Typically, as companies grow, they periodically hit thresholds where a major rethink of their operating model is required. That's always quite disruptive, and it typically distracts leadership and takes time just at a critical moment in the life of a growing company.

But it's hard to imagine a small company's organization chart remaining viable after it grows to 10 or 100 times its size.

In fact, it is possible to design an organization that can scale by orders of magnitude without the need for major organizational changes.

Of course, organizations have to continually adapt as they grow and as things change. So, the goal is not a static organization. It's an organization that can grow and adapt to changes without the need for any major shift in its paradigm or operating model.

Beyond being adaptive, the goal is to design an entrepreneurial organization that drives that growth, and sees changes as opportunities.

"Scalability" means that an organization can grow and adapt to changes without the need for any major shift in its paradigm or operating model.

A Market Organization does all of that.

Business-within-a-business Structure

One key advantage of a Market Organization is its structure.

In a principle-based organizational structure, jobs (boxes on the organization chart) are defined as businesses within a business. Each group is there to "sell" products and services to customers, both internally and externally.

And here's the key to scalability: Similar lines of business are clustered under a common boss. They're not scattered across the organization chart, with support functions divided among various silos.

Picture an organization where all the engineers are within an Engineering department, where they're substructured by engineering discipline.

And service providers all report to Operations, and are substructured by the kinds of services they sell.

The organization chart includes all the needed lines of business, all clustered by type of business and subspecialties within each. Some might call this a "function-based" structure. We'd call this fully integrated structure a business-within-a-business organization.

This works because a principle-based organizational structure includes a mechanism for great cross-boundary teamwork. With that, there's no need to put people under a common boss just because they work together.

Internal Economy (Resource-governance Processes)

Another key advantage of a Market Organization is its resource-governance processes -- its "internal economy."

When resource-governance processes are based on market economics, priorities are not set by each manager for their own resources. That would impede cross-boundary teamwork, especially when one group's highest priority is another's lowest.

Instead, in a Market Organization, priorities are set by internal customers, not by supplier groups. And those priorities are applied consistently to all the groups in a project or service-delivery team.

Again, this obviates the need to put people under a common boss to get them to team well, and further enables that fully integrated business-within-a-business structure.

Culture and Metrics

In a Market Organization, cross-boundary teamwork is further enhanced by its culture. For example, other groups brought onto your project team view you as a customer. They're customer focused (respecting internal customers as much as external), and they fulfill commitments to internal customers just as reliably as they would to external customers.

Metrics reinforce this entrepreneurial culture. For example, instead of being measured just on delivery of one's objectives, internal customer satisfaction is a key metric.

All the organizational systems are designed to encourage great cross-boundary teamwork.

And that's what permits the synergies and economies of scale of a fully integrated business-within-a-business structure.

And that, in turn, enables scalability.

What Changes as You Grow: Structure

So, in a Market Organization, what has to change as you grow?

Lines of business may grow to the point of splitting into two groups -- either by creating another management position alongside the existing one, or by leaving the manager in place and establishing sub-groups at the next level. That allows a higher degree of specialization.

At times, you may add a new group to cover a new challenge -- like emerging technologies, some new products and services, and new markets. But it's always obvious where that new business within a business fits in the structure.

For example, when you add new products, either they fit within the domains of existing product managers, or you expand a domain or add a new product manager. Nothing else changes. Product managers have the P&L on those new businesses, but they don't have other functions reporting to them. What they have instead is access to all the capabilities of the entire organization, which is just the sort of support you want for new business lines.

When you offer new services, you simply expand the domains of existing service providers. The same applies to new technologies; just expand the domains of existing engineering groups. As those new technologies and services take hold and grow, you may split some of them out into domains of their own. Again, the rest of the organization remains the same, and there's no impact on the organizational operating model.

When you enter new geographies, there are only a few lines of business that are subdivided by geography -- e.g., Sales, Field Technicians, Regulatory Compliance, and maybe some Marketing. Those functions add specialists or new sub-groups in that new geography. Nothing else needs to change.

Similarly, when you enter new markets, you add Sales domains.

But in every case, the overall structure doesn't change. The principles tell you exactly where each new domain fits. And the cross-boundary teamwork processes (walk-throughs) automatically integrate new groups into the fabric of the organization.

What Changes as You Grow: Other Organizational Systems

Market-based resource-governance processes are also infinitely scalable. Sometimes, when you create new groups, you divide the internal-economy checkbooks a little differently. But growth doesn't change any of the governance processes.

And growth doesn't force any change in cultural principles. In fact, an explicitly defined culture can contribute to growth by encouraging entrepreneurial behaviors and judicious risk management.

A Market Organization is continually refining metrics as it better understands what it wants from each line of business. But growth doesn't necessitate any significant change in its approach to metrics.

A stable organization that is dynamic by design is best equipped to deal with a complex and volatile world.

In a Market Organization, all organizational systems grow organically, without any need to rethink the organizational operating model.

This stability equips a Market Organization to better handle a dynamic world. When confronting new challenges, it doesn't have to waste precious time figuring out who's accountable, or implementing a new organization chart.

As it grows and things change, a Market Organization knows how to realign its resources with new challenges quickly and effectively, without any change in its operating model.

Adjustments in Very Small Organizations

Very small organizations have all the same challenges -- and internal lines of business -- as do big ones (albeit with fewer resources).

All of the principles of a Market Organization apply in very small companies as well as big ones. People are people, and organizational dynamics don't change as you grow.

However, there are some adjustments that small organizations have to make make.

With fewer people, they can't specialize to the same degree as larger organizations. They don't want to be "one deep" -- depending on just one person for critical functions. So, they have to combine some specialties and do some cross-training.

"Once you get above about a dozen employees, organizational processes matter as much as people, technology, and products."

Charlie Shalvoy, seasoned tech venture CEO

But as per the principles of structure, they combine domains within types of business, not across. That way, the structure is easy to scale.

They might see more working managers, since there may not be enough headcount in a group to justify a full-time manager who does nothing but supervise others.

Sometimes, they have to put a leader's name in more than one box. A leader may take on two side-by-side boxes, or manage a group that reports to them.

Other than these minor adjustments, the whole operating model of a Market Organization applies quite well to organizations of any size.

Startups

"There have been founders who spend more time and energy fretting about the scalability of the phone system or IT platform than about the scalability of the culture and practices for managing employees, even in cases where that same founder would declare with great passion and sincerity that 'people are the ultimate source of competitive advantage in my business.'"

James N. Baron and Michael T. Hannan, organization ecologists, Stanford Graduate School of Business

These concepts even apply to start-ups.

Ventures start out really tiny; and typically, most founders don't think about organizational strategy until too late, when it's becoming a crises and obstacle to growth.

But that doesn't have to be the case. Consider this case example:

A startup had just three founders and a handful of staff. Everybody was doing everything, at high speed. And things were getting done (thanks to their herculean efforts). But there was confusion about accountabilities, and some things were falling through the cracks.

Perhaps even more damning, they didn't know who was accountable for thinking of all the things that they weren't doing.

The founders all felt responsible for everything; but the problem was, no one was "living and breathing" each internal line of business.

Their organizational coach led those founders through a structure process, as if they were a big company. The resulting organization chart had lots of boxes on it, representing all the lines of business they'd need someday.

Of course, there were more boxes than people. So, the founders sorted their names into all those boxes. Each of them took on a few lines of business.

Of course, they all continued to work closely together, and do whatever it took to get their company going.

So, what did that big-company structure accomplish?

It clarified who was the "prime contractor" on each initiative; that ensured someone was accountable for current initiatives, in their entirety. Beyond that, it clarified who owns each line of business and was responsible for thinking about its entire scope, now and into the future.

Over time, they grew into the structure. When they were ready to hire, they selected the box they most needed to fill at that stage of growth. Their investment in a clean, business-based structure helped them know exactly what competencies to look for.

And with the Market Organization, they were assured that even as they formalized their processes, they'd maintain their entrepreneurial spirit.

"Not to know how to manage is the single largest reason for the failure of new ventures."

Peter F. Drucker

It's worth noting the risks of waiting too long to think about organizational strategy. If the organization is a toxic mess, investors (and eventually buyers) will walk away.

On the other hand, a high-performing organization not only drives growth; it contributes directly to shareholder value. Once a venture moves out of the "garage," an investment in its organizational processes may be just as important as investments in its products and strategies.

Conclusion

In summary, a Market Organization can grow indefinitely without any major shift in its organizational operating model.

That holds true from the early stages of a growth company, all the way up to multi-product, multi-geography companies. There's no need to split into independent business units for a geography or a product line. A Market Organization delivers optimal synergies across product-lines, functions, and geographic boundaries.

"This organizational operating model doesn't just scale. It's been the engine for our growth."

Sergio Paiz, CEO, PDC

The bottom line: A well-designed Market Organization is infinitely scalable. And its high level of performance and entrepreneurial behaviors drive that growth.

An investment in a transformation into a Market Organization will pay off for decades to come. And the earlier in the life-cycle of a company that you make that investment, the greater its benefits.

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