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Organizational Structures in Software & IT 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 your company’s 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 finalized your initial business plan–there are quite a few anal-retentive, extreme planning types out there–you know who you are!

A bad software or IT organizatonal structure can cause chaos

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 typical 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 all-time 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 operating 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 own 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, but it is often hard for managers (especially hands-on, entrepreneurial types) to let go and give their employees enough rope and space to excel. Again, 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 styles above, the organizational style needs to fit with the “personality” of your company: it’s culture. As a quick example, 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 should be 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 overall “fit” that there is between your core technologies/products/markets, the more inclination I would have to organize using a decentralized, fairly autonomous 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 set up an organizational structure.

ORGANIZATIONAL OPTIONS

Hierarchical/Functional/Centralized – the classic org chart 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, I remember well the frustrations of my first job 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 and complex companies, but for smaller, single-market or single product companies, it generally is optimal.

Decentralized/Autonomous 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, keep 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 at least initially 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 what might be seen as its its modest importance 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 hardware company for success–too many to discuss here. We just touched on a few of the issues to consider and typical organizational styles. Hopefully this short article will stimulate some thinking on this topic and help you avoid an organizational structure of the type which often form haphazardly as companies are started and grown. Post a comment below if you have a take of your own to share.

Phil Morettini is the author of the Morettini on Management Tech Blog and President of PJM Consulting. Mr. Morettini has an extensive C-level software and hardware company executive background. PJM Consulting provides management consulting and interim management services to technology companies.

This article is by Phil Morettini from pjmconsult.com.

Cameron Nouri
by Cameron Nouri I am the Director of Growth at Pingboard. I consider myself an entrepreneur at heart. I love trying new things and taking educated risks on new ventures, both professionally and in my personal life. I bring that passion to work everyday where I enjoy helping others discover the power that Pingboard can unlock.