Organizing for Complex Times: Divisionality and Modularity
By: Simone Cicero
Tags: Platform, Design, Innovation, Business, Organization

Adopting a Conway’s law lens in the re-shaping of organisations as more work moves online

We often refer to Mel Conway’s law when describing the evolution of platforms: as “organizations that design systems mirror their own communication structure” we normally make it clear that to amplify a post-industrial, networked ecosystem, an organization needs to mould into one.

Lately, there is reason to believe that this phenomenon will take on a new level of importance.

Listening to the seasoned remote development specialist Jason Warner, CTO of GitHub explaining how different communication tools and protocols — often organised asynchronously — enable remote development work to run smoothly, the impact of these choices on the shape of organisations becomes clearer. If we focus on the remote work dimension for a moment, for many lean startups and software development companies, widespread lockdown and “shelter-in-place” orders did not constitute a big break in terms of workflow and organising: a lot was done remotely and asynchronously anyways. On the other hand, for many more traditional players, this new situation radically changed the way work was organised, including the human skills and technologies required. Clear and well-structured communication becomes essential in order to allow teams to carry out their work efficiently, which may further result in increased autonomy and distributed work. This leads us to think that as organisations go fully online and remote this may end up re-shaping them beyond simply a matter of on- or offline work.

In this reflection, we also take inspiration from Leonardo Federico’s article “The Single Most Important Internal Email in the History of Amazon” comparing functional and divisional organizational models, analysing the internal communication structures different companies have opted for that underlie these models. Depicting Amazon as “probably the best-known case of divisional organization” and “one of the clearest case manifestations of Conway’s Law”, Leonardo highlights how the divisional model — where product teams no larger than being fed by two pizzas act as independent entities within the wider organisation — goes hand in hand with its internal communication structure.

“Having teams acting like individual APIs and interacting with one another through interfaces over the network was the catalyst of a series of consequent actions that eventually made possible the realization of AWS in a way that couldn’t have been possible otherwise”.

This example leads Federico to suggest that asynchronous communication is preferable for a divisional organisation with more independent units, while for a functional organisation — for which Apple is given as a prime example — synchronous communication may play a more important role to ensure deep alignment and consistency. The functional model may come at the cost of slower operating speed and bureaucracy, while the divisional one is more difficult put in place initially, as it may be harder to make the move from synchronous to asynchronous communication than the other way around. On the other hand, asynchronous communication does not necessarily mean that the company’s employees are not located in the same place. In the case of Amazon, they have both co-location and asynchronous communication, while for example Github is both remote and mainly asynchronous.

In a slightly different take, Meeker and her colleagues note that “the Amazon way” of effective written communication and documentation, including written plans shared for editing, makes it easier for companies to move to distributed work but that such communication can be both asynchronous and synchronous. They also suggest that the Covid-19 may trigger a long-overdue upgrade of governments’ remote work and tech capacity, possibly re-shaping its relationship with constituents.

Does the trend towards more remote work — that naturally favours smaller, teams and networked units— suggest that we may be seeing an increasing trend towards divisional organisations? What impact would this have on product design? Will we see a trend towards more modular products rather than integrated, which might be best conceived in a functional organization?

The impacts of such a transition towards divisional organizations and more modular products (and services) may really be far-reaching and the conversation between Ben Thomson and James Allworth in the Exponential podcast More Ergonomic offers some ideas on how could this play out.

As the loyal reader will recall, when it comes to complex, multi-product organisations, we are effectively seeing a tendency to evolve towards loosely coupled and networked structures, with pervasive profit and loss, distributed entrepreneurship, openness to external parties and thus a radical reduction of technical debt. That pattern unites many of the protagonists of the platform-ecosystem economy: famous example range from Amazon to Haier and its entrepreneurial, ecosystem enabling organizational structure. In many cases, by unbundling and tracking profit and loss at the unit level, these organizations are becoming more be able to cope with a more rapidly changing environment, presenting new challenges and opening new opportunities.

The covid19 outbreak seems to have exacerbated the speed of change but needs to be framed as a harbinger of times to come with unpredictability becoming a structural aspect of our economies. This growing unpredictability seems increasingly hard to manage by a functional organisation.

Functional organizations (where profit and loss are centralized and units are distributed according to key support functions such as Marketing, HR…) are great at producing “integrated” product experiences: this kind of companies can ensure coherence more easily when it’s needed thanks to a more vertical chain of command and, when product management nails it, is able to bring innovations to the market not only quickly but also with a relevant quality of experience. By doing so they often achieve network effects, economies of scale and strong advantage positions that allow them, on one hand, to capture an unfair value — what Lisa Gansky called “Colombian drug lord” profit shares in an upcoming podcast episode — and, on the other, to keep sometimes inefficient and bureaucratic structures afloat.

Functional organizations and integrated products might be — by the way — more fragile to rapid and continuous change, such as supply chain interruptions, or trade wars: our understanding is that to be more resistant to such shocks, the economic paradigm is moving towards more rational, locally-redundant, unbundled business processes. Functional organizations, with their need to vertically integrate, protect, and control the whole chain may fail to keep their organizational structure sustainable over the long run in such a context.