spotify-organizational-structure

Spotify Organizational Structure

Spotify has an N-form organizational structure with an emphasis on knowledge sharing and integration across business activities. Spotify’s N-form organizational structure emphasizes knowledge sharing and integration.

Understanding Spotify’s organizational structure

There is a notable absence of traditional hierarchies, with employees offered the freedom and creativity to complete their work in any way they see fit.

Spotify has an N-form organizational structure with an emphasis on knowledge sharing and integration across business activities.

The N-form structure was first described in Anders Ivarsson and Henrik Kniberg’s 2012 whitepaper Scaling Agile @ Spotify.

The whitepaper, which introduced a new approach to agility, soon became popular because it was radically simple and focused on organizing around work instead of specific practices. 

Spotify’s model, as we touched on earlier, champions team autonomy with each team able to choose a framework such as Scrum, Scrumban, or Kanban.

Spotify calls these teams squads, with squads subsequently organized into tribes, chapters, and guilds to encourage the cross-pollination of knowledge.

In the next section, we’ll demystify these terms and how they relate to Spotify’s structure.

The core elements of Spotify’s organizational structure

Squads

Squads are autonomous, self-organized, cross-functional teams that enable Spotify to maintain an agile mindset as it scales. 

Squads contain around 6-12 individuals and are the most basic unit of a development team.

Each squad takes ownership of a discrete aspect of the product, works according to a unique mission, and has access to an agile coach and product owner for support and guidance.

Tribes

When several squads coordinate with each other on the same feature area, they form a matrix otherwise known as a tribe.

If squads are the start-ups of Spotify’s structure, then tribes are the incubators responsible for making ideas a reality. Each tribe has a Tribe Lead who coordinates across squads and encourages collaboration.

Tribes facilitate alignment between squads and normally comprise around 40-150 individuals.

Ideally, however, Ivarsson and Kniberg believed a team of around 100 was most optimal because it respected a theory known as Dunbar’s number.

Essentially, the theory posits that there is a cognitive limit to the number of people with which one can maintain a stable social relationship.

When teams become too large, Ivarsson and Kniberg noted several consequences such as bureaucracy, politics, restrictive rules, and extra layers of management.

Chapters

Chapters are small families of people who work within the same tribe, the same general competency area, and who also share similar skills.

These families frequently meet to discuss specific challenges in the context of their area of expertise.

Each chapter is led by a line manager who carries out more traditional tasks such as defining salaries and fostering employee development.

The chapter lead is also part of a squad like everyone else, which enables them to stay in the loop and up to date.

Guilds

Guilds are formed by team members who are passionate about a certain topic. Think of a guild as a community of interest where anyone can join and participation is not mandatory.

Unlike chapters that belong to a particular tribe and have a formal leader, guilds can span different tribes and the formal leader is replaced by a coordinator who volunteers for their role.

How do these groups contribute to organizational structure?

While unusual, the combination of squads, tribes, chapters, and guilds is the foundation of Spotify’s effective organizational structure. This is reflected in three main ways.

1 – Autonomy is achieved without sacrificing accountability

Each squad owns its product feature for the entire lifecycle and is fully aware of (and expected to understand) the successes and failures of that feature. Squats conduct post-mortem analyses to learn from failures and perform retrospectives every few weeks.

To ensure feedback processes are effective at the individual and squad levels, the performance management system separates coaching and feedback from discussions around salary and individual performance.

2 – Innovation is encouraged, but not at the expense of repeatability benefits

Spotify’s chapters have less formal authority and are organized around discrete competencies. 

Unlike the traditional model where standards and processes are enforced from the top down, the company allows best practices to be discovered and adopted from the bottom up.

Note that a practice only become adopted if a sufficient number of squads are utilizing it.

Spotify’s experimentation-friendly culture also ensures that innovation remains front and center.

If employees do not know how to do something, they are encouraged to run A/B tests or try possible alternatives to determine the best course of action. 

In any case, the company’s decoupled architecture ensures that the damage from any failure is limited to small parts of the user experience.

3 – Alignment is fostered but without excessive control

Spotify believes that alignment and autonomy are closely linked. In other words, the greater the alignment, the more autonomy employees are granted.

Teams take the time to ensure they are aligned on goals and objectives before work commences.

Spotify’s leadership model reinforces the link between alignment and autonomy, with leaders ensuring they understand the problem and how to best communicate it so that squads can find the most optimal solution.

Key takeaways:

  • Spotify has an N-form organizational structure with an emphasis on knowledge sharing and integration across business activities.
  • Spotify’s model champions team economy. Each team is able to select its framework – whether that be Scrum, Scrumban, or Kanban, etc.
  • Spotify organizes employees into squads, tribes, chapters, and guilds to facilitate the cross-pollination of knowledge. The combination of these teams underlies Spotify’s operating model, ensuring that employees can work autonomously and remain accountable. The structure also promotions innovation without losing the benefits of repeatability and supports what the strong link between alignment and autonomy.

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Spotify is a two-sided marketplace where artists and music fans engage. Spotify has a free ad-supported service and a paid membership. Founded in 2008 with the belief that music should be universally accessible, it generated €9.66 billion in 2021. Of these revenues, 87.5% or €8.46 billion came from premium memberships, while over 12.5% or €1.2 billion came from ad-supported members. By 2022, Spotify had 195 million premium members and 273 million ad-supported users.

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Spotify licensing deals affect its business model. The company runs on both a free service, which is ad-supported and a subscription premium service. They have different economics. The ad-supported business had a 10% gross margin in 2021, compared to 29% of the subscription-based business. That’s because the more the content gets streamed on the platform, the more that increases royalty costs for Spotify. That is also why the company invested in developing its content. Thus, in part transitioning from platform to brand.

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Spotify is the world’s largest music streaming platform with over 381 million users across 184 markets around the world. The company was founded by Martin Lorentzon and Daniel Ek in 2008 in response to the shutdown of peer-to-peer music service Napster. Spotify became a success because it was the first company to determine how to distribute music legally and compensate the music industry at the same time. The platform now offers various curated music discovery services, music stations, audio customization, and private listening. In recent times, it has also ventured into the streaming of audiobooks, podcasts, comedy, poetry, and short stories.

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The Spotify Model is an autonomous approach to scaling agile, focusing on culture communication, accountability, and quality. The Spotify model was first recognized in 2012 after Henrik Kniberg, and Anders Ivarsson released a white paper detailing how streaming company Spotify approached agility. Therefore, the Spotify model represents an evolution of agile.

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The multi-billion music streaming company Spotify is primarily owned by its founders, Daniel Ek and Martin Lorentzon. As of 2021, Daniel Ek has 16.7% ownership of ordinary shares and 31.9% of the voting power. Where Martin Lorentzon has 10.9% of ordinary shares and 42.9% of the voting power. Another key shareholder is Baillie Gifford & Co, a Scottish-based money management firm, followed by Morgan Stanley, T. Rowe Price, and Tencent.

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