Organization Chart

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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 -

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Organization Chart Forum

Recent User Comments

    			 
             Dawit - Ethiopia
  	       
  		     Organization Structure Out of Date?
  	  		 "When should an organization chart be condered out-of-date?"
  			   
    	  		 0

    			 
             Michael Noble - Canada
  	       
  		     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."
  			   
    	  		 2

    			 
  			   Garima - India
  	       
  		     Organization
  	  		 "Organization on one hand is the division of work and its allocation between individuals, on the other hand it defines the inter-personal relationships in an enterprise."
  			   
    	  		 1

    			 
  			   Nonoka - Zimbabwe
  	       
  		     Channels of Communication Within an Organisation?
  	  		 "What are the communication channels within an organisation?"
  			   
    	  		 0

    			 
  			   Kirongo - Kenya
  	       
  		     Importance of Organisational Structure
  	  		 "Let's assemble a list of the importance of an organisational structure here.. Who can provide some points?"
  			   
    	  		 0

Best User Comments

    			   
    			     Vornexios - Zimbabwe
  	         
  				   Hotel Organization Chart
  				   "Develop an organisation structure of a three star hotel that you want to introduce. What type of structure is it, discuss the implication of this structure and justify the total number of employees to be employed?"
    			   
        	  		 142

    			   
    			     Salah - Sweden
  	         
  				   Structure vs strategy
  				   "It is about 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 !"
    			   
        	  		 72

    			   
    			     Carl Hopkins - USA
  	         
  				   The Matrix Organization
  				   "In the matrix organization chart the traditional vertical hierarchy is complemented by a horizontal structure. The horizontal layer may  consist of products/services (families), projects, business subsidiaries or geographical areas.

Typical for matrix organizations are their dual (or even multiple) command structures. Employees must deal with dual lines of authority, responsibility and accountability.

The matrix organization was described by Jay R. Galbraith in a 1971 article called "Matrix organization designs"."
    			   
        	  		 47

    			   
    			     Julia - US
  	         
  				   Org Chart of a Virtual  Organization
  				   "Could a virtual organization have an organization chart? What would that look like?"
    			   
        	  		 47

    			   
    			     Irvine - UK
  	         
  				   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: the product divisional structure, the market divisional structure and the geographic divisional structure."
    			   
        	  		 31

    			   
                 Editor - NL
  	         
  				   The Org 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"
    			   
        	  		 20

    			   
    			     Aparna Gv - India
  	         
  				   Creating Organization Design
  				   "Hi, can you suggest any good books to understand the conept of creating and standardising levels in an organization?"
    			   
        	  		 14

    			   
    			     George - Lesotho
  	         
  				   Organization Structure vs. Charts
  				   "How does an organization structure differ from organization charts?"
    			   
        	  		 13

    			   
    			     iftikhar gul - saudi arabia
  	         
  				   organisation charts
  				   "i found very useful information and would like to thank all the contributors.How do we adopt the proposed charts to special circumstances such as cultural pecularities.regds"
    			   
        	  		 9

    			   
    			     Ben - Malaysia
  	         
  				   Line of Authority
  				   "Can the line of authority bypass certain positions in an organization?"
    			   
        	  		 9

    			   
    			     Scott Pursley - USA
  	         
  				   Organization Chart Software - Matrix orgs
  				   "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?"
    			   
        	  		 6

    			   
    			     Waweru - Kenya
  	         
  				   Organisation Chart and Communication
  				   "Is it true that the organisation chart dictates the network of communication?"
    			   
        	  		 3

    			   
    			     debbie - UK
  	         
  				   Matrix Structure or Unworkable?
  				   "I would welcome your thoughts on my position; I am supposed to run a team of project managers who work across the company as and where required. We just took on a second location and my boss set up a project office there with a project manager in charge who does not report to me and has their own portfolio of projects. This site has taken 2 of my team on secondment and are recruiting two more PM's to report to them with a dotted line to me. I therefore cannot manage my resource. They say this is a matrix structure - but to me it seems like a structure in a structure and is unworkable, what do you think?"
    			   
        	  		 0

    			   
    			     Thokozile - RSA
  	         
  				   Information Flow and Hierarchy Structure
  				   "How does information flow in a typical (ICT) company, when using the hierarchy?"
    			   
        	  		 0

    			   
    			     Alain Legault - Canada
  	         
  				   molecular organization
  				   "Someone have a reference for a book who treat about organization structure, especially molecular or circular?"
    			   
        	  		 -7

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└► Ullhas Pagey (India)	Organisation Structure	"Structure always should follow strategy."
└► Ahsan (Pakistan)	Organization Chart	"Well its all about orderly conduct of operations and maintaining level of managing organization."
└► Aditi (India)	Organisation	"According to me, every Organisation does follow certain rules and regulations in a disciplined manner. Therefore, Structure does follow Strategy. We can say , Strategy and Structure are co-related and are interdependent."
└► Editor (Netherlands)	Inertia	"A frequent problem with structure following (changes in) strategy is that often this happens too slowly. Because of inertia, unwillingness to change. You can witness quite often that an organizational crisis and turnaround management are needed to finally make the organizational structure change."

└► Editor (NL)	More on the matrix organization	"Thanks for your comment Carl. In our dictionary you can also find a description of the matrix organization."
└► Dieter (Deutschland)	Pros and Cons	"I wonder: what are the main advantages and disadvantages of matrix organizations?"
└► Ullhas Pagey (India)	The Matrix organization	"Matrix organisations by their very design and structure offer many advantages, the most obivious being that of functional expertise. However, working in a matrix structure from an employee's perspective can be quite challenging and also tricky; for one has to use all his / her interpersonal, social, and relational skills to manage multiple bosses."
└► Daisy (US)	Willingness to work together in matrix	"A matrix organization structure can work well for large firms if its managers are willing to work together and communicate. In case this willingness or communication is missing, the matrix structure can be misused to point to other people or blame them for disappointing results."

	└► Levy (South Africa)	N. West	"Yes since they are an organisation there is a need for an org chart. There should be decision makers in any organisation."
	└► Brian (USA)	Virtual Organizations	"I don't know why they wouldn't (or couldn't) have their own chart. It would be no different than a virtual work group. The parent organization would have to keep tabs on the members, locations, and taskings in some type of charting process."

                       
                        └► Editor (NL)
                        
                      Multiunit Enterprise
                      "You'll find an indepth article by David A. Garvin and Lynne C. Levesque describing the geographic divisional structure in HBR June 2008, p105-117). Actually the authors call this type "The Multiunit Enterprise" and position it versus the multidivisional enterprise.

Examples of Multiunit Enterprises mentioned in the article include Citigroup, Hertz, Home Depot, Marriot International, UPS, Wal-Mart.

Typical for the multiunit enterprise is:

- it resembles a Russian nesting doll, in that the P&Ls of one level are incorporated in those of the level immediately above.

- also they are characterized by their four levels of field managers: Store Managers, District managers, Regional Vice Presidents and Division Presidents (or SVPs)."

	└► Editor (Netherlands)	Reality beyond organization charts	"Consider 1. Any model or graphical representation is just a simplification of the reality, which is more complex. 2. Informal Organization 3. Organic Organization 4. Chaordic Organization"
	└► Sherwin S Ycay (United Arab Emirates)	Organizational Charts	"How does a 2-level organization structure functions? is thier any such structure?"

                       
                        └► Hisham Osman (Sudan)
                        
                      Does organisation chart dictates the network of communication?
                      "Formally yes, but actually there are other human dimensions that affect the communication."

                       
                        └► Bert Racoon (UK)
                        
                      Matrix Structure or Unworkable
                      "Find a new job ;-)"

                       
                        └► Don Kelly (USA)
                        
                      Information Flow and Structure
                      "If you only look at the hierarchy, you often miss the critical informal networks.  Often, you will have important sources of information in organizations that are further down the traditional structure..or perhaps aren't even in a portion of the structure.  Check out the idea of Sociometry or Sociograms as an alternate means of charting informational flow in organizations."