How to Develop a Strategic Small Business Organization Chart
Only a few people might work together under one roof in the early days of a small company’s existence. Growing beyond a mere dozen people is a milestone often celebrated as a sign of a positive trend for a business. As a company grows and more talent filters into the organization, the need for individuals to handle many jobs simultaneously diminishes. Specialization occurs, departments can form, and duties become more distributed.
As a small business owner, do you have a good sense of who does what? Is the chain of command well-defined? Informal structures for organizations are very common in small businesses, and these murky relationships can remain even when growth occurs consistently. When a dozen employees become dozens of employees, a lack of organization can lead to confusion, bottlenecks, and mistakes—all of which can cost your business unnecessarily in lost time and money.
Taking action early to prevent the chaos of an opaque organizational structure can pay dividends now and later, but what steps will yield the best outcomes? Although it may seem like the domain of the mega-corporation more than the SMB, tools such as the organizational chart can play a key role in setting the stage for future success and smart, well-executed work. Let’s consider what these charts are all about, what they can do for you, and how you might think about applying them to your business today.
What is an Organizational Chart?
Often called an “org chart” for short, an organizational chart is just what it sounds like: a visual guide to represent the actual structure of your business in terms of its employees and responsibilities. Think of it as similar in concept to a family tree. The goal of an org chart is to highlight every employee (or grouping of employees) and their relations to one another in reporting and responsibility. With company leadership at the top and rank-and-file teams at the bottom, the org chart lets you quickly see everything else.
Why do businesses make these charts? Not only are org charts useful for visualizing relationships between job roles, but they can also serve as directories for making contact. When a task or problem requires a specific individual in the business, finding out who has responsibility isn’t always easy. With an org chart to reference anytime, staff can make connections faster without unnecessary delays.
Why is a Strategic Org Chart Important for Your Small Business?
For small businesses and even those currently going through a growth stage, it may not seem worthwhile to invest time in defining and maintaining an org chart. You already have a clear view of employees and responsibilities, so why should you write it down on paper? The first thing to consider is a simple fact: those circumstances might always remain the same. There could be a time when your business has grown so much that the lines of communication and responsibility begin to break down.
The strategic value of an org chart is the next thing to consider beyond basic needs. Preventing miscommunication is just one piece of the puzzle. Enabling effective decision-making processes is another core reason to define your company’s structure clearly. When everyone knows who to report to and how the chain of command works, individuals better understand when they can make proactive decisions and when they should connect with someone else.
Likewise, an org chart makes project planning and execution less stressful tasks. With general and project-specific charts, managers can determine what teams and employees will have roles to play in bringing a project to fruition. Consider that without a chart to refer to, a manager in the planning stages may have poor to no visibility into who will perform necessary daily tasks. Identifying key players “on the ground” takes far more time than working from a chart.
A clear understanding of structure, command, reporting responsibilities, and job duties contributes to better institutional accountability. That is essential for good corporate governance and oversight. Especially for companies operating in highly-regulated spaces, definitive roles are crucial to avoid pitfalls caused by poor communication or an inadequate understanding of responsibilities.
Ultimately, a well-crafted and thoughtful approach to your company’s org chart yields numerous benefits, both immediately and over the long term. Let’s lay them out clearly once more:
- Simplify communication. Make communication simpler and empower individuals to make key connections promptly. Charts clearly define relationships and responsibilities, so everyone knows who they need to report to or seek guidance from during work.
- Simplify onboarding. Introducing new players into the team can be an opportunity for confusion to arise, but org charts help newcomers quickly understand the structure and workflows of a business.
- Improve workflow speed. When it’s always easy to figure out who to put on a critical job by quickly referring to your chart, you can launch projects faster and execute daily jobs with agility.
- Identify areas of shortcoming. Doing your org chart allows you to spot troublesome gaps and other areas where you may need to improve staffing or delegate additional responsibility.
- Keep your business secure. Reduce opportunities for fraud and other trouble by identifying areas where oversight might be lacking or where duties aren’t clearly defined.
- See where you’re winning. Evaluating teams based on their place in the business allows for insight into who works best together.
Best Types of Organizational Charts Your Small Business Can Use
There are many kinds of org charts, though they break down into several major categories—those that you can use for entire organizations and some with more specialized uses. What are the chart types you should know, and why might a business pick one over another?
1. The Hierarchical Chart
The most common and easily recognizable type of org chart, hierarchical charts are similar to a pyramid structure—the most senior leader in the business sits at the top. From them, lines of authority descend and diverge, including each individual below supervisors and managers. These charts are typically straightforward for small businesses, especially in the early stages. With this chart, a small business can clearly define duties and showcase to employees the promotional ladder they can begin to climb.
2. The Matrix Chart
The matrix chart can be the better option for small businesses that function largely in terms of major projects rather than repeated daily workflows. Matrix charts align employees in a grid structure, making it simpler to visualize complex reporting requirements. Matrix charts allow managers to delegate tasks further, creating manager stand-ins on each team that reports on overall team progress. Owners of growing small businesses can use matrix charts to identify the best talent for a project and a more holistic view of communication lines.
3. The Flat Chart
A basic org chart, the flat or horizontal structure, works best when there aren’t many layers of stratification between basic employees and management. These solutions are best for new businesses, start-ups, and SMBs that do not currently have many employees. The flat chart showcases who’s ultimately in charge but otherwise works best when employees share duties and self-direct their own work. For small businesses, this can mean encouraging more initiative from employees, generating faster results and more innovation.
4. The Functional Chart
Like a hierarchical chart, function charts use a top-to-bottom power structure. However, it divides each department into a separate chart with unique branches. You’ll organize members on the chart by their “function“ in the business or the specific skills they bring to the table. Although this can lead to separation between departments, it also allows businesses to specialize further, placing those with key skills in the right place at the right time to generate effective business outcomes.
5. The Divisional Chart
Unlike a functional chart that focuses on different groups within a business, a divisional chart is best for companies where every department essentially self-directs its own activities in coordination with others to achieve broader business goals. When divisions have their own teams that carry out similar tasks, it would be confusing to group them all by their function alone. Instead, divisional charts let you capture a snapshot of the divisions of labor in your business. This can encourage more autonomous, “self-starting” work and is ideal for companies beginning to evolve into something larger.
6. The Project Chart
This chart isn’t set in stone. You may find yourself revisiting it quite often. These charts are best for defining roles for specific projects. One job for a client might differ dramatically from another, and you may need to shuffle teams and managers around based on whose skills you need for any undertaking. The project chart places the project manager at the top and then uses a hierarchy to define roles. Using these charts gives small businesses a powerful tool for staying agile from client to client with repeatable reliability.
How To Create a Small Business Organizational Chart
With many benefits to tap into, it should be easy to see that even small companies can benefit from defining their organization clearly through a chart. By starting this process early, your chart can grow with your business. Always know who’s responsible for what and how the work gets done no matter your company’s current stage.
So how do you go about creating an effective org chart for your company? Many tools can support the creation of these charts, but it’s also possible to draw them up by hand or to use basic office productivity software. Here’s a quick outline of the steps you should take to define your chart.
- Choose your chart. Consider which type would best suit your present business. You can always recompile a new chart following expansion and growth later as needed.
- Compile employee data. Don’t wait to build a list of personnel, job duties, and supervisory connections until you’re already making the chart. By gathering this information early on, you can move more quickly later.
- Select your method. Identify the method you’ll use for chart creation, whether you opt for specialized software.
- Work from the top down. Start from the positions of greatest authority and work down through the rank and file, defining relationships clearly along the way.
- Be detailed as you go. Include useful information, such as contact data, when possible. Clearly illustrate connections and lines of responsibility.
- Make your chart accessible. Once you’ve finished, be sure to distribute the chart and make it simple for any business member to access and review its contents.
With this method, any business owner can develop a chart to serve as a quick and easy reference.
From clarifying key work relationships to providing a framework to build upon during mergers and acquisitions, organizational charts are fundamental for small business success. Whether you define your chart from the very beginning or seek to add structure to your business today, the effort has clear benefits.
Investing the effort today will ensure you can avoid troublesome headaches tomorrow. Consider what type of chart might work best for your business, then start sketching it out—you may be surprised at what you learn and the ideas you have along the way.