What Is the Purpose of an Organizational Chart?

by Kyra Sheahan; Updated September 26, 2017
Organizational charts illustrate a company's chain of command.

Organizational charts (“org charts”) are useful business tools that depict the staffing order of a company. Commonly illustrated in a hierarchical format, org charts help people identify who does what in an organization, how many staff work in a company and what the chain of command is. This information is beneficial to internal staff, HR departments, stakeholders and board members.

Features

Org charts are most commonly developed in a hierarchical format, with the chief executive officer or president of the company at the top. Through a series of linear connectors, the company’s chiefs, executives, managers and line staff fall into place in a sequential chain of command.

Workforce Development

Organizational charts show how a company is staffed, and, according to the New York State Department of Labor, staffing patterns are important to human resource (HR) departments to use for workforce development initiatives. Evaluating staffing patterns help companies identify if a certain department is operating too lean, of if some departments are too heavily staffed. Companies want to have the appropriate amount of staff to fulfill the work that needs to be done. Org charts can help HR departments figure out what types of workforce development opportunities exist for their company.

Benchmarking

In business, benchmarking means comparing your organization to your competitors’ in terms of strategies, objectives, profitability and staffing. According to Physicians Practice (a website dedicated to providing doctors with useful business tips), companies use org charts to conduct staffing benchmark activities to see who, among the competition, has more of a workforce advantage. If one company has a larger workforce, this might put them in a competitive advantage amongst their industry competition. Physicians Practice uses the example of doctors. When one hospital has more doctors on staff than another, the hospital with the most doctors can most likely serve more patients and bring in more revenue. Therefore, that hospital gains competitive advantage.

Budgeting

Org charts can be used to let companies know what their baseline is for budgeting activities. When departments are asked to submit their annual budget proposals to a business finance department, organizational charts will help managers see how many staff they have working for them, whether there are unfilled positions and if they should include those unfilled positions in the upcoming year’s departmental budget.

Communication Chains

Organizational charts are sometimes used as contact lists. Companies may pass out the charts to internal staff that have employee contact info on the chart, so that people can get a hold of one another when they need to. This can be especially useful if you want to contact someone’s boss to file a positive or negative report on an employee. By using the org chart as a guide, you will be able to see whom the boss of who is.

About the Author

Kyra Sheahan has been a writer for various publications since 2008. Her work has been featured in "The Desert Leaf" and "Kentucky Doc Magazine," covering health and wellness, environmental conservatism and DIY crafts. Sheahan holds an M.B.A. with an emphasis in finance.

Photo Credits

  • top of the chart image by Steve Johnson from Fotolia.com