Top 5 Organizational Structures of Software Firms | Pros and Cons

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Lately CodeRiders software development company has revealed the organizational structure of its business. Let’s find out how they work.
When hiring a software outsourcing company or a dedicated software developer, surprise them with a single question: “Can you specify how your company works and which organizational structure does it belong to?”

We guarantee that just the answer to this simple question will provide you with a lot of valuable information.

What Is The Organizational Structure?

An organizational structure is a system that defines how specific activities, in this case, the software development process, are directed to achieve corporate goals. These activities may include the implementation of rules, roles, and responsibilities.

There are certain recognized organizational structures in the business world. The number of these business management models has increased in tandem with the growth of new companies and businesses.
Currently, there are five types of common organizational structures implemented in the real business world.

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.

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.

● 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.

● 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.

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.
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.

● Employees focus on a single job, task, service,
● There is more centralized leadership.

● Poor integration with other divisions,
● Possible tax implications,
● No communication between divisions and a feeling of working in separate companies,
● Furious competition.

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.

● 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.

● 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.

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.

● 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.

● 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.

● 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.

● Team roles may not be clearly defined,
● The decision-making process can be slowed down,
● Small or no control over employee performance.

What Organizational Structure Does CodeRiders Use?
At CodeRiders, we have adopted our organizational structure. We have mixed up all these approaches with our custom organizational structure ideal for our philosophy. Our organizational structure and philosophy are closer to flatarchy organizational structure.

Our company has 16 professionals, software engineers, designers, business development, and marketing specialists. The software development team is in charge of the quality of our software development services. The business development team is responsible for creating and implementing business and revenue growth plans and maintaining proper communication with partners and potential clients.

Continue reading the article on CodeRiders’ blog.