Technology, Org structure

What is the Best Tech Company Organizational Structure?

By: Tim Brewer

When you think of tech companies, large enterprises like Apple, Google and HP probably come to mind.

But there are a million different types of tech companies out there. Even mega tech companies such as Google started out small. Amazon started as a simple, online bookstore with a few staff in Jeff Bezos' garage. But that’s far from the organizational structure of Amazon today.

You may imagine that the organizational structures of these big tech companies are intricate and complex. They most definitely have many employees and a need for documentation to streamline communication, hierarchy, and workflow.

Whatever organizational structures are used, they are designed to make the process more intuitive, with the structure scaling to make new channels run smoothly.

While small tech startups can begin with simple, flat organizational structures, things need to change when the company scales.

One of the best ways to think about this is to observe what other innovative companies have done in this area, and how their experience may inform what will work best for you and your company.

Tech Company Organizational Structures Favor Innovation

When we dig into specific companies, we find something unique in the tech category. No matter how large the company becomes, the structure remains flexible to favor innovation.

Apple's Move to 'Unitary Organizational Form'

Prior to Steve Jobs's return in 1997, Apple used a standard hierarchical organizational structure, with divisions headed up by individual managers. In this structure, the managers were equal in terms of authority, and none had authority over each other.

The problem was that these managers would argue over which initiatives to prioritize, creating decision-making bottlenecks. As each manager was equal, none could override the other.

When Jobs returned as CEO, he found the structure stifling, so changed it to allow innovation to prosper.

His solution was to eliminate all managers in one fell swoop. He restructured the organization so all departments answered to the CEO.

In other words, Jobs switched to what’s known as a unitary organizational form.

This type of structure divides personnel by their expertise. Each discipline is headed by one person who leads the team of employees that all work in that department. This structure is still a hierarchy: there are people who oversee other employees beneath them.

What’s unique is that none of the departments are divided by products. This means that each of the departments must work together on each product line.

In tech businesses, the ability to be flexible is paramount because so much of the business relies on the ability to meet the needs and trends of the time.

Amazon's "Two Pizza Rule"

The structure for Amazon is hierarchical, with flexibility. In such a large company no CEO would ever be able to run all the moving parts for each employee. A purely flat model here would never work.

To keep things nimble, the Amazon organization developed a structure where individual teams were created to be small. This meant that each individual had a larger voice and teams could be more creative and productive.

Bezos created this structure and called it the “two pizza rule”. Any team should be small enough to be fed by two pizzas.

Two Pizzas Amazon Team

Amazon; no team big enough that can't be fed by two pizzas

The organizational structure is still a hierarchy.

But tech companies that excel make sure that they organize to encourage creativity and flexibility because it’s a necessary component for their industry.

How Are Tech Startups Organized?

The most common tech startup organizational structure is a flat structure.

In this type of structure, the CEO or owner is the head of the company. They are the person with ultimate decision-making ability. Typically, they also need to be hands-on with most of the business operations.

The rest of the employees in a flat structure have the same amount of authority. In other words, employees don’t have supervisors, managers, and other people above them in seniority to who they need to answer. The employees would only be hired and terminated by the head of the organization.

For startups, the flat structure works because it gives every person in the company autonomy. These tend to be creative, fluid companies on a search for a business model, a customer base and product-market fit. The structure also needs to allow every employee to 'feel equal', which in turn fosters a good company culture and amps up productivity.

However, large tech companies cannot deploy a flat structure successfully. It’s simply not feasible to run that scale of operations without a more defined organizational structure. Staff would burn out, as there would be too much on everyone's plate. Productivity would drop, and the business would grind to a halt.

As tech startups scale up beyond the startup phase, so the organizational structure needs to change to facilitate better communication without limiting the flexibility that can help the company expand.

What Is the Best Organizational Structure for a Tech Company?

The answer to 'what is the best organizational structure' will often depend on the type of company.

There are many types of tech companies: there are pure software companies, SaaS, PaaS or a company that develops and sells many different products. Tech companies are not one size fits all.

What all tech companies do have in common is the fact that they need to stay current and many of their products and services will need monitoring and updates. Because the type of business necessitates a high level of movement, the organizational structure may need to be individualized for the company.

Here are some options for the tech company...

1. Functional Structure

This traditional hierarchical structure would have the CEO or Founder be at the top of the organizational chart.

For larger tech companies, there may be a Board of Directors that sits above the CEO. In some companies, there may be co-founders and often these officials have identical authority, although one may serve as an acting CEO or President which also includes separate responsibilities.

Beneath the founder/president/CEO there would be a second tier of executives. These might be the heads of departments or the heads of specific products. These department heads would be equal in authority and may have to work together on projects.

Beneath those department heads, there may be managers, supervisors, or team leaders. Beneath those positions, you would have staff.

In the functional structure, there’s a set process for which employee is responsible for set duties and who each employee needs to communicate with both above and below them in authority.

The functional structure can be organized in a few ways:

  • Product-based. Here departments are divided by the different products the company has created: if your software company created three different types of software, you would have one head of each product division. The teams would be filled out to work on those individual products, much like a smaller company for each product that exists within the larger organization.
  • Market-based. Teams are divided by the market: for example, a luxury division, economy division, and a basic division. In other types of companies, it may be organized by industry, so if your software catered to seven industries, you may have departments that specialized in each industry.
  • Geographical Locations. Larger organizations may be located all over the country or the world. With a division in geographical location, each separate area would have its own hierarchy and would run separately from the other offices.
  • By Expertise. You might also split your department by expertise such as marketing, IT, Development, administration, and HR.

Interactive Org Chart - use tools to zoom, view job details, etc... © Functionly

2. The Matrix structure

You can use more than one of these functional options, so that departments could be based on expertise but also teams divided by product types or market types. The matrix structure can be more complex to define but works well for some companies.

3. The Flat Organizational Structure

In a flat structure, everything falls on the CEO or head of the company. However, there are different ways to develop this structure that can work well for smaller tech companies.

  • Circular. The circular structure is laid out like a target, with the highest officer in the center. This can be a flat model, or it can be a hierarchical model, with the highest-ranking executives in the center moving outward. The basic premise for this structure is that the owner/founder/head of the organization is in the center with their influence spreading outward rather than at the top of a structure that flows down.
  • Organic. The organic model can be exceptionally fluid. It can be organized in any manner that works for the company but each of the employees is equal.

Tech Company Organizational Structure in the Future

Tech companies have changed the ways business has run over the course of the past few decades. Four of the five most valuable companies on the planet are tech companies, but some are still 'teenagers' in terms of their age.

The traditional hierarchy model is no longer the only option, and it may not be the best option.

When considering the best organizational structure, companies need to consider the type of company culture they want to use to engage their staff.

Employees are often less inclined to stay at a company where they are unhappy. Today’s workers want a good balance in their lives and that includes the ability to contribute meaningfully to their careers. Flat models have been prized by many startups because workers find the lack of hierarchy to be a better fit and offer more autonomy. Staff may be willing to trade higher salaries they may get elsewhere for the sense of fun, discovery and excitement of a fast-growing startup. But how you organize them for the best outcomes is key.

More companies are adopting remote work options and many companies are supplementing full-time staff with freelance expertise.

If you’re outsourcing or partnering with other companies to handle some facet of your business processes, that should also be reflected in the organizational chart to avoid confusion.

There is no right or wrong answer. The best organizational structure for a company is one that promotes excellent communication, productive environments and supports the best outcomes.

Functionly-icon: Let us help you!

For a fast-growing tech company, managing the balance between the need for agility, fast growth and order is one that we understand at Functionly. It is why we exist.

Why do many tech companies fail to scale up successfully? Something seems to 'break' when they went pass 25 or 30 staff. Organization is imposed and productivity falls. Yet you need organization.

'Could we build something, some technology, that could assist these companies?' we thought.

And so we did. With Functionly.

Would you like to 'scenario plan' your growth... check which staff should go where, what tasks they should do, and how they are best placed and organized?

With Functionly, you can place 'hypothetical' staff into 'new' departments and arrangements. And so much more. Involve your staff and managers in the process. 

This could be the most important factor behind your success, and it's too important to be left to chance. To help you, we have created a free tool (forever), and a free trial of the full Functionly environment.

Start your journey to happy, healthy and ultimately successful organization today, with Functionly. Today.

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Sources:

  • Amazon Organizational Structure: a brief overview, John Dudovskiy, Business Research Methodology, 24 Mar 2020
  • How Apple Is Organized for Innovation: It’s about experts leading experts, J. M. Podolny and M. T. Hansen, Harvard Business Review, Nov-Dec 2020
  • 9 Types of Organizational Structure Every Company Should Consider, Erik Devaney, Hubspot

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