Organizational charts are detailed representations of organization structures and hierarchies. They are typically used to provide both employees and individuals outside the organization with a "snapshot" picture of its reporting relationships, divisions of work, and levels of management. Obviously, smaller firms—whether they consist of a single owner of a home-based business, a modest shop of a few employees, or a family-owned business with a few dozen workers—are less likely to need or to use organization charts. Small organizations can get along very well without them as long as everyone understands what he or she is to do and with whom to do it. But many consultants and small business owners contend that an organization chart can be a useful tool for growing firms.
Business owners endeavoring to allocate responsibilities, activities, and management authority to various employees also have to make certain that they coordinate the activities of those employees to avoid gaps and/or redundancies in operations and management. "It is helpful to think of organizational design elements as building blocks that can be used to create a structure to fulfill a particular purpose," stated Allan R. Cohen in The Portable MBA in Management. "A structure is built by defining the requirements of each individual job and then grouping the individual jobs into units. These units are grouped into larger and larger units and coordinating (or integrating) mechanisms are established for these units. In this way, the structure has been built to support organizational goals and achieve the key factors for success." Ideally, a detailed organizational chart will provide the business owner or manager with an accurate overview of the relationships of these units/responsibilities to one another and a reliable indication as to whether the firm is positioned to meet the business's fundamental goals.
While organizational charts are commonly used by mid- and large-sized companies, as well as by significant numbers of smaller businesses with varied operations and a substantial workforce, their usefulness has been a subject of some debate.
Supporters of organization charts claim that they are tools that can effectively delineate work responsibilities and reporting relationships. Managers of different organizational units may not fully understand how their work fits into the work of other units. An organization chart can provide this relationship guide and thus prevent the development of illogical and confusing relationships. In fact, the very process of charting the organization is a good test of the company's structure because any relationship that cannot be charted is likely to be confusing to those working in it.
Supporters also argue that "org charts" can be particularly useful as a navigational tool when small businesses expand their operations. Small firms that do rather well in the early stages of their development often begin to fail when the founders can no longer manage everything in their personal styles. The transition from small firm to successful large firm is impaired when employees are allowed to do jobs that fit their personality and unique skills rather than jobs necessary for organizational performance. The early adoption of an organization chart can help to identify the areas in which a small firm is lacking the supervisory role before this lack begins to have a more serious impact on the organization.
The above perspective is not universally accepted by business consultants, researchers, executives, and managers, however. Detractors point out that formal organization charts do not recognize informal lines of communication and influence that are quite vital in many business settings. Organization charts are often seen as narrow and static in perspective. They may exclude important relationship and reporting factors like leader behavior, the impact of the environment, informal relations, power distribution, etc.
Critics of organization charts also sometimes charge that the diagrams may paint a misleading picture of the importance and influence of various people within an organization. Charts are, out of necessity, somewhat streamlined representations that only provide so much detail to a user. In some instances, for example, an organization chart may depict two employees as being equal in power and influence, when in reality, one of the individuals is rapidly ascending through the ranks and has the ear of the firm's principal decision-makers, while the other may be regarded as steady but unremarkable (or even worse, an individual whose position has deteriorated from a higher level over the previous years).
Finally, observers suggest that organization charts may encourage individuals to take a very narrow view of their jobs and in this way the org chart may discourage the development of leadership skills in some employees. In these situations, the result is an organization that is not responsive to change and lacks flexibility. The organization chart and all the supporting documentation become substitutes for action and creative responses.
As alluded to earlier, the process of constructing an organization chart is sometimes cited as a valuable means by which a company can test its structural soundness. Proponents say that charts can be used to ensure that no one individual's productivity is constrained by the organizational structure.
Researchers, consultants, and executives note that this benefit can be even more pronounced in today's business world, which has seen dramatic changes in operating philosophies and management direction over the past few decades. Indeed, corporations are increasingly implementing innovative organizational redesigns in efforts to increase their productivity. The growth in cross-functional teams and the increasing frequency of reorganizations increase the usefulness of organizational charts for keeping track of operational relationships and lines of authority. It is important, then, for businesses that do rely on organizational charts to continually examine and update those diagrams to ensure that they reflect current business realities. In fact, the changes in organizational structures have spurred innovative changes in the format of many organizational charts. Whereas traditional models have been formatted along general "up-down" lines, newer models sometimes utilize flattened or "spoke" frameworks.
Cohen, Allan R. The Portable MBA in Management. Second Edition. John Wiley & Sons, 2002.
Doloff, Phyllis Gail. "Beyond the Org Chart." Across the Board. February 1999.
Dressler, Soeren. Strategy, Organizational Effectiveness and Performance Management. Universal Publishers, 2004.
Galbraith, Jay, Amy Kates, and Diane Downey. Designing Dynamic Organizations. AMACOM, 2001.
Longenecker, Justin G., Carlos W. Moore, J. William Petty, and Leslie E. Palich. Small Business Management with Infotrac. Thomson South-West, 2005.
LaZara, Vincent A. "Put the Customer on Top: Updating Your Organizational Chart." Manage. October 1999.
Hillstrom, Northern Lights
updated by Magee, ECDI