if key performance indicators clearly indicate that the new feature solves the problem sufficiently, it is approved, and the team continues to refine it. If the market does not find the new feature valuable, the feature is removed. The target customer market is the “early adopter” market (see “Crossing the Chasm” by Geoffrey A. Moore, ISBN: 978-0062353948).

Optional Teams

Once the organization has matured, three other teams are recommended to keep the FI/FO-Teams and the Product Owner Team productive. These teams are called the Product Portfolio Team (PPT), the Workflow Team (WFT) and the Product Service Team (PST). Let me explain these teams briefly.

The Product Portfolio Team (PPT) consolidates the individual product visions to an overall company and product portfolio vision. The team consists of the product managers of related POTs and the leads of all other teams working for this portfolio. The PPTs responsibility is to decide when to create a new team for the portfolio and which POT this team reports to. Another responsibility of the PPT is to consolidate features across different products of the same portfolio and to decide which product to end or which new product to launch.

The objective of the Workflow Team (WFT) is to build and refine the infrastructure used by the teams. They should be able to work seamlessly and as fast as possible. The Workflow Team regularly aligns with teams to find and solve difficulties they might have. The Workflow Team can negotiate specific supplier agreements in order to provide parts quickly to the teams, if physical parts are needed during the development. The Workflow Team also takes care of tools and equipment used for the development (e.g. CAD tools, Software Development Environments, Test racks, Test equipment, etc.) as well as design guidelines. Team members of the WFT are again from different disciplines and build a cross-functional unit.

I am aware that creating a Workflow Team is considered luxury in a startup condition, but it is essential for bigger companies. It is difficult to define a measure of when to establish WFTs. It depends on the business success and the maturity of the company but also on availability of resources.

The Product Service Team (PST) is needed as soon as the quantity of products in the market increases and the FO-Teams cannot continue to support customer requests directly. If they still did, no optimization on the products would be possible. As with all other teams, a cross-functional membership is needed to make Product Service Team work efficiently. When to setup a PST depends on the business success, the number of products in the market and the amount of customer support needed. Additionally, it makes sense for each PST to support a whole product portfolio instead of only one single product. Again, this depends on the product itself and the real support needed.

Differences between the Lean Team Organization and the traditional organization

The main difference of the LTO structure compared with any traditional structure is the absence of specialized departments and the introduction of cross-functional teams. The major advantage of these teams is that individuals can clearly identify with them in contrast to traditional structures where individual are assigned to their department and multiple teams simultaneously. These multiple assignments make it difficult for people to really connect and engage with one group. More precisely there are at least two issues with the traditional concept. First, it is up to the individual to decide which group is the main focal point. Secondly, the assignments to a multi-diciplined team are usually only temporal. This is indicated as dotted lines in the organigram. Department members are indicated as a straight line in the organigram. One should note the commonly used terms straight line and dotted line which imply that individuals are considered to have a strong connection to their department and a rather lose connection to the team. In such a setup humans instinctively bias their engagement towards their department, which is the opposite of what we want in order to create efficiency and a make-it-happen spirit.

The Lean Team Organization instead clearly assigns individuals to one and only one team. Responsibility and accountability are clearly assigned to this team and its members. There are no dotted lines. Individuals fully engage and identify themselves with their team. Futhermore, every member adds different skills and know-how to the team and the team becomes a cross-functional one. These cross-functional teams are the perfect hotbed for innovation and new ideas.

The second difference is how work is distributed inside the structure. In a Lean Team Organization, teams are truly teams and stay together. Therefore, products and individual features have to be assigned to teams. Be aware that this is fundamentally different to any traditional organizational structure where people are pulled into existing teams on-demand to develop features and released again to their department as soon as the feature has been implemented. The LTO requires teams to stay together, no matter which features are to be implemented or which product is assigned to them. Doing so paves the ground for teams to become efficient, productive and enthusiastic. In other words, the LTO creates a culture of employee engagement.

People assigned to features (classical) vs. features assigned to teams (LTO)

The third difference in an LTO structure is that dedicated projects and project managers are not needed anymore. The Product Owner Team takes over these tasks of project management and, when features are assigned to the Feature Innovation Team or Feature Optimization Team, it is self-organized and responsible to implement them. The FI/FO-Team is also responsible for providing data to the Product Owner Team, which clearly shows that the feature increased customer value. Regular alignments between POT and FI/FO-Teams guarantee that the overall cost, time and quality targets are met.

Finally, the Lean Team Organization does not require any kind of product development process. The product itself is constantly enhanced and validated. Forget about the one and only product version in the market. Using the Lean Team Organization several minimal viable products together with released products are simultaneously in the market and constantly undergo the validated learning process. The typical development process which starts with a concept, followed by an ALPHA prototype, BETA prototype, first series and final serial production is no longer relevant. At any point in time, multiple versions of one product are in the market. Look at your current development process. Chances are high that this is what you practise anyway in your classical organization. If you analyse in more detail why the dedicated phase gates must be prepared, you come to the conclusion that they are in place to accommodate internal budget assignments between departments or to provide a status to upper management. Realistically, the phase gates of a classical organization don’t say anything about the customer value of the product and whether it is still in the early adopter market or already able to scale into the mass market. Another advantage is time-to-market. As one can see in the comparison of a classical organization with phase gates and the Lean Team Organization below, the time until a first product hits the customer, is reduced from several quarters to just a couple of months (or even less, depending on the product itself).

Product Life Cycle comparison between LTO and classical organization

In this post I have explained the essence of the Lean Team Organization which I believe is a new organizational structure ready to support companies in the 21st century.

Now, I would like to start a discussion with you about it. Do you agree with my idea? Is your organization already structured this way? Do you see any issues to use this structure in your company?

I appreciate any comments.

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