How an organization is designed determines how it performs. This means that if you want to see improvements in organizational performance, it’s often the case that you’ll need to change or optimize your organization’s design. And at the heart of every organizational design is its structure.
What are the Key Elements of Organizational Structure?
In architecture, there’s a famous saying: “form follows function”. To put it another way, this means that the design of something should support its intended purpose. Good, optimized design means that something is structured in a way that enables it to serve its purpose very well.
Let’s take, for example, the chair you’re likely sitting on right now. It’s not exactly unique. There are billions just like it all over the world. However, they’re all structured in fundamentally the same way. That’s because the chair’s purpose is to support a person sitting down, which is why the chair was designed the way it is, and why this design has remained virtually the same since before the days of Christ; it serves its purpose. All of its parts are of the right type and in the right place to fulfill this purpose.
The same can be applied to your organization. Even though it’s a dynamic and wildly different system (and not a physical object like a chair!), the same principle of “form follows function” still applies.
If an organization has a strong, optimized design that serves its purpose, the organization will flourish. If its design is flawed and not fit fur purpose, it will struggle to perform. An organization that falls in the latter must be restructured to create a design that can support its function and overall business strategy. Just like with a chair, all of the organization’s parts (i.e., its leaders, people, divisions, departments, teams, and more) must be of the ‘correct’ type and placed in the right location.
Three key elements determine where someone or something should fall within an organization’s structure: (i) the function of an organization, (ii) the location of each function, and (iii) each function’s authority.
An organization’s functions are its core activities it must carry out and the products/services it must provide to meet the goals of its underlying strategy.
The location of each function is where it’s physically located within the organization’s structure and the way it interacts with other functions.
The authority of a function refers to the amount of decision-making power or autonomy, either within its specific domain or overall across the entire organization.
When an organizational structure has been carefully and strategically put together, it will make clear what each function (and thus what each person) is responsible and accountable for within the organization.
A well-designed organizational structure should form a core part of your long-term strategic planning. When it’s done well, it can have significant positive impacts on company operations and customer experience.
5 Common Mistakes People Make with Org Charts
To illustrate their structures, many companies use org charts. While these were once the bane of many a human resources professional’s existence, modern org chart tools have made it possible to set out even the most intricate and nuanced of relationships that exist between individuals and teams within an organization.
While org charts are great at illustrating reporting relationships, there are many more use cases and benefits associated with them. Here are five common mistakes that we see when organizations use org charts for the first time:
- Only Using Org Charts to Show Reporting Relationships
- Misinterpreting Org Chart Positions
- A Too Wide or Too Narrow Span of Control
- Not Aligning Structure with Strategy
- Creating Org Charts Using Outdated Tools
People often think of org charts as connected boxes that show the managers at the top and all those that report to them below. While it’s true that most traditional top-down org charts do illustrate and outline reporting relationships like this, org charts are very versatile and serve a multitude of other purposes.
Modern org chart tools like Organimi enable the creation of org charts for onboarding new employees, project management, inform hiring initiatives, planning restructures, and more. They can also be used with different types of organizational chart styles like the matrix structure or the bottom-up structure; they’re not limited to the traditional hierarchical model.
While they’re often the CEO or leader of the organization, the person who occupies the ‘top spot’ on an org chart isn’t necessarily the person who’s responsible for everyone and everything that goes on within it. Yes, it’s true that this person will have a high level of responsibility and may be in charge overall, but let’s not forget that there will be many other leaders and decision makers on the chart who won’t necessarily sit at or near the top.
With modern org charts, it’s possible to label and highlight individual project managers, directors, supervisors, and other leaders, making it abundantly clear where accountability lies for what and who.
A typical organizational design flaw is having a span of control that’s either too wide or too narrow.
An organization that is too wide where there are too many direct reports will generally suffer from inefficiencies brought about by organized chaos and a lack of transparency. In contrast, an organization that has a span of control that’s too narrow—i.e., an organization with a small number of employees, such as a start-up having multiple separate departments and teams, each with their own manager—may also suffer from inefficiencies. They’re also likely to spend money unnecessarily as the organization will be unnecessarily paying out additional manager-level salaries.
Because an org chart helps visualize the entire organization, problems like this are more likely to be picked up on and rectified.
If there’s one thing common across all organizations all over the world, it’s that they’re inherently subject to change. It’s only natural. Whether influenced by a new CEO, changing consumer attitudes, or politics, an organization’s priorities and targets are bound to change over time.
Let’s say a new CEO brings with them a new mission or strategy. They want to enter a new market. However, all the authority and people with leading roles still report to the person responsible for the existing market. Will this help the new CEO achieve their goals? The answer is no, of course not. Regardless of how many speeches the new CEO makes and how thorough their plans are, if everyone’s still reporting to the person responsible for the existing market, nothing will change.
The key takeaway here is that each time an organization’s core mission or strategy changes, it’s important to consider how this will impact the organization’s structure and amend it appropriately so that structure and strategy are aligned.
Once upon a time, the only way that one could create an org chart was either by putting pen to paper or by using software not fit for purpose, e.g., word processors. It would take hours to painstakingly build these charts by hand, creating each individual box, placing it in the correct place, and connecting it to the right places. Fast forward a little and more often than not, a few new hires and internal role changes made this chart completely redundant, forcing even more time to be spent on drawing up a new one.
Fortunately, this is no longer the case. With modern org chart tools like Organimi that integrate with other digital tools, it’s possible to create live, dynamic, and data-rich org charts in a matter of minutes and keep them automatically updated in real-time as and when things change. Org charts built using Organimi can also be accessed from anywhere, meaning it’s more likely to be used by your employees.
Why not try out a free trial of Organimi for 14 days and start building better org charts?