Currently, there are five types of common organizational structures implemented in the real business world.
Recognized Organizational Structures
Software development firms adopt various organizational structures. Some prioritize strict hierarchies, while others embrace flexibility. Here are the five common structures:
1. Functional Organizational Structure
Often referred to as a bureaucratic organizational structure, the functional organizational structure is the most common and widely used organizational structure. A functional organizational structure organizes the company into different departments according to the area of expertise.
A functionally structured company hires employees for their proficiency in a specific skill. Large companies often work with a functional organizational structure. In such software outsourcing companies, employees are placed where they are most needed in a functional framework, and they are not burdened with jobs outside their skill set.
The employees of each department are controlled by the department leads, who, in their turn, are responsible for the successful operation of their team, help team members, manage cross-department communication, and provide reports to company directors.
Advantages
- Employees are grouped based on their skills and high professionalism in a single field of operation,
- There is a better sense of teamwork, as they work in separate, small teams.
Disadvantages
- Detachment, minimum level of communication with other departments,
- The estrangement of employees from various departments, which hurts team spirit, shared company goals and objectives,
- Unhealthy competition among different departments,
- Management issues.
Sum-up of a Functional Organizational Structure in a Software Development Company:
Departments: IT, UI/UX, Business Development, Marketing, HR, Accounting
Advantages: Expertise-based teams, focused work, stable environment
Disadvantages: Limited cross-department communication, potential for competition
2. Divisional and Multi-Divisional Structures
A divisional organizational structure in software development allows a larger corporation to divide substantial portions of its software development services into semi-autonomous groups. While this formal structure is often better suited to larger organizations, it can also assist a smaller corporation in specific circumstances. In all cases, groups are typically self-managed and focused on a certain component of the company's products or services.
The difference between divisional and multi-divisional and functional structures appears in power distribution. Unlike in functional structures, in divisional structures, software development groups or other divisions' group leads have some freedom to decide without discussing with the head of the company.
Divisions, unlike departments, are more autonomous, having their top executive (usually a vice president) who is in charge of hiring, budgeting, and advertising. Though small businesses rarely use divisional structures, some large software development enterprises still use this model where they have dedicated staff and funds to focus on specific clients' software development needs. Software outsourcing firms that have many clients and separate projects work in divisions to focus on a single software development project.
Advantages
- Employees focus on a single job, task, service,
- There is more centralized leadership.
Disadvantages
- Poor integration with other divisions,
- Possible tax implications,
- No communication between divisions and a feeling of working in separate companies,
- Furious competition.
Sum-up of a Divisional or Multi-Divisional Organizational Structure in a Software Development Company:
Divisions: Semi-autonomous groups for specific tasks
Advantages: Focused groups, centralized leadership
Disadvantages: Lack of integration, competition between divisions
3. Flat Organizational Structure
Flat organizations have no subordinates or superiors. There are no managers. Each employee operates independently and is fully responsible for the quality of their work. It is a popular structure among technology firms, start-ups, and some mid-sized firms. It is uncommon for large organizations to use a flat organizational structure because of the large number of employees. A flat organizational structure works excellent in teams with high team spirit.
Advantages
- Better communication between employees,
- Powerful team spirit,
- Motivation to improve skills and achieve the goals of the software development company they work for,
- More freedom and autonomy, which brings a higher sense of responsibility,
- Faster service delivery because of decision-making freedom.
Disadvantages
- Lack of progression opportunities if a software engineer or other IT specialist cannot self-organize,
- Higher workloads if a software developer or other IT specialist is not experienced enough and cannot handle multitasking in small companies,
- Self-organization issues and confusion.
Sum-up of a Flat Organizational Structure in a Software Development Company:
Traits: No hierarchy, independent employees, strong teamwork
Advantages: Communication, team spirit, fast delivery
Disadvantages: Limited progression, self-organization challenges
4. Flatarchy Structure
A flatarchy organizational structure is a newly defined hybrid model of functional and flat organizational structures. In a flatarchy structure, software development companies do not have complex administrative levels. There are very few subordinates.
Small and medium-sized software development companies with fewer employees are more likely to utilize this organizational structure. When companies expand their teams, they usually grow out of flat and flatarchy organizational structures. However, some continue to use them.
Companies that use flatarchy organizational structure support their employees to pitch any new ideas that might help the company grow. Such software development companies encourage creativity among employees and are always ready to discuss innovative approaches to business suggested by colleagues.
Such companies also stress the importance of the growth of their employees and invest in their team members. These companies have the time to make and shape their employees themselves from the very beginning of their careers.
Advantages
- Cost-efficient structure,
- Strong sense of team spirit,
- Higher employee morale and faster delivery,
- Less dominance and supervision,
- More autonomy and empowerment,
- Faster and more frequent implementations of innovations,
- Heightened productivity,
- Transparent in-house employee as well as client-software vendor interactions,
- Faster decision-making.
Disadvantages
- Leadership confusion,
- Self-organization issues.
Sum-up of a Flatarchy Organizational Structure in a Software Development Company:
Features: Minimal hierarchy, encourages innovation
Advantages: Cost-efficient, employee morale, quick decisions
Disadvantages: Leadership confusion, self-organization issues
5. Matrix Organizational Structure
Software development companies with a matrix organizational structure work in a workplace format where employees report to more than one manager instead of a single manager who oversees every aspect of a project. Usually, software engineers prepare reports for the product, project, and functional managers.
As the name suggests, the reporting relationships in a matrix organizational structure are set up as a "matrix" instead of a standard vertical hierarchy. Software outsourcing companies that have large projects or product or software development processes sometimes use a matrix organizational structure. They hire employees with multiple specialties for team assignments in the meantime to remain in their current employment.
Advantages
- Collaboration and a sense of partnership between different departments,
- Combination of the project and functional management structures,
- Team managers and leaders keep their functional roles.
Disadvantages
- Team roles may not be clearly defined,
- The decision-making process can be slowed down,
- Small or no control over employee performance.
Sum-up of a Matrix Organizational Structure in a Software Development Company:
Traits: Multiple managers, project-oriented
Advantages: Collaboration, combined management structures
Disadvantages: Role ambiguity, slower decision-making
