Functional vs. Divisional

functional vs divisional

Every month, Aaron and I hold an internal session devoted to collective learning about our evolving Responsive Operating System practice. Just before break, 8 UCers and I spent some time with these two Stratechery posts before the holidays and I took a few notes during the discussion.

Read them:
Why Microsoft’s Reorganization is a Bad Idea
The Uncanny Valley of a Functional Organization

  1. Functional organizations display characteristics of Responsive Operating Systems, while divisional organizations represent a Legacy way of doing business: organizing around core user functions is the first step toward getting it, whether through squads, circles, or some other non-hierarchical method.
  2. Functional organizations prize experts, while divisional organizations require generalists. A few notes here: The CEO has to be an expert at the core work of the business; both experts and generalists are needed, but what’s more important are experts that are willing to learn and do dirty work; organizations don’t become great by passing people around management rotations.
  3. Functional organizations are driven more by vision, while divisional organizations are built around commerce: The only way you can pull off 4, 6, and 7 is through a strong Purpose, as employees must be willing to trade compensation for fulfillment.
  4. Functional organizations require more effort to be put into the work, while divisional organizations require more effort to be put into the politics: What we’re observing is that product- and vision-first companies require more and more taxing hours from each employee; the actual work of the organization is harder, all else being equal.
  5. Functional organizations often need to be physically centralized, where divisional organizations can be easily distributed: This may be why new ways of organizing are difficult to scale, as the physical demands of product- and vision-oriented businesses are unique.
  6. Functional organizations are often smaller than Divisional ones, normalized for revenue: I believe the way we’ll measure success in the future won’t be in terms of profit or growth, but the amount of capital generated per employee.
  7. Functional organizations rely on intrinsic employee motivations, while divisional ones rely on extrinsic motivators: Left to their own devices, I’d wager that professional middle-managers wouldn’t keep managing if they weren’t paid to do so. Do you work for love, or for money?