Organize around business functions, not people. Build systems within each business function. Let systems run the business and people run the systems. People come and go, but the systems remain constant.

Nonetheless, at some point the monolithic design of one huge organization runs out of gas and you will need to split things into smaller subgroups. At the most basic level, you’ll want to consider giving the groups that you’ve specialized their own managers as they grow.

What’s the mission? Planning begins with mission analysis. Leaders must identify clear directives for the team. Once they themselves understand the mission, they can impart this knowledge to their key leaders and frontline troops tasked with executing the mission. A broad and ambiguous mission results in lack of focus, ineffective execution, and mission creep. To prevent this, the mission must be carefully refined and simplified so that it is explicitly clear and specifically focused to achieve the greater strategic vision for which that mission is a part.

Convention also dictates that ‘big is beautiful’, but every time one of our ventures gets too big we divide it up into smaller units. I go to the deputy managing director, the deputy sales director and the deputy marketing director and say, ‘Congratulations. You’re now the MD, the sales director and the marketing director of a new company.’ Each time we’ve done this, the people involved haven’t had much more work to do, but necessarily they have a greater incentive to perform and a greater zest for their work.

To have a mission is to have a unifying focus for your career.

To take structure a step further, these three functions cannot operate independently of each other. That’s why all great organizations have another major function, a role that I like to call the integrator.

Businesses are great structures for managing big projects. It’s like trying to develop the ability to walk without developing a skeleton. Once in a blue moon, you get an octopus, but for the most part, you get skeletons. Skeletons are good shit.

When you run a large organization, you tend to become very good at tasks such as complex decision-making, prioritization, organizational design, process improvement, and organizational communication. When you are building an organization, there is no organization to design, there are no processes to improve, and communicating with the organization is simple. On the other hand, you have to be very adept at running a high-quality hiring process, have terrific domain expertise (you are personally responsible for quality control), know how to create process from scratch, and be extremely creative about initiating new directions and tasks.

But we will never allow Berkshire to become some monolith that is overrun with committees, budget presentations and multiple layers of management. Instead, we plan to operate as a collection of separately-managed medium-sized and large businesses, most of whose decision-making occurs at the operating level. Charlie and I will limit ourselves to allocating capital, controlling enterprise risk, choosing managers and setting their compensation.

Only a clear, focused, and common mission can hold the organization together and enable it to produce results.

I discovered that the best innovation is sometimes the company, the way you organize a company. The whole notion of how you build a company is fascinating.

I believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck.

everyone at your company should be different in the same way — a tribe of like-minded people fiercely devoted to the company’s mission.

here are the basic steps to organizational design: 1. Figure out what needs to be communicated. Start by listing the most important knowledge and who needs to have it. For example, knowledge of the product architecture must be understood by engineering, QA, product management, marketing, and sales. 2. Figure out what needs to be decided. Consider the types of decisions that must get made on a frequent basis: feature selection, architectural decisions, how to resolve support issues. How can you design the organization to put the maximum number of decisions under the domain of a designated manager? 3. Prioritize the most important communication and decision paths. Is it more important for product managers to understand the product architecture or the market? Is it more important for engineers to understand the customer or the architecture? Keep in mind that these priorities will be based on today’s situation. If the situation changes, then you can reorganize. 4. Decide who’s going to run each group. Notice that this is the fourth step, not the first. You want to optimize the organization for the people — for the people doing the work — not for the managers. Most large mistakes in organizational design come from putting the individual ambitions of the people at the top of the organization ahead of the communication paths for the people at the bottom of the organization. Making this step four will upset your managers, but they will get over it. 5. Identify the paths that you did not optimize. As important as picking the communication paths that you will optimize is identifying the ones that you will not. Just because you deprioritized them doesn’t mean they are unimportant. If you ignore them entirely, they will surely come back to bite you. 6. Build a plan for mitigating the issues identified in step five. Once you’ve identified the likely issues, you will know the processes you will need to build to patch the impending cross-organizational challenges.