New businesses often operate without a formal organizational structure as the owner collects trusted employees to form an inner circle that handles the management duties of the company. As companies grow, it becomes obvious that duties need to be more specifically assigned, leading to a more formal corporate operating system. Using a standard progression for organizing your business by function, you can create a hierarchical structure that identifies managers and subordinates.


As you begin to move from a flat organizational structure, or one with no bosses and subordinates, to a hierarchical structure, write a list of departments or functions your company needs. Before you decide who’s going to be a vice president or manager, you need to know what they’re going to manage. Traditional departments include human resources, accounting, marketing, sales, administration, technology and production.


The larger your departments, the more titles you’ll need as you assign specific duties to people within a department. A small department, such as the marketing team of a business that does little market research, product development, advertising and promotions, might have a marketing coordinator. This person assists the owner in executing ad buys or sales promotions. If the business pursues significant marketing activities, it might have a director who plans strategies, a manager who executes strategies and a coordinator who assists the director and manager. If the marketing department assigns advertising, promotion, social media, sales and public relations activities to specific people, these people become managers, working under the department director.

Organizational Chart

A hierarchical structure lends itself to the creation of an easy-to-follow organization chart, often drawn as square boxes with titles in them and vertical lines leading downward from one box to the next to clearly show who works for whom. This diagram grows horizontally and vertically as executives have more than one person reporting to them and more employees are added. For example, the owner of the company, often called a chief executive officer, might have the chief operating officer, chief financial officer and marketing director report directly to him. The marketing director would have the advertising, public relations, sales and promotions managers under her. Each of those managers would have direct reports, or subordinates, appear beneath those positions on the chart.

Chain of Command

A hierarchical structure creates a chain of command that limits who takes orders from whom. This prevents breakdowns in communications that can lead to work not being performed, morale problems and insubordination. Even a CEO should only go to people directly under him on an organization chart out of respect for those directors or vice presidents. For example, if the owner of a company wants a news release written about a particular activity he feels is important, he should not meet with a PR coordinator and assign the task; the CEO would meet with the marketing director and ask her to assign the task to the right person in her department. Likewise, a marketing coordinator who is upset with her manager would not bring her problem directly to the CEO. The coordinator would first speak with her manager and then report the problem to the marketing director. If the coordinator did break the chain of command and went to the CEO and the CEO agreed with her, the CEO would not talk to the manager but would contact the marketing director who is directly under him.