Product-aligned vs. capability-aligned IT teams

Organizational design is fascinating. How you group internal teams can positively (or negatively) impact business outcomes, innovation, and even employee morale. Roles, responsibilities, workflows, and processes can all be influenced by the way that your organization is structured.

Two common IT org structures include product-aligned and capability-aligned IT. Some organizations choose a hybrid approach — developers may be split among product-aligned teams, while another group, such as enterprise architecture, supports all products. There is no right answer for which structure to embrace and each has potential benefits and drawbacks.

Before we get into the details, it is helpful to first outline what exactly each term means in this context.

  • "Product" can refer to both external and internal products. An external product is something that an end-user interacts with directly — for example, an e-commerce website. An internal product is something that cross-functional teams rely on to do their work, such as a customer relationship management (CRM) tool or content management system (CMS).

  • "Capability" is a somewhat ambiguous term. So, let's see if we can distill it into something a bit more tangible — technology that enables some function and serves a specific business need. For instance, you might have a search capability that is used across products. User accounts and payments systems are also capabilities.

You may have heard about IT teams adopting a "product mindset." Historically, IT teams have operated on a project by project basis — both in funding and delivery. This led to the "back office" perception of IT, where the function was seen as a service provider rather than tightly integrated with the business as a whole. A product mindset refers to a more holistic and customer-centric approach to how IT teams plan and prioritize work.

Many companies are in the throes of major digital transformations which impacts how teams are organized and how they get work done. In these scenarios organizations may also undergo team restructuring so it is important to understand common IT structures. And of course, every company is unique and the content below is simplified to be universal — your own team will be shaped by your company's market, offerings, and maturity.

What is a product-aligned team structure?

In a product-aligned model teams are structured vertically by product or offering and are responsible for delivering and supporting an application. This allows IT teams to work towards a common set of product-specific goals. From setting IT strategy that will enable what the product management team has planned to supporting existing technology, a product-aligned IT team is focused on end-to-end ownership.

This structure allows teams to make decisions autonomously and move fast. But product-aligned IT teams also face many of the same challenges that any vertically structured organization would encounter. There can be a lack of alignment from product to product along with cost inefficiencies — you might duplicate work, leading to missed opportunities to optimize resources.

What is a capability-aligned team structure?

In a capability-aligned model teams are organized according to a specific capability and (depending on the size of the company) support multiple products and stakeholders. The benefit of capability-aligned IT teams is that (in theory) anything built can be used broadly. Ideally this leads to a consistent user experience for customers and to efficiencies within your organization.

There can be drawbacks to this approach too. Capability-aligned teams require immense coordination, especially within large organizations. This can reduce your ability to be flexible and move quickly. You also have to maintain focus on the end-user — if you put too much emphasis on the capabilities or functionality, you may lose sight of the real problems and real people you are building for.

How to choose the right IT team structure

There are several factors to weigh when it comes to organizational structure. And the degree to which an IT manager influences the structure of the IT department will vary from company to company. Factors include your customers' needs, business strategy, and available resources and skills. At an early-stage company, you might have the authority to choose a structure or build the team from the ground up. In larger organizations, there will likely be an existing structure in place to support.

Get a clear understanding of the answers to the following questions before you choose a direction:

  • What are the company's broad business goals?

  • How is IT responsible for contributing to these goals?

  • What kind of products do you offer?

  • Who are your customers? Do they overlap across products?

  • What are your customers' pain points?

  • Are you currently able to meet customer needs?

  • In what area are you excelling?

  • In what areas are you struggling to deliver?

  • What challenges do you face as an IT team?

The answers to these questions will not reveal the organizational structure you should choose — but they can help you think through how your technology teams might collaborate or crossover best. For example, if you offer multiple products that serve different audiences, you might consider a product-aligned structure so that you can empower teams to better serve the needs of their discrete users.

Many organizations utilize a combination of product- and capability-aligned structures in order to take advantage of the benefits of each model. For instance, you might embrace a product-aligned structure for each customer-facing app and a capabilities model for back-end services like your payment system or customer database.

Every business relies on IT to operate and innovate. So no matter which team structure you choose, it is important to align your IT goals with the broader company strategy.

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