Defining your organization with an organizational chart

An organizational chart isn’t just a frill or an extra; it can help a manufacturing business owner define and delegate, and it gives everyone a good sense of duties and career paths. Getty Images

Whether you are the owner of the company, a midlevel manager, or starting your first day on the job, one document that relates across all positions is the organizational chart. This document provides many functions and is not that difficult to put together, but surprisingly, many businesses don’t have one. In fact, out of the last 10 clients I’ve worked with, three of them had an obsolete org chart and seven had nothing at all. One had 75 employees, which is large for a proprietorship.

As small, privately owned businesses grow, the thought of assigning titles seems trivial and can feel uncomfortable. I’ve met several owners of large, multimillion-dollar companies who still shy away from calling themselves "president." Some owners and managers worry about recruiters getting access to employee information, and other simply don’t see the activity as critical to company performance. Well, it is.

For many reasons, a company with a clearly defined org chart is more productive than one without one. The effort spent on creating such a chart is minimal compared to many other strategic initiatives—sales projections, annual budgets, and strategic planning—but the return is well worth it.

Increasing Productivity

The most obvious benefit of an organizational chart is that it defines the reporting structure of the company and, critically, who is responsible for various jobs that need to be done. Too often in small and midsize businesses, the reporting structure is unclear. The default is that every employee reports to the owner. Even in a very small business, this is not effective. The owner’s focus is on growth, long-term strategy, and visionary activities. Supporting employees effectively in a management role takes significant time and effort, and the owner can’t do both, often neglecting the latter. Laying out an organizational structure with clear channels of responsibility provides a tactical framework so the owner can deal with strategic issues.

Another benefit is that, while the org chart clearly assigns responsibilities to each role, it can reveal gaps and overlap, neither of which have any place in a well-organized workplace. The more clearly the work can be defined and divided, the more productive the company becomes.

Some roles may have a hybrid function until there is enough work to add staff. This is fine, but it shouldn’t be a secret; annotate this on the organizational chart. For example, marketing activities often are assigned to a sales lead until the company has enough revenue to justify hiring a marketing coordinator. If this is so, say so on the chart.

Outlining Career Progression

Business owners and managers often overlook the importance of giving employees a road map for career progression. After one of my clients and I developed an org chart, the executives were shocked by the reaction from some of the staff: They were grateful to finally understand where they fit into the organization and see pathways to progress in their careers.

Unfortunately, not having an org chart led managers to make assumptions about who was and wasn’t interested in promotion opportunities. Simply having a document encourages conversations about this critical topic.

Future Planning

Just as an org chart can uncover hidden gaps, it can also be used to determine gaps that are likely to emerge as the company grows so they can be filled. That is to say, I always encourage companies to put roles on the org chart they need now, and roles they will need five years out as the business grows. Identify future roles on the chart, and then divide the tasks for that position among existing head count.

If you don’t have enough staff, you may need to consider outsourcing some functions. Every org chart I’ve ever worked on has roles that are defined as outsourced positions. Information technology and accounting are roles that are commonly farmed out. My own role as a consultant is another example of this—when they hire me, they are clearly outsourcing some tasks, and this needs to be defined. At some point it will make sense to add a full-time position instead of paying a professional consultant, but for now, my role should appear on the chart.

Titles and Roles

Title and role definition can be the most difficult part of this exercise. There are many options, but don’t let this prevent you from getting started. Start with basic, commonly used titles, such as manager, director, vice president, coordinator, and supervisor. If one person has more than one role, title that person with the one that consumes most of their time. That is their primary function and, therefore, primary title.

Also, bear in mind that titles can be modified over time if needed. It’s not as critical to know if someone is a marketing manager or marketing director as it is to know who’s in charge of marketing.