3 Areas to Consider When Structuring Your Organizational Chart

Mar 27, 2018 | Best Practices, How To, Knowledge Center, Leadership, Management

Every successful business operates within organizational structures, ranging from the C-Suite down to the intern level. Built off of the company’s vision, goals, and regulations, these organizational charts help employees understand how their role plays into the big picture.

Consider it the owner’s manual of a company, describing which person goes where and how they work together to keep the business afloat. This type of structure reveals the why in new or existing positions, how leadership is chosen, and how business decisions are made. Without proper organization, a business risks employee confusion and lack of coordination between functions, failure to share valuable ideas, inefficiency, and quite frankly, chaos.

While the need is clear, the ideal structure for a given organization is harder to assign. It ultimately depends on the staff, the setting, and how far the development has come. So, how do you decide which type is the best fit for your environment?

Unfortunately, I can’t make that decision for you, but regardless of what type of structure your organization decides upon, three areas should always represented:

  1. Governance/Chain of Command
  2. Specialization/Distribution of Work
  3. Departmentalization

Governance/Chain of Command

Whether you call them CEO, president, general manager, or director is up to you, but this role is one of the most basic and common elements of an organizational structure. This person or group is responsible for making the most important business decisions.

The chain of command typically starts at the top and works its way down to the bottom in an unbroken line of authority.

Each superior manages one or more people based on the span of control, or the number of subordinates a superior can successfully manage. The higher the ratio of subordinates to superiors, the wider the span of control.

Organizations can also be structured in a centralized or decentralized manner. If decision-making power is aggregated at a single point, the structure is considered centralized. If decision-making power is spread out, the structure is considered decentralized. While a decentralized structure promotes a more democratic culture, it can also slow down the decision-making process by allowing too many opinions into the mix.

Specialization/Distribution of Work

Specialization, or the division of work, is the way activities and tasks are broken out into individual jobs. High specialization can be of great benefit because it allows employees to focus on a specific area and become experts, increasing productivity for them and the organization. On the other hand, low specialization offers more flexibility and learning opportunities for staff members.

Formalization explains how jobs are structured within an organization and takes into account the degree to which an employee’s day-to-day life is governed by rules and procedures. A formal structure seeks to separate the employee from the role, as the role stays the same regardless of who’s currently holding it. An informal structure places more value on the employee, allowing for the progression of a role based on an individual’s preferences or skill set and places less importance on what team they are on. I suggest finding out what the employees prefer and consider making some changes based on their responses.

Departmentalization

This concept refers to the process of grouping jobs together in order to coordinate common tasks. If an organization has strict departmentalization, each department is highly autonomous, and there is little interaction between them and other teams. In contrast, loose departmentalization means teams have more freedom collaborate with others.

Conclusion

The structure found within an organizational chart is what certifies your organization will function smoothly. It should be conceptualized in the early stages of development, but it’s not too late to make changes if yours has already been defined. Take a minute and think about it. Which do you prefer? Centralized or decentralized chain of command? Formal or informal structure? It all depends on your organization’s dynamic and preference.

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