Organizational structure of IT and software companies (2023)

So you've created a hardware or software startup. You probably haven't given much thought to what the next step in developing your IT or software company's organizational structure should be - you just wanted to generate some revenue and find a way to keep the doors open. Or maybe you think about it for a long time, even before completing your initial business plan - there are several limited anal, extremeDesigner kids out there - you know who you are!

I don't want to take this issue lightly. In fact, it is a very serious matter. Let's look at some of the questions to consider when deciding how to organize your business, as well as some typical options:


What are the client's strengths, weaknesses and way of working?

I believe this is a critical question to think about if you want to organize the company successfully. One of the best examples of all time is HP. Bill Hewlett and Dave Packard introduced a decentralized organizational structure to Hewlett-Packard almost from the beginning. They were careful to keep the operating units small, splitting them up as they grew. In my opinion, this was one of the big drivers of HP's success, and it worked well because it suited both their own personality and the people they hired. They believed in 'management by walking' but they also believed in motivating them to perform at their best, allowing their employees to use all their talents without unnecessary restrictions. It seems simple, but it's often difficult for managers (especially hands-on entrepreneurs) to let go and give their employees enough room and freedom to excel. Again, I think it's a simple, decentralized approachit only worked well because that style suited Bill and Dave's personalities.

What are the most important personality traits of your employees and your target employees?

Similar to the customer style question above, organizational style should match your company's "personality": its culture. For a quick example, if you have a lot of self-motivated “A” people with strong leadership skills, a decentralized org chart might be a better fit than a hierarchical, centralized approach.

Are there different technologies in the company?

This should be an important factor in deciding how to organize the organizational structure of an IT or software company. If you have many different technologies, how do they fit together technically - if at all? Do they match each other from a market perspective? When there are many synergies or coordination between technologies/products is required, a centralized, hierarchical approach may work best. The less "fit" there is between your core technologies/products/markets, the more inclined I would be to organize the company using a decentralized, fairly autonomous business unit approach. This assumes that resources are available for a decentralized organization, as a disadvantage of this approach is that there is always some overlap of roles in independent business units. But when resources are so scarce that you can't properly decentralize them, does it make sense to be successful with many different products/technologies?

Now let's take a look at some common methods of designing the organizational structures of hardware and software companies.


Hierarchical/functional/centralizing– the classic organizational style of traditional companies. The strength of this type of organization is that it is easier to optimize each function because more resources are available to each function in a centralized approach. This can allow for a more nuanced approach to best practices. On the other hand, I still remember the frustrations of my first job at one of the top three car companies, which was VERY hierarchical and centralized. The company was so hierarchical that it largely paralyzed the organization. Trying to do even the simplest and smallest thing had to go up several levels. It was like trying to turn a battleship on the fly and it was really painful. I'm not a big fan of this style of organizational structure for larger and complex companies, but it's generally optimal for smaller single-market or single-product companies.

Decentralized/autonomous business units– This is the exact opposite of the traditional hierarchical organization. I prefer a growing software company organizational structure that is beginning to "spread its wings" beyond its original market or technology focus, as well as larger companies. Its strength lies in its ability to keep lines of communication short, keep staff close to the market and motivate newbies, providing more positions with full responsibility. The risk for mid-sized companies is decentralization before they really have the critical mass to operate separate lines of business, which, as mentioned above, comes with some additional costs of duplicating operations. A good way to mitigate this, at least initially, is to centralize and share as many non-product specific functions as possible, such as finance, HR, quality control, etc. The key functions that should be located in business units are usually marketing, product development, possibly manufacturing (for hardware companies), and occasionally sales.

Product or market focused– This is a variation that can be combined with one of the two main types of IT or software company organizational structure discussed above. For example, the marketing department may have people assigned to product lines as product managers or purchasing departments as purchasing managers. A hybrid approach is sometimes used, where there are product managers for unreleased products and market managers for currently available products.

Matrix– This organizational style is “overlaid” on a more typical organizational structure, such as the types discussed above. The main idea is to create groups, responsibilities and reporting structures with "points" which, while desirable, are outside the normal way a group is organized within the main structure used. For example, in a hierarchical organization, you might create a matrix, cross-functional team focused on launching a major new business initiative or product line. This could give the new initiative more weight than it would normally receive, given that it currently has only modest importance to the overall business. When properly implemented, organizational matrix management techniques can be an excellent way to mitigate the negative effects that are inevitable in any rigid organizational structure. However, it should be used with caution. Used too often or without giving the Matrix "head" real power to achieve desired goals, Matrix organizations can quickly become inefficient and politically driven entities – and the stuff of jokes.

This is only a brief look at a very complex subject. There are many different ways to make the organizational structure of a hardware or software company successful — too many to discuss here. We've touched on just a few of the issues to consider, as well as typical organizational styles. We hope this short article will stimulate reflection on this important topic and help you avoid an organizational structure that tends to emerge haphazardly as businesses start and grow. Comment below if you have your own setup to share.

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