Organizational Charts: Why Every Company Needs One

Efficient companies need to be well organized and dedicated to planning ahead. An organizational chart, or org chart, can go a long way in accomplishing this. An org chart allows you to visualize the hierarchy and connections within your workforce.

Developing an org chart may highlight problems in the organization’s communication and workflow, but not all charts have the same goals. Discover what exactly is an organizational chart, different types, how they work, and how they can benefit your organization.

What’s an organization chart? 

Some org charts function as an employee directory with pictures, names, titles, and contact information for each worker. Unlike an alphabetized directory, however, employees in an org chart are organized according to their different teams and roles. Here are the most common types of org charts:

• Hierarchical org charts can look a bit like a family tree with a CEO (or board of directors) at the top. A few managers each oversee several subordinates. Entry-level workers and employees without subordinates populate the broad base of the pyramid.

• Matrix org charts show a web of functional connections between different teams. Individual workers may report to multiple managers or departments. Clusters of workers on teams may not have a rigid hierarchy.

• “Flat” org charts are more common with startups and small offices where everyone’s on the same “team.” Managers and CEOs still tend to have a hierarchical authority “above” the average employee. Flat charts don’t work as well with larger companies.

• Divisional org charts emphasize the separate (sometimes parallel) structure of different departments. Similar roles and structures may be mirrored in different locations. There may not be much communication between employees in different divisions.

Why are org charts important?

More than just fancy directories for employees, organizational charts can identify problems and make the company more efficient. Like any tool, org charts have to be used purposefully to have the desired effect.

• Staffing: Do you know which teams and departments are short staffed? Top-heavy organizations accumulate too many managers, often with redundant or overlapping roles. Could you improve efficiency by using an LMS to cross train employees in different skills?

• Budgeting: The workforce is one of the most expensive parts of running a business, and an org chart shows how that cost is spread across different departments. If you decide to offer bonuses and financial incentives to increase productivity, then an org chart lets you visualize the potential expense of incentives in different departments. 

• Communication: Stakeholders need to be given a heads-up on relevant decisions, and an org chart makes it easier to guess who should be CC’ed on emails. When objections and concerns are heard earlier in the process, you can prevent costly delays and unnecessary do-overs. Where some workers over-communicate and CC too many people, an organizational chart can also reduce the surplus of unnecessary emails.

• Hierarchy: It’s helpful to know who’s in charge of different processes and projects. Workers from different teams and departments may need to collaborate, and they may not have a clear leader or decision-maker. A hierarchical org chart should clarify chains of accountability as well as authority.

• Visualization: Describing roles and human networks can get tricky. Even when an organizational chart provides an incomplete picture, the simplification makes it easier to understand key structures. Communication backchannels help in a crisis, but org charts define the way a company is intended to function.

Benefits of an organizational chart

You don’t necessarily need an org chart to tackle issues like budgeting, but org charts offer a range of peripheral benefits. Beyond just answering “who’s in charge of X?” an organizational chart has the potential to improve a company’s overall efficiency. Here are a few examples of those benefits.

• Organization structure: An org chart can clarify the structure of companies where that detailed hierarchy hasn’t yet been formalized. As businesses grow over time, problems tend to arise in the areas with fewer official boundaries.

• Job responsibility: Who is held responsible for missed deadlines and other shortfalls? Projects tend to fail when nobody takes ownership, but it’s just as inefficient when multiple leaders have overlapping authority. A functional org chart can define the boundaries of different roles.

• Show relationships: Complicated team dynamics are easier to understand as part of a connected chart. Without going to the extreme, you can still find surprising insights about workflow and team dynamics. A permalink to your latest org chart should be one of the essentials for your employee handbook.

• Work efficiency: A functional org chart arranges teams and departments according to their roles. You may notice that some parts of the company seem overrepresented. Small departments and gaps in the org chart may correspond to bottlenecks in productivity. Without overemphasizing apples-to-oranges comparisons, you can expect productivity to roughly correspond to the number of staff in each department. 

• Work performance: Connected with efficiency and responsibility, you can use an organizational chart to compare the performance of different teams and employees. Managers and team leaders can also be evaluated based on the output of their subordinates. When roles and boundaries are more clearly defined, it’s easier to give credit for achievement and assign blame for problems. Explore all of a worker’s connections on the org chart to strengthen the employee review process.

• Work plan: A functional org chart clarifies how different teams and departments work together. Whether you’re onboarding new clients or hitting production targets, it’s important to understand which employees are responsible at each phase. An org chart helps with planning for the future and expanding the company. Some teams can be expanded and others may need to be duplicated, whether your company adds new clients or completely new services.

Discover how Netchex can help improve the communication and efficiency of your company with organizational charts: