The End of Customer Service

No one answers the telephone anymore.

At least, technology companies in the US surely don't. With big companies, you are either presented with an endless phone tree--"press 1 for a company directory"--or the newest innovation in communications technology: the cheerful "automated voice attendant". In many cases these attendants, and several other "innovative" service options, can lead to a great deal of frustration for customers and prospects.

As a consumer and business buyer I've found this frustrating, not to mention an incredible productivity sink. As a High Tech industry executive and consultant with a strong marketing background, I find this practice curious at best--and insane at worst!

Think about it--how many BILLIONS of dollars companies spend trying to get the attention of potential new customers--most of who are going to need to contact the company at some point. Yet it seems that once we've got their interest, or God forbid, they've signed up as an actual customer--we are doing everything possible to keep them away. Doesn't anyone remember the old marketing adage about current customers being your best source of additional business? Management guru Peter Drucker once said "The purpose of business is not to make a sale, but to make and keep a customer." Apparently not many people agree with this, or have forgotten it, because "modern" customer service practices are doing there best to drive these folks away. Let's examine some of the new customer service approaches:

OUTSOURCED CALL CENTERS IN OTHER COUNTRIES

This may be everyone consumer's favorite new "pet peeve"--calling an American company based in Chicago, or Iowa or San Jose--only to be connected to some call center somewhere in India. Often this leads to a very, very frustrating experience. Companies are going this route for support as an expense driven decision--to obtain cheaper labor. But the reps on the end of the line are often poorly trained, probably aren't employees of the company that you are calling, and often don't speak English with an accent that is easy to understand for most Americans. Are there good reps who give great service available in these call centers? Certainly, I have spoken to more than a few. But compared to the "good old days" of local support, the average caller experience has degraded significantly. Add this to the initial frustration that the caller who is dialing has because of a problem with his or her new $1200 PC--and you don't get a prescription for a happy customer.

PHONE TREES

This one has been around a while, but the increasing complexity of the tree, and well as the difficulty of exiting it to get to a live person, has continually made the situation worse. You can literally spend 5-10 minutes just navigating the phone tree these days. Oftentimes, callers just give up--which appears to be what companies want. I'll discuss below why companies shouldn't.

AUTOMATED ATTENDANTS

As I discussed above, this is one of the more recent scourges of the besieged customer with a problem. Ironically, Automated Voice Attendants have been made possible by a really nice leap forward in voice recognition technology. And there is no doubt that these products have come a very long way from the days in which they were first implemented. But talking to a machine is at this point still inherently inferior to speaking with a real human. I endorse the use of these Automated Attendants, but they should be used judiciously. I would still utilize them only at the very beginning of calls, and not require them to take a customer too far down the line of getting their problem addressed. Also, please make it easy to get away from them to a live human. With the high market share of some of the Automated Attendant companies, I am having far too many conversations with the same perky, Stepford Wife-ish-sounding artificial female voice. It's getting a bit creepy. While we're at it, let's talk about my biggest customer support pet peeve. With all of the sophisticated software available today, why is it that I have to give my account number and god knows what else to this robot lady, and then repeat all of the same information to the first live person that I speak with, as well as everyone that they transfer my call to? I understand security concerns, but geez! Hasn't anyone heard of data sharing and company firewalls?

"INTERNET COMPANIES"

The advent of the Internet has allowed for the creation of the ultimate small company: one man or woman, behind an Internet site. These companies invariably list no contact phone number or physical address. You can only email them for support, or if you're really lucky, IM them. Unfortunately, potential customers figured out that this is likely a one man operation long ago. They will be reluctant to buy your product as a result, because they don't believe you are "for real", or at least they won't be able to get good support. If you have the capability of offering real support, I urge you not to present your company in the image of one of these "Internet companies". If you do, it will cost you business.

FEE-ONLY TECH SUPPPORT

I won't deny that is some cases tech support fees are justifiable, and necessary. Even for consumer tech products. But in most cases tech support, and least at some level and for some period of time, really needs to be bundled into the base product offering. This trend came about with the intention of making tech support a "profit center". While I believe that tech support can drive profits, in many cases it shouldn't be done by attempting to extract additional money from customers (especially upfront or on the initial call) for the right to call in to get product issues fixed. There is a standard of care that most customers believe is fair: Help them get the product installed, up and running. Take care of any bugs or product defects. If you don't meet this standard, you will likely pay for it yourself--in reduced customer satisfaction and loyalty.

I want to emphasize that I am not a racist, market protectionist, political isolationist or technophobe. I have nothing against a man or woman working in a call center India, doing their best to do their job. I'm also a tech guy, and certainly love the idea of using technology to increase labor force productivity. But as a marketer, above all else, I believe in the old axiom: THE CUSTOMER IS ALWAYS KING. Customer service today is not treating the customer as King, but like the lowest creature on the food chain. It's possible that we are just undergoing a period of "growing pains", implementation issues, and the new customer service methods discussed here will be the way to go in the long run. Maybe technology maturity and some additional training for the folks in those faraway call centers will correct the current painful situation.

BIG OPPORTUNITY TO GAIN AN ADVANTAGE

But my guess is that those corrective measures are a long way off. In the meantime, there is a big opportunity for savvy software and tech companies to use this "gap" that has occurred in most company's customer service, to gain a strategic advantage in their market segment.

Unfortunately, in my Software and High Tech Practice at PJM Consulting, I find that customer service operations are usually an afterthought to senior management--especially in early stage companies. It's understandable, since it doesn't appear to be part of the strategic core that will mean the difference between success and failure for a young company. But in today's world, used properly, customer and tech support can indeed be a strategic weapon.

Not only can good support cement the relationship with the customer and build long term loyalty, but don't forget that you've got a customer on the line! Remember the old adage I mentioned above about your current customers being the best place for incremental business? Once you've satisfied the caller's concerns, you have an opportunity to educate them about new offerings, present them with a special offer, etc. The possibilities are nearly endless to profit from this customer interaction. This interaction by the way REQUIRED NO INCREMENTAL MARKETING EXPENSES TO INITIATE. Companies don't realize the opportunity that they are leaving on the table, both to increase customer loyalty, and sell incremental offers to existing customers.

DIFFERENTIATION FROM COMMODITIES

Let's talk about a specific example: HP & Dell in the PC business. I'm an old HP alumnus, and until recently, a long time Dell customer. Over a long period of time, customer support, specifically technical support-- has gone from a major strength, to a nightmare for customers of both companies. At various stages of the customer ownership lifecycle, both of these companies throw every obstacle I've discussed in this article at you--Endless phone trees, automated voice attendants, email-only or IM-only tech support, and clueless representatives in foriegn call centers. PCs are as close to a commodity as anything in the High Tech business these days. These two market leaders, along with their competitors, are pretty much slugging it out on price (and brand, which means less and less in a standards-driven market like PCs). This is certainly not the way to achieve high gross margins, let alone customer loyalty.

Personally, I'd pay 10-15% more to buy a computer from a company who guaranteed good, local tech support. I run my business on my PC; when a problem occurs that I can't fix on my own, it is often excruciatingly painful. I'm sure that these companies don't believe that I, or many others, would pay more. But if a PC company put forth a well-developed marketing message touting their emphasis on technical support and customer service--and stuck with it--they would obtain a customer for life. Now, I may not have been willing to pay such a premium 10-15 years ago, before real customer service "ended". I may have gone for the lowest price. But with personal service and support nearly gone the way of the Dodo bird (become extinct), things are different. Since good, personalized tech support has become a scarce commodity--it is therefore an opportunity that some smart company can exploit.

SUMMARY

There's a big opportunity out there for smart technology companies to go against the current trends in customer service and tech support. Make it easy for people to reach you, using whatever method they prefer. I'm suggesting short phone trees, live operators, and an adequate number of representatives to eliminate long waits. Focusing completely on expense control or technology solutions, not personal service, is a mistake for tech companies. Savvy, "forward-thinking" software and tech companies can increase market share and customer loyalty with an "old school" approach--personalized customer service and support.

That's what I have to say about the state of customer and tech support today--what's your opinion? Post a comment if you'd like to discuss this further.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Strategies for a Technology Market Slowdown

Is the world economy slowing down? What are the implications for technology companies?

Recently, technology stocks (along with the stock market in general) have tanked. There is a credit crunch that shows no signs of abating, and inflation is rearing its ugly head, with the continual climb in the prices of oil and other natural resources--commodities which touch every aspect of the world economy. Is the economy headed for a severe downturn--taking technology businesses down the drain with it?

I hardly think so, but we have had a very long running economic expansion, that eventually will reverse by the universal law of "what goes up, must come down". Economies are cyclical by nature, so a downturn has to happen eventually. And tech stocks are usually affected more severely than average in an economic downturn, which affects technology industry investment and ultimately tech growth rates.

So what should you do if you're the CEO of a software or hardware tech business?

Be Prudent, But Don't Panic
Now's certainly not the time to stick you head in the sand, and hope the economy doesn't get any worse. It almost certainly will; but more importantly, how will it affect your company? That's what you need to ponder. Is your product a "must have" or a "very nice to have"? Obviously the "nice-to-haves" will have a tougher time in a declining economy, and should plan accordingly. So take the time to analyze you situation, and make a forecast for your own business, based up the unique circumstances of your market and company. Remember, hope is not a strategy.

Look For Opportunities to Outflank Weaker Competitors
For strong players, declining economies can be a great time to pick up market share from weaker competitors. If you have the resources and can do it safely, now might be the time to run a promotion, or selectively increase your marketing. It's counter-intuitive to most managers' instincts. But weakening the competition during a downturn can lead to stronger growth when things turn back upward.

Slow Near-Term Expense Growth, But Don't Compromise Long-Term Initiatives
In most cases, companies will want to carefully monitor, and possibly cut back on their spending. You want to make sure that you don't put your company in jeopardy, by have expenses out of sync with flat or declining revenues. But try your best to keep intact the initiatives that are critical to long-term growth. You must continue to think long-term as well as short term, assuming you don't get in a situation where your survival is at stake. Cut back on advertising and office space if you're seeing a slowdown--but make sure you don't cut the product development project which will lead to growth 18 months hence. These can be tough decisions, but they really separate the long-term successful CEOs from the flash-in-the-pans. Almost anyone can manage when times are good.

Limit The Growth Of Your Staff
While prudent spending can be wise during a downturn, aggressively increasing the size of you staff usually isn't. There are always exceptions, of course, but adding too much staff can really bloat your fixed cost structure, in a manner that limits your management flexibility. Unfortunately, many companies are often most aggressively adding staff at the end of a growth cycle--just in time for the downturn. If this leads to layoffs, it can have a devastating effect on your company's morale.

Although layoffs are sometimes necessary, they are always painful and hurtful to the company culture--unless the company culture is already of the "Attila the Hun", cutthroat variety. The founders of one of my former employers, Bill Hewlett and David Packard, ran HP for many years with a rule of thumb that limited staff increases to 25% of revenue growth. This helped them avoid the natural inclination to hire someone new every time a new task was identified. I believe was an important factor in many years of smooth growth--without layoffs. This particular metric might not be right for your company, but something similar could prove to be a useful damper on excessive hiring.

Make Sure That You Have Money For A Rainy Day
While it's no time to panic, it IS time to make sure that you have the financial resources necessary to comfortably cruise through a downturn. VCs and Private Equity firms have been flush with cash; if you are close to a deal to bring in outside investment capital--don't wait--so it now. Availability of funds and terms will only get worse, as the stock market heads down and the credit crunch continues. Also, make sure that you have available the largest line of credit possible with your bank. It may cost you an extra few thousand dollars a year, but its excellent insurance, if you are surprised on the downside. If you're in startup mode and financing yourself on credit cards and home equity lines--maximize your future access to these as well! Whatever your sources of funds, make sure now that you're financially well prepared for whatever the future holds.

Be Poised For The Next Upturn, Whenever It Happens
I mentioned earlier that you should try your best to keep long-term initiatives alive. In that same vein, your thought processes should CONSTANTLY be focused on the next upturn, in all of your decision-making. Again, this assumes that your survival isn't in question. For example, while massive hiring isn't usually wise during a downturn, you want to always be open to unique opportunities that may not come along often. Say there is a talented executive available, only because of the downturn. If you can safely afford him or her, snap them up now, before a competitor grabs them. Downturns often present opportunities to improve your business when the next growth cycle occurs. But you need to be "looking ahead" and making good decisions now, to take full advantage of the upturn when it finally does.

Summary
Once again, now is not the time to panic. But it is an important time to plan. Anyone that can predict what will happen with an economy should go to the nearest casino--no need to waste your time with a software or technology company! So I suggest that it might be wise to do a "best-most likely--worst" 2 year forecast now, and try to plan as best you can for the two extreme cases. Post a comment and let me know your thoughts on how the economy and the tech industry will fare in the coming months.

Phil Morettini
PJM Consulting
www.pjmconsult.com

Negotiating and Working with Large Technology OEM Partners

The Holy Grail for many software and technology companies, especially the early stage type, is the big deal. Everyone is looking for the big deal, the one that will fund the company's early activities, provide market credibility and momentum in the marketplace. Of course, if it goes well, there can be nothing better. Many times the big deal takes the form of an OEM partnership with a much larger company. But often when these deals do happen, they end up fitting in the category of "be careful what you wish for".

TARGET YOUR OEM PARTNERS CAREFULLY
This is where it all starts, good or bad. It's important to pick compatible partners. Companies looking for large OEM partners are often blinded by the potential of what the OEM can do FOR their business. They often fail to pay any attention at all to what the OEM might do TO their business!

Can the partner cause severe channel conflict? Will they tie the small company up in endless meetings, procedures and negotiations? Do they have a corporate structure and culture so foreign to your way of doing business, where you end up pulling your hair out from frustration--unable to accomplish even the most simple business objective without moving mountains? Sometimes with large companies, its difficult even figure out who you need to speak with--let alone get a prompt, unambiguous answer.

Get to know your partners well before you sign a deal. It's tempting to rush in before "they change their mind", but the actual relationship is critical to potential success. It's like dating before a marriage--no matter how attractive the partner is, you need to make sure you can live with them later on.


NEGOTIATE FROM STRENGTH
I don't like to do deals with people that are sure they have the upper hand. If they think they can push you around--they almost certainly will. Usually one partner needs the other to a greater extent, but you want to try to avoid dealing with partners where you have no leverage at all. It generally doesn’t' turn out well. Make sure that you negotiate a deal that you can live with. Above all, you need to have a "line in the sand" that you won't cross--and be prepared to walk away if the negotiations cross that line.

This can be a painful and difficult thing to do when you are seeing big "dollar signs" in your eyes--and fear if you stay strong, you might blow the deal. But remember, you have something that the other side wants as well--or they wouldn't be talking to you. If you don't know what your minimum successful deal looks like, and you aren't prepared to walk, you may sign a deal that you will regret. Not to mention tying up your time and resources, which might have been used working with a more compatible partner.


WORK ON EVEN TERMS
Once you've negotiated a deal that you can live with (and hopefully prosper with!), it's time to get to work with your partner. Try to keep things as fair and even as possible in the relationship. Of course, it's important to be accommodating to your partner, and respect the differences in operational procedures. Big OEMs will usually move slower than you, be more process-oriented and structured, and include more people in the relationship. All of this is fine, but it needs to be tempered so that the larger partner doesn't "swallow all of you available resources whole". It can easily happen if you don't guard against it. They have more resources than you (but will always think they are busier!) as well as more process-driven requirements that need to be met. But don't be afraid to draw the line at a reasonable point, and remind them that you have fewer people and resources available. Suggest a phone meeting instead of flying three people across the country--ask that they come to your place, rather than always trekking to their headquarters. Propose that one of there folks spearhead writing that joint position paper, instead of some scarce resource in your company--you get the picture. Sometimes larger companies will smother you without even knowing they are doing it--don't be afraid to remind them that you need to do business a little differently.

KNOW WHEN TO SAY "NO"
If you've tried everything you know, politely, to keep the relationship equitable and reasonable--but it just isn't--don't be afraid to say NO. I meet many smaller company executives in my consulting practice whojust don't feel they can do this with a larger partner. They'll talk tough in internal meetings, but when back in discussions with the partner, the tough talk turns to submission. They just feel like the partner is too important to their business to risk ever offending them in any way. That attitude is a prescription for servitude for your company. I'm not suggesting being unpleasant; in fact, when standing up to a larger partner, it's critical to be calm, polite and non-defensive. But by all means be firm in delivering the message of what your business can, cannot--and won't'--do. If you don't, what could be a profitable relationship can turn very sour.


HAVE REALISTIC EXPECTATIONS
The last point I'd like to convey is that it's important to have reasonable expectations in partnering with large OEMs. Many companies go into these deals believing they will be "company-makers". In my experience, this rarely happens. Understand what the OEM can do for you, and build your business model around the most conservative projections of their performance that's possible.

Companies usually turn to OEM products from partners to fill niches that they don't fully understand, or don't feel would pay back--if they invested in developing it themselves. It is very rare for products licensed or resold from partners to get anywhere near the push that internally-developed products do. Be realistic about this, and you won't be disappointed. If revenue exceeds your conservative expectations, you'll be overjoyed.


SUMMARY
That's my condensed advice on working with the big software and technology OEMs of the world. This is a common activity for many companies--what's been your own experience? Post a comment and let me know your own view.

Phil Morettini
PJM Consulting
www.pjmconsult.com

Is It Time to Sell Your Hardware or Software Company?

This is the point that most, if not all, technology entrepreneurs aspire to reach. They dream of selling their company and laying on a beach somewhere, a colorful drink with the requisite umbrella, cooling in their hand.

There are a few of you out there that would never sell your company (it's your identity, after all), preferring to work forever lest you slow down and quickly deteriorate. But that's another story; we'll save your psychoanalysis for another day…

Some of you that want to sell your company have the most grandiose plan of all in mind: An initial public offering (IPO) through a brand name investment banker, bringing not only unimaginable riches, but fame along with that fortune. But that rarely happens--we'll also table that discussion for another column…

So let's get back to the great majority of you out there, who set out to some day cash in all of your hard work, by selling your company directly to another company. How do you know when the time is right?

WHAT MAKES PEOPLE WANT TO SELL

There are many triggers that set off serious reflection about whether or not to pursue a sale of a software or tech company. Let's examine a few of the more common:

1) A potential acquirer approaches the company with an offer
2) A strategic partnership grows closer, and it seems to make sense to grow closer still
3) Business is bad, and the principals begin to worry about losing everything
4) Negative cash flow is starving the business, forcing a sale to ward off bankruptcy
5) The owners need cash for another reason; be it investing in another business, or personal reasons
6) The owner/operators are burnt out, and no longer enjoy the business
7) Business has been robust, and the owners astutely consider whether now is the time to maximize their return, and minimize their risk by selling now
8) It becomes clear that there is a viable business, but is better suited/more valuable within a larger company
9) It's time for the owners to retire (it seems that very few high tech entrepreneurs make it that far!)

These are the most common reasons that come to mind--it is certainly not a complete list. Although we are talking about companies, the decision to sell ultimately comes down to a personal decision by one or a few individuals. So the reasons that these decisions happen are as varied as the population overall.

Given this list of common rationale for considering a sale, what are the RIGHT and WRONG reasons to consider a sale--if you want to maximize your return within your particular circumstances?

WRONG REASONS TO SELL

On an impulse--you've been running your business, not even think about selling your company. An offer comes along, and you get caught up in it--without having planned for it. Or things have been going poorly, and you are at an emotional low. Acting in these circumstances is similar to married, divorced or starting a new business--don't do it without thinking it through, or planning it properly.
Fear--don't sell just because you are scared; that's probably the best way to leave money on the table. There are ups and downs to every technology business. In my experience, things usually aren't as bad as they look at a specific "down" point in time--or as good as it looks at an "up" time. It's important to look at the prospects of a business over a period of time, considering both how things have gone and the forward-looking forecast.
Sales are in decline--this is the worst time to sell. If you do this, all leverage goes to the buyer. Of course, panic sets in, as you see your valuation melting away, and human instinct is to "get what you can" before it degrades further. But first consider the situation--is it reasonable that you can turn it around and reignite growth? Is the decline all specific to your business, or is it a cyclical market, or a bad economy overall--which might turn around in some reasonable time period? Sometimes selling under these circumstances is the right thing to do, and is unavoidable. But with proper planning, you may be able to sell your company BEFORE this happens, or turn it around first.

RIGHT REASONS TO SELL

You believe you've reached the peak of valuation--this seems obvious, but it is difficult to do. Finding the right time to sell is tricky; you don't want to exit too early and leave money on the table. So the inclination, given that tech businesses are value as a multiple of revenue or EEBITDA, is to hold on until growth stalls. But if you wait until you built up your sales so much that little "natural" growth" is left in your product/market cycle, the business may not look as attractive going forward, for potential buyers. Most strategic buyers, at least, would like to see growth prospects in a potential acquisition. So it might be best to "leave a little growth on the table"; it might lead to a higher multiple from the buyer.
You haven't been enjoying running the business for a very long time--I believe strongly this is a time to get out. If you have someone else whom you feel comfortable leaving in charge, that's fine. But otherwise, either you'll run it in to the ground from burnout, or you'll walk away and let someone else destroy it, because you just don't care anymore. Passion is important in our business; when it's gone, it's usually a good time to sell.
A fundamental shift in the market or your business--This could mean many things: you have lost a number of key people, the economics of your market changes, or a major investment will be required to keep the company on a growth path. The specifics here could be quite varied; the common thread is that with the change in fundamentals, there are real clouds on the horizon. This lead you to a thoughtful belief that continuing to operate the business as a standalone entity isn't optimal.

SUMMARY

An exit, or sale of your company, is a very important "life changing event" for the owners, founders and managers of a software or hardware company. I've seen sales come together very quickly, and completely unplanned. I view unplanned company sales as the business equivalent to a quicky divorce that comes out of an emotional event, without careful consideration, or an objective study of the alternatives and consequences. It is a once in a lifetime event for many, and should be given the careful consideration that those types of events deserve. That's my view--post a comment with your own Exit tales or opinions.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Organizational Structures in Software & High Tech Companies

So you've put together a hardware or software startup company. Chances are you didn't give a lot of thought to what the next step should be in organization development--you just wanted to bring in some revenue and find a way to keep the doors open. Or, maybe you gave it a great deal of thought, even before you bound your initial business plan--there are quite a few anal-retentive planning types out there--you know who you are!

I don't mean to make light of this issue; it's actually quite a serious one. Let's look at a few of the questions to consider when deciding how to organize your company, as well as a few options.

IMPORTANT QUESTIONS TO PONDER

What are the strengths, weaknesses, and operating styles of the principals? I believe that this is a critical question to ponder, if one wants to organize the company successfully. One of my great examples is HP. Bill Hewlett and Dave Packard instituted a decentralized structure almost from the very beginning of Hewlett-Packard. They were careful to keep the units small, by breaking them up as they grew. In my opinion, this was one of the great drivers of HP's success, and worked well because it suited their personalities, as well as the folks that they hired. They believed in "Management by Walking Around", but also believed in motivating high performance by allowing their employees to use all of their talents, without unnecessary constraints. It seems simple, butit is often hard for managers (especially hands-on, entrepreneurial types) to give their employees enough rope and space to excel. I believe that this hands-off, decentralized approach only worked well because this style fit with Bill and Dave's personalities.

What are the key personality traits of your employees and target hires? Similar to the question about the principal's above, the organizational style needs to fit with the "personality" of your company, the culture. If you have a lot of type "A", self-motivated people with strong leadership skills, a decentralized org chart may fit better than a hierarchical, centralized approach.

Are there disparate technologies within the company? This is a big driver in deciding how to organize. If you have several different technologies, how do they fit together technically--if at all? Do they fit together from a market perspective? If there is a lot of synergy or need to coordinate between technologies/products, a centralized, hierarchical approach may work best. The less "fit" that there is between your core technologies or products, the more inclination I would have to organize using a decentralized, business unit approach. This assumes that the resources are available for a decentralized organization. But if resources are so scarce that you can't decentralize properly, does it make sense to try to be successful with multiple disparate products/technologies anyway?

Now let's take a look at some common ways to organize.

ORGANIZATIONAL OPTIONS

Hierarchical/Functional/Centralized - the classic organizational style of traditional businesses. The strength of this type of organization is that it is easier to optimize each function, as there are more resources available within each function in a centralized approach. This can enable a more sophisticated approach to best practices. On the downside, my first job was with a Big 3 Automotive manufacturer, which was VERY hierarchical and centralized. The company was SO hierarchical that it paralyzed the organization to a huge degree; trying to get even the simplest, small thing done had to go many levels up. It was like trying to turn a battleship on a dime, and really painful. I'm not a big fan of this style for larger organizations, but for smaller, single-market or single product companies, it generally is optimal.

Decentralized/Business Units - This is the polar opposite of the traditional hierarchical organization. It's my preference for growing companies who are starting to "spreading their wings" beyond their initial market or technology focus, as well as for larger companies. It's strength lies in the ability to keep lines of communications short, keeping personnel close to the marketplace, and motivate self-starters by providing more positions of broad responsibility. For medium-sized companies, the danger lies in decentralizing before there is really critical mass to run separate business units, which comes with some added costs due to duplication of functions. One good way to mitigate this is to centralize and share as many of the non-product specific functions as possible, such as finance, HR, quality control, etc. The key functions that absolutely need to reside in the business units are usually marketing, product development, possibly manufacturing (for hardware companies) and occasionally sales.

Product-Centric or Market-Centric- This is a variation that can be combined with either of the two major organizational structures above. For example, within your marketing department, there could be people assigned as product managers, or as market managers. Sometimes a hybrid approach is used, where there are product managers for unreleased products, and market managers for currently-marketed products.

Matrix - This organization style is "overlaid" on top of a more typical organizational structure, such as the types discussed above. The main idea is to set up "dotted line" teams, responsibilities and reporting structures that are desirable, but fall outside of the normal way a team is constituted within the main structure in use. For example, in a hierarchical organization, you might set up a matrixed, cross-functional team to put focus on the launch of an important new business initiative. This may give the new initiative more emphasis than it normally would get, given its modest contribution to the overall business at that point. If used properly, matrix management techniques can be a great way to dampen the negatives that are inevitable in any rigid organizational structure. It must be used with caution, however. If used too frequently, or without endowing the "head" of the matrix with real power to accomplish the desired goals, matrix organizations can quickly become ineffective and politically driven entities--and the butt of jokes around the water cooler.

This is just a quick take on a very complex topic. There are many different ways to organize a software or technology company for success--too many to discuss here. And we just touched on a few of the issues to consider. Hopefully this short article will stimulate some thinking on this topic, to avoid organizational structure which often form haphazardly as companies are started and grown. Post a comment if you have a take of your own.

Phil Morettini

PJM Consulting

www.pjmconsult.com