On August 6, according to Beijing time reports, Amazon has so-called "two-pizza teams," which refers to the team size being equivalent to the number of people who can eat two pizzas. This organizational theory is very well-known.
Many media outlets have reported on this, but everyone has overlooked the key point. It's not actually about the size of the team; it's about "autonomy" and "responsibility."
Ben Thompson once gave a brief explanation of the difference between divisions and functional organizations:
"In a divisional organization, each different product is its own company. They have their own marketing teams, their own engineering teams, their own finance teams. They may have some centralized functions like legal and HR, but every team that makes money for the product is within the product organization."
"More importantly, each product has its own profit and loss statement. The performance of each division is clear to everyone from the CEO, division presidents to Wall Street, with responsibility directly tied to the profit and loss statement...”
"A functional organization is completely the opposite: each function is independent, and products cut across functions, forming a matrix. This clearly expands the scope of authority of the CEO and also the leadership team of the CEO, because collaboration is the focus."
"Under this model, there is no one responsible for the profit and loss of a product. Instead, everything rolls up into the overall profit and loss of the company, including compensation."
Ben Thompson talked about some well-known multi-product companies, such as Microsoft, which is organized by product divisions. However, Amazon takes the divisional organization to an extreme, using "two-pizza teams" to constitute its structure.
The name "two-pizza team" comes from the fact that the team members are few—only 6-10 people—and two pizzas would be enough to feed them. The most important thing about "two-pizza teams" isn't their size but their "moderate responsibilities." It’s equivalent to being responsible for the profit and loss of a department, allowing the team to stay focused and accountable. In some cases, "moderate responsibilities" itself involves managing profit and loss. For example, if I am part of the SEM (Search Engine Marketing) team, my job is to increase revenue through sponsored links, gain more profits, and reduce the cost per click.
Once approved, the team can operate relatively autonomously, maximizing their "moderate responsibilities." They can seek innovative strategies and treat these strategies as internal priorities. A few engineers, paired with one or two technical product managers and a designer, report directly to the supervisor of the "two-pizza team." There is no need for collaboration between teams; they can independently move across departments and get the work done. This mode allows Amazon to remain agile and innovative while growing.
Additionally, this model helps companies retain talent. The leader of a "two-pizza team" is akin to the general manager of a division, just as a general manager is like the CEO of a certain product within the company. The leader of a "two-pizza team" is like a CEO with fewer responsibilities, whose responsibilities are small enough to be handled by some young managers. For ambitious young leaders, this is an attractive opportunity.
Fundamentally, Amazon has found a way to embed the concept of divisional organization into all management levels, down to the smallest grassroots level.
For businesses, there is no definitive answer whether to organize by division or by function. Apple is an exception, thriving under a functional organization structure.