3 Areas to Consider When Structuring Your Organizational Chart

by | Jun 17, 2019 | Best Practices, How To, 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.

Think of an organizational chart as part of the operating manual of a company. It illustrates each role’s connection to each other and how they work together to keep the business performing. Illustrating this structure can reveal the need for new positions and influence how departmental loads are distributed. Without proper organization, businesses risk employee confusion, poor coordination between functions, lost opportunities for collaboration, and inefficiency.

So, how do you decide which type is the best fit for your environment? Top experts suggest that defining Governance/Chain of Command, Specialization/Distribution of Work, and Departmentalization is the best place to start.

Whether you call them CEO, president, or General Manager, identifying the top decision maker is the primary element of an organizational structure. This person is responsible for making the most critical business decisions.

Next, identify department heads that report directly to the top leader, then work your way down through the organization to visualized 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 assistants to superiors, the more full the span of control.

Organizations can structure management responsibility in a centralized or decentralized manner. If decision-making power aggregates at a single point, the structure is considered centralized. If decision-making power is spread out, the structure is deemed to be 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,” 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 rules and procedures govern an employee’s day-to-day life. A formal structure seeks to separate the employee from the role, as the position stays the same regardless of who’s currently holding it. A simple 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.  Active leaders often dedicate time to finding out what the employees prefer and make changes based on their responses.

This concept refers to the process of grouping jobs together to coordinate everyday 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 to collaborate with others.

As part of structuring an organization, it is valuable to consider the degree of departmentalization that placement choices will have.  Strictly departmentalized companies benefit from higher-levels of accountability, while looser structures may realize higher economies of scale.

Even if your organization chart is currently defined, have you considered how specialization or departmentalization may be impacting your team’s performance? The structure found within an organizational chart is an important business tool designed to aid your team’s decision making processes. Taking the time to perform ongoing evaluation can be a tool in your playbook toward your continued leadership success. 

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