Whether you are a start-up company or an organization with 100 employees, the organization chart is a tool that can be used to present a picture of the company to employees and to outsiders, to determine company structure and strategy, to determine job descriptions, and to develop senior management. For the small business, the organization chart on the right may feel closer to reality. The purpose of the Topic of the Month is to help the business avoid the frustration of organization structures, while taking advantage of the benefits of having organizational clarity.
Properly used an organization chart depicts the operational structure of the organization and the operational relationship of the staff to each other within the company.
Depth of Organization
There are three primary forms of management reflected in organization charts: hierarchical, matrix, and flat. These three have distinct advantages that cause them to be better used in different types of businesses.
In a hierarchical organization, every position is subordinate to another except for the person in the top role. This pyramid style chart is the most common organization structure and is found in corporations, governments, churches, and non-profit organizations. The benefits of this structure are that roles and reporting are clearly defined and allow for the organization to grow through the delegation of management. The chart above is an example of a hierarchical structure. The key weakness of hierarchical structures is limited inputs in senior levels. An attentive management team will not have this issue, but for many organizations the tendency is for the lower levels to not have initiative because it is strictly a downward flow of order. This is why one will hear of centralized organizations moving to decentralized, or that a plan needs “buy-in”. What we find in practice is that hierarchical organizations can work as well as other structures; it is just depends on the execution of management. If a company needs change, a hierarchical structure will often be used.
Professional service organizations often use a matrix structure. In a matrix chart, staff are pooled by skill set and report to a manager, but also report to a different manager for a particular job or project. For example, an engineer might report directly to an Engineering Manager for most duties, but report to a Project Manager on a current project. Matrix structures are also found where there are multiple locations with the need to share resources in delivering customer services. While the matrix method allows for more direct sharing of information across task boundaries and specialization for increased knowledge, it can also result in confusion with the need to report to multiple managers simultaneously. Communication within matrix organizations is critical. Even smaller organizations will need to set aside time for regular meetings to affirm reporting and execution in the matrix structure.
A flat organization, such as the chart below, eliminates most levels of middle management. For small businesses, this is how most develop and can be a cost-effective and productive method for running the organization because the owner has direct interaction and feedback from staff. However, as the organization grows, it will typically need to implement a more hierarchical management structure in order to maintain increased productivity. Concentrated management on one or two people will hinder the speed of decision making process and the ability to grow. Interestingly one of the first management lessons is on this point and was delivered 3,500 years ago to Moses by his father-in law. (See Exodus 18).
Presenting the Company
An organization chart allows for the presentation of the company both to employees and to outsiders. The business will have several key functions in it business model. Generally these are the product or service, sales and marketing, and administration. By charting the business with these positions and the specific functions that lie within each, the position of the staff are now aligned to the business activity. Weaknesses or vacancies can be quickly seen. This allows for both growth in the current members of the firm and for planning for needed resources in the future.
A small business organization chart might look like the following:
An organization chart is a useful planning tool which helps to lay out the structure of the company as it currently is and as it will be three years from now. Cathedral likes to ask a company to consider what the business will need to look like to do double or triple the current activity. By using an organization chart to show the larger scale and the staffing positions needed to deliver this scale, the organization chart allows planning around the required functions and who will fill the roles. For example, an outsourced bookkeeper/accountant might fill the primary financial function while an outsourced marketing team may fill the marketing role. As part of a business plan, an organization chart gives bankers and investors confidence in your ability to manage the team and that you understand the roles that need to be filled.
An organization chart, such as the one above, can be used along with the number of people per position and targeted revenue and profitability for a simplistic long-term planning tool.
With the organization chart including every member of a company, especially the smaller business, all of the activities of the business can be reviewed. The chart will show whether all of the jobs are covered and who covers that job.
Now the roles within the organization chart can be developed into written job descriptions that communicate responsibilities and relationships to colleagues. The position should be defined to cover all of the key areas of responsibility, but it is not necessary to write every duty that the employee will perform. Required skills and levels of education are also outlined for the role. When job descriptions are posted as part of the hiring process, they may also include the compensation and benefits for the role.
As your business grows, the organization structure will grow with it. What begins as a flat chart consisting primarily of the founder and an outsourced support team, will typically add management layers. While some companies seek to remain flat for increased productivity of each member, there typically comes a point where management hierarchy is needed in order for the company to continue to grow.
Adding the management levels requires the development of managers. Using the professional firm as an example, a great professional client service colleague does not mean he is a great manager. Companies may hire managers from the outside or grow them from lower level staff within the company.
The benefit of an in-house hire is that the company culture is reinforced, relationships are established, and the company’s pattern for client service is known. Some of the challenges of growing one’s own management can be (a) the problem of knowing the person’s weaknesses, (b) the discipline of actually investing in training of individuals for the new level, and (c) the patience to allow the person to develop into the next level.
Many companies will look to hire from outside the company. Outsiders may allow a change in culture if desired, a new level of knowledge, and new ideas to be brought to the company. However, bringing in outsiders also means that individuals in the company will not see a career upside. This will often cause loss of best talent. Also too often companies hire from the outside, because they do know the weaknesses of the current people, and look for a “silver bullet” to solve growth or management issues. Cathedral would caution companies that are looking for the outsider to reflect on these downsides.
- Create or review your organization chart.
- Create an organization chart for your company if revenues doubled.
- Create or review job descriptions.
Articles for Further Reading:
- “The New, Improved Organization Chart.” 01 Oct. 1992. Inc.com. One owner abandons the traditional model for a flatter, and more productive, structure. http://www.inc.com/magazine/19921001/4339.html
- Fried, Jason. “Why I Run a Flat Company.” April 2011. Inc Magazine. The President of 37Signals decided to use rotating team management rather than hire managers as departments grew. http://www.inc.com/magazine/20110401/jason-fried-why-i-run-a-flat-company.html
- Swyers, Matthew. “4 Essential Steps to Managing Growth. 26 Jan. 2012. Inc.com. http://www.inc.com/matthew-swyers/4-essential-steps-to-managing-growth.html
- Lagorio, Christine. “How to Write a Job Description.” 01 Apr 2010. Inc.com. http://www.inc.com/guides/2010/04/writing-job-description.html