Businesses and organizations operate in systematic ways that reflect the size, purpose, stage of development and goals of the company. An organizational chart or org chart is a visual representation of this internal system and structure that makes company operations and roles easier to understand. Since not all organizations operate in the same way, there are different types of organizational chart structures, including functional, matrix, divisional and flatarchy. Each of these company organizational chart layouts has a unique appearance and provide a detailed snapshot of the organization's structure. Organizational charts are an excellent tool to visualize reporting relationships and team roles within the organization.
Why Organizational Structure Matters
A famous quote by Hockey Hall-of-Fame inductee Wayne Gretzky says that we miss 100 percent of the shots we don't take, which in the context of hockey, life and business means you cannot achieve a goal if you don't take action, or "the shot_."_ The vision and mission of a company can be compelling, but without a clearly defined structure, an organization has no direction, no clear-cut objectives and goals on which to take action, therefore missing 100 percent of its opportunities to achieve success. For example, in a haphazard organization, employees and departments may not understand their role and the importance of their contributions, which can lead to a lack of morale and burnout. When a company visually defines its organizational structure, the job descriptions, relationships and roles of individuals and departments are clarified, and reaching goals becomes much easier.
As an organization grows, the company organizational structure chart may need to to be modified to reflect changes within the company as it evolves. For instance, a startup could begin with a flatarchy chart, but as they gain momentum, move to a divisional chart as new regions and sub-brands develop. When your current business structure is not empowering your teams to fulfill their objectives quickly, seek guidance to evaluate whether reorganizing your structure would restore momentum and more quickly achieve your goals.
Types of Organizational Chart Structures
An organizational structure chart looks like a map of different people and departments within an organization; the business equivalent of a family genogram that depicts the relationships between various members of a family. Just as a family genogram helps us understand the structure of a family and the roles of people within the family, an organizational structure chart helps us understand the roles of individuals within a company.
These are the four major types of organizational chart structures that might reflect your company's current operations or help you restructure into a different mode of operation:
- Functional: A functional company org chart depicts what most people would associate with bureaucratic or hierarchical modes of operation. This is a traditional top-down structure with the C-Suite at the top, followed by other senior management and middle managers with the most power and influence in the company. There are relatively few employees listed at the top of the diagram, with more and more employees or departments listed toward the bottom of the diagram. The farther down you go in the organization, the less power people have. People are divided into departments depending on their function or skill set within the company. Examples of hierarchical organizations include the military, most corporations and organized religions. One major advantage of a functional structure is the ability of each employee and department to focus only on what they do best, without worrying about the other working parts of the organization. At the same time, lack of communication between departments can slow down progress toward the organization's overall goals, as the right hand often has no idea what the left hand is doing.
- Matrix: A matrix company org chart is similar to a functional company structure chart, except that employees report to at least two supervisors, depending upon the situation and project. For instance, they may have one main boss, but then different project managers for three different projects they are currently working on. This means that they are responsible for reporting to four different people. While this chart still shows primarily top-down relationships, you will also see horizontal relationship lines between people or departments at the same level because people must report to each other on specific projects. One advantage of the matrix system is that it allows for easy communication between divisions. But a disadvantage of the matrix structure is that employees can be confused or overwhelmed by having to report to so many different superiors at once, each with their own management style and demands.
- Divisional (includes geographical): A divisional company structure chart applies to large companies that include several brands or geographical locations under their umbrella. The Gap is an excellent example of a divisional organization. On their organizational chart example, The Gap is listed at the top, and then the brands they manage are listed on the second level of the chart, including The Gap, Old Navy, Banana Republic, Athleta and Hill City. Each of these divisions then has their own functional structure on the organizational chart. Another company that operates this way is Fabletics, with their name listed at the top of the chart and then their brand divisions on the second line, including JUSTFAB, Shoedazzle, and Fabletics and Fabkids, with each division having their own functional structure. Divisional charts may include different types of organizational chart structures under each division. While one division operates with a functional structure, another might use a matrix structure, while a newly developing division is best categorized as a flatarchy. The strength of the divisional structure is that different divisions within the same company have the power to operate autonomously as organizations. However, communication between the divisions can be difficult, and differences in policies and procedures can make employee experiences radically different from one division to the next.
- Flatarchy: In a flatarchy, employees are welcomed to contribute new ideas or participate in think tanks, regardless of position. The organizational chart still resembles a hierarchy, in that there are supervisors, yet supervisors and employees may be lumped together in categories called, "flat teams," where the ideas of everyone are equally important. Companies like Google, Linkedin and 3M all welcome their employees to participate in innovation groups and provide time for individual creativity and projects that could benefit the entire organization. Instead of new ideas coming from the top down, new ideas are welcomed from wherever they are naturally generated. The strength of the flatarchy lies in the wealth of possibilities that are opened up for the organization when new ideas are not limited to the minds of a select few. Nevertheless, a strong mission statement and vision statement are needed to keep everyone on the same page to avoid pursuing ideas in too many different directions at once.
Creating an Organization Structure Chart
Once you understand whether your organization operates using a functional, matrix, divisional or flatarchy structure, you can create an organizational structure chart that reflects your mode of operations. Microsoft Office, Airtable, SmartDraw and Insperity OrgPlus are software offering organizational charting capabilities that allow you to choose your desired structure and then simply plug in the appropriate information for each position, department or division within your organization. This software automatically creates a chart that you can use to increase communication and efficiency in your organization. Options range from free to paid versions, with the free versions most appropriate for smaller businesses and the paid ones more appropriate for larger organizations or those who want highly customized graphics.
Your finished organizational chart can be helpful for explaining roles to management, helping employees understand paths to promotion within the company or communicating plans for the future. Some companies use their charts for a dual purpose as a company directory, complete with phone numbers and email addresses.
During a time of organizational transition, drawing up a variety of organizational structure charts can help you brainstorm by evaluating each structure and how it could benefit your business – an invaluable tool for making informed decisions going forward.
- Investopedia: Organizational Structure
- Point Park University: Four Types of Organizational Structures
- SmartDraw: Types of Organizational Charts and How to Use Them
- University of Minnesota: Principles of Management: Organizational Change 7.5
- Journal of Business and Research: Approaches to Changing Organizational Structure: The Effect of Drivers and Communication
- Microsoft Office: Create an Organization Chart
- Airtable: The Modern Org Chart
- Insperity OrgPlus: OrgPlus RealTime