Organization Chart

Representing the formal structure of a firm in terms of authority, functions and relations. Explanation of Organization Charts.

What is an Organization Chart? Description

Every organization has both a formal and an informal organizational structure. Examples of organizational structures are:

Hierarchical structure (typical for the small, entrepreneurial organization)
Line-staff structure
Functional or Departmental structure (based on function, products/service, customer type, geographic region)
Matrix structure (dual reporting lines)

These formal structures of organizations can be represented in the form of an organization chart. Sometimes also referred to as organizational chart, organigram, organogram, or org chart. It graphically shows the hierarchical authority, roles and responsibilities, functions and relations within an organization. For a new employee, the organization chart helps to understand what should happen within the firm. (The informal structure represents what is actually occurring within the organization.)

Line-staff Organization Chart Many people have pointed out weaknesses and limitations of org charts. Others have coined a dizzying array of buzzwords to categorize organizations, including networked organizations, transnational organizations, front-back organizations, boundaryless organizations, learning organizations, virtual organizations and social networks.

Nevertheless organizational design continues to be one of an important and challenging demand on top management, because it influences and interconnects the business and corporate strategy, marketing, decision-making, communication, finance and investing, and leadership within any organization. And organization charts will continue to play a major role in this process, although they may look quite differently from the traditional tree-like forms of the past. Simply because people can more quickly absorb information when it is shown in a graphical way.

Origin of the Organizational Chart. History

It is not unlikely that the ancient Egyptians already had documented their methods of organizing the division of labor for their massive public works projects in one way or the other. However the first real organization chart was probably created in 1854 by Daniel McCallum, superintendent of the New York and Erie railroad company. Functional Organization Chart McCallum was responsible for creating a line for nearly 500 miles stretching from Jersey city through Pennsylvania and New York to the shores of the Great Lakes.

McCallum noted that "other things being equal, a long road should be operated for a less cost per mile than a short one". But things were not equal. The essential functions of a railroad company - coordinating the delivery of freight and people, repairing cars and track, monitoring the positions of trains - were vastly more complicated over 500 miles than over 50 miles. Without effective organization, additional miles of track made railroads more costly to operate. McCallum developed the organization chart, which according to writer Henry Varnum Poor resembled a tree. Its roots represented the president and the board of directors. Its branches were the five operating divisions and the passenger and freight departments. Its leaves indicated the various local ticket and freight agents, crews and foremen, and so on.

Historically, the organization chart is a symbol of the evolution of Western industry from being fundamentally personal in nature to enterprises in which the creation of organizational capabilities became a prerequisite for survival.

Usage of the Organization Chart. Applications

Defining the roles and responsibilities of all personnel within the organization.
Establishing a hierarchical structure of authority, power and, hence, decision-making.
Establish communication channels and information flows, incorporating a chain of command with specific rules and regulations relating to reporting procedures and accountability methods.
Establishing control mechanisms, such as the degree of centralization and the span of control. Compare: Centralization and Decentralization.
Establishing strategies for co-ordination of work practices.
Establishing decision-making processes.
Establishing specific operational functions and tasks.

Creating an Organizational Chart. Process

Robert Simons (Levers of Organization Design, 2005) suggests that there are four main tensions or levers underlying any organization design:

Strategy (structure follows strategy) versus Structure (organization design influences future strategies)
Accountability (for today's goals) versus Adaptability (to future changes)
Ladders (vertical hierarchies) versus Rings (horizontal networks)
Self-Interest (individual) versus Mission Success (department, business unit, corporation).

Compare also: Greiner, Growth Phases and Simons, Levers of Control.

Strengths of the Organization Chart. Benefits

Transparent and predictable. Helps to understand what should happen within the firm.
Provides a quick snapshot about the formal hierarchy in an organization.
Who is in charge of what. Who reports to who.

Limitations of Organizational Charts. Disadvantages

Static and inflexible. Organizations change and go through Growth Phases.
Does not help much to understand what actually happens within the informal organization. In reality, organization often behave quite chaotic and follow complex guesswork and amplification mechanisms (Core Group Theory).
Traditional org charts can not cope with changing boundaries of firms due to Outsourcing, Information Technology, Strategic Alliances, and the Network Economy.

Book: Robert Simons - Levers of Organization Design -

Organization Chart Forum (24)

Levels in Organisations and Role Clarity
"Broadly-based on the concept of the Requisite Organisation and Stratified Systems Theory (Elliott Jaques), we can distinguish the following Levels in Organisations:
Level 1: SPECIALIST, time horizon short, e.g. day-to-day, perhaps sometimes week-to-week; competent "hands-on skills" to complete a task or activity.
Level 2: SUPERVISORY, time horizon weekly or perhaps a few months; competent in supporting and co-ordinating workers to achieve set standards.
Level 3: MANAGEMENT, time horizon a year or perhaps 2 years; competent in constructing, connecting and fine-tuning systems to optimal utilisation of resources.
Level 4: STRATEGIC, time horizon 2 – 5+ years; being competent in a unified work system by understanding the organisation's purpose and integrating new futures, new services and products including positioning the organisation within the market context.

When organizations achieve an appropriate hierarchical organization, when people at each level are cognitively matched to the capabilities required at that level and focus on their roles at each level, clearly aware of the boundaries between levels, organizations and their people both achieve their full potential.
An important role for the CEO is to ensure that each of his/her leadership team members are clear about where in the levels he/she is and has the appropriate level of competence for that level and that he/she is interested in performing at that level."

Organization Chart for Export / Import Business
"What way is the best to organize an export/import business (in terms of staff and their responsibilities) given that: products are manufactured in HQ Germany, imported to Mexico from Germany and exported directly from Germany to all other countries in Latin America?
All invoicing and PO processing is done from the Mexican subsidiary.
Would you group operations based on type of business: import or export or on type of activities that staff is performing? Why?"

The Fluid Organogram
"Organizational design today has to respond to local, strategic and global challenges – normally unpredictable. In this context I propose the fluid organogram coupled with clutter free communication:
- A fluid organogram is one that almost imperceptibly aligns itself with the dynamics and demands of change, while
- Clutter free communication calls for the smoothest, the most direct and uninterrupted flow of information from the most important to the most trivial and vice versa."

When is an Organization Design Good? 7 Indicators of an Effective Organization
"Today, most managers believe that happy, committed, actively involved employees and a positive corporate culture are important measures of effectiveness.
Richard L. Daft in his book 'Organization Theory and Design' says there are seven indicators of an effective organization as seen from an internal process approach:
1. Strong corporate culture and a positive working climate.
2. A high team spirit, group loyalty and teamwork.
3. Confidence, trust and communication between employees and management.
4. Decision making near sources of information, regardless of where those sources are on the organizational chart.
5. Undistorted horizontal and vertical communication; sharing of relevant facts and feelings.
6. Good rewards to managers for performance, for growth and development of workers and for creating an effective work group.
7. Interaction between the organization and his parts, with conflict that occurs over projects resolved in the interest of the organization."

What are Line Relationships?
"Line relationships are superior-subordinate relationships and can be traced in a "chain of command" from the organization president through a succession of levels of managers to the lowest worker."

How do You Keep Organizational Charts Current?
"Organization charts are most commonly out-of-date because they are such a fuss to prepare and update. The majority of organizations are using PowerPoint, which creates attractive charts for smaller organizations. Templates are available that can speed the process.
When a (larger) organization decides to eliminate the clerical/manual effort and automate the creation and updating of the organization charts they can use a tool such as Orgchart Pro."

Special Organizational Structure for Construction Industry?
"In the construction industry, health problems and security risks are always nearby and there are many crisis situations. Which organization structure could be followed by management at project site locations to prevent and deal with these problems and risks?"

The Future Proof Organization
"An idea that has fascinates me is to make the concept of future proof organizations tangible.
A future proof organization results from an assortment of individuals who see themselves as future proof – which is evidenced the moment they become the ‘big boss,’ the CEO or COO of the personal lives and commitments. For them change is a stepping stone to SCOPE – my mnemonic – which I have talked of earlier on 12manage.
Such organizations must be crystal clear about:
• Identifying true corporate values
• Providing total freedom for creative expression of human capital
• supporting structured, yet transparent, communications to all, generally preemptively
• Helping managers to transform their mindsets, and look at themselves as leaders
• Tutoring human resource to accept change as a forerunner to all advancement"

Reorganizing a Radiology Department
"Anyone in the health care sector know of good ways to think through merging two diagnostic imaging departments in an academic hospital and come up with a new org structure. Current structure of the two departments is highly functional (research, care, education and within, doctors, nurses, techs) and is not strong on accountability for performance at operational levels (e.g. how well do we utilize the MRI, who is responsible for waiting times, etc)."

Higher End Uses of Org Charts
"I am doing research for federal government and would like to know: how is your organization using the organization chart / table of organization for budgeting, analysis, etc.? Are organization charts static or are they kept current? How is budgeting performed relative to the table of organization?"

Organizational Charts Say a Lot About the Organization at a Glance
"I think the choice of an organizational chart/structure should be and is unique to the needs of the organization. Organizational charts say a lot about the organization at a glance including responsibilities, communication channels, lines of authority etc and should be taken into consideration when deciding on structure to adopt."

When is an Organization Chart Out of Date?
"When should an organization chart be condered out-of-date?"

Utility of Organizational Charts
"The purposes of an org chart are specific:
Internal purpose - employees need to know where they fit, to whom do they report, who reports to them, and the corollary, to whom do they not report.
External purpose - when the "bad" thing happens, who is the person with authority.
These are all valid uses of the chart, provided that it is a maintained and current document.
An out-of-date org chart, is not only not useful, it is a detriment to your organization."

Channels of Communication Within an Organisation?
"What are the communication channels within an organisation?"

Importance of Organisational Structure
"Let's assemble a list of the importance of an organisational structure here.. Who can provide some points?"

Organization Chart Software
"Can anyone help me find org chart software that is able to handle matrix orgs? We have looked at 10 different versions. None can flexibly do matrix orgs. Any ideas?"

Organization Structure vs. Charts
"How does an organization structure differ from organization charts?"

Organisation Chart and Communication
"Is it true that the organisation chart dictates the network of communication?"

Bypassing a Position in the Line of Authority
"Can one bypass a certain position in the line of authority in an organization?"

Information Flow and Hierarchy Structure
"How does information flow in a typical (ICT) company, when using the hierarchy?"

Org Chart of a Virtual Organization
"Could a virtual organization have an organization chart? What would that look like?"

Structure versus Strategy
"When you're creating organization charts, you'll often have to deal with the eternal question: Does structure follow strategy or does strategy follow structure ?
But you have to refine it and relate it to "organisational effectiveness" ...
Thanks folks !"

What is a Divisional Structure?
"The divisional organization structure can be seen as one type of functional structure, or as a seperate organizational strucure.
It is often broken down into three types:
1. the product divisional structure,
2. the market divisional structure, and
3. the geographic divisional structure."

The First Organization Chart of McCallum
"Who could supply me with a copy of the 1854 org chart made by Daniel McCallum? Who has proof of even earlier organizational charts? Please send them to me, thanks"

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