How to Decipher an Organizational Chart

An organizational chart visually represents a company’s underlying structure -- its departments and jobs, how those interrelate and how things such as information flow within the company. Managers creating an organizational chart aim for a structure that supports strategic goals. Because a company’s structure affects the company’s processes and ability to hit its targets, deciphering the organization’s chart can provide insight. Analysis can hint at such things as a company’s culture, employee independence, penchant for rules and tolerance for innovation.

At first glance, rectangles seem to dominate organizational charts. Rectangles represent either a department or a job position such as engineer or president. Depending on how detailed the chart is, the rectangles might include additional information such as the name of the employee holding the position. An empty rectangle drawn with a dashed line denotes unfilled positions.

Lines are another key feature of a chart. Solid lines represent line authority, which allows one person to give instructions to another -- the supervisor-subordinate relationship. Dotted lines represent staff authority or responsibility. Those holding staff authority advise other departments. Staff authority often flows upward, as it would from the legal department to a CEO. Dashed lines represent functional authority. People holding functional authority preside over matters belonging to their functions, even in other departments. Human resources managers, for instance, often have company-wide functional authority in training matters.

The vertical characteristics of a chart can be revealing. The most powerful people hold the highest rectangles, the least-powerful people reside in bottom boxes. Tracing the lines downward from box to box reveals the chain of command. This same chain represents the decision-making hierarchy, with power centered around the person highest on the chart. The longer the chain, the taller the chart, the height gained by adding management layers -- and the attendant bureaucracy. Communication also flows according to the lines, which additionally serve to depict reporting relationships between positions below and above.

The horizontal nature of a chart depicts spans of control, which refers to the number of people a manager supervises. When managers have wide spans of control, detailed oversight isn’t possible and employees typically have independence and even decision-making authority. The more horizontally oriented a chart is, the more this is so. Thus, a largely horizontal structure means decentralized authority and empowered employees. Companies using this flat structure adapt well to changing market conditions. A tall structure, with its greater rigidity, is more suitable for stable environments demanding steady, predictable efforts.

When managers undertake organizational design, they identify and create necessary job positions, and then decide how to group them: “departmentalization.” Decisions reflect the way managers think positions can best coordinate, share resources and produce to fulfill company strategy. Managers may departmentalize by functions such as assembly or research. This functional grouping creates efficiency and economy. Departmentalization might alternatively be according to product lines or services; by kinds of customers or market niches; or based on geographical markets. These three ways of departmentalization create company divisions that are better at responding to market realities than functional groups.