The organization structure, often called the organization chart when it is put down on paper, is a vital tool for top management to use when planning the staff required to run the company efficiently and cost-effectively. Preparing the chart helps ensure that no necessary positions are overlooked and there are no departments with surplus staff.
Defining Reporting Relationships
The organizational structure shows each employee to whom she reports, what functional areas she is responsible for and who reports to her. These clear lines of authority prevent such confusion as two supervisors giving conflicting directions to an employee. Some companies have a more complex structure that includes indirect reporting relationships, often called dotted line relationships. These apply to situations in which an employee interfaces with a supervisor in another department on a frequent basis and that supervisor has the authority to request a special project from that employee such as preparation of a financial report.
Optimizing Span of Management
The organization structure changes shape as the company expands over time; typically, more levels are added. In a start-up company with five team members, everyone may report to the business owner from a practical standpoint. When significant growth in the number of staff members occurs, the business owner changes the structure and creates management positions below him to whom staff members report. This ensures that the CEO does not have too wide a span of management — too many people directly reporting to him than he can effectively supervise.
Businesses often initiate projects that require the participation of several departments within the organization. Top management uses the organization chart to break the larger project down into smaller tasks and then select the individuals involved in the project and accountable for the completion of each project step. The organization structure chart shows the full range of human resources available throughout the company.
Companies encountering tough financial times may have to downsize, or cut staff in order to save personnel costs. Top management must wrestle with the difficult question of which positions to eliminate. The challenge is to make necessary cuts while that all key functional areas of the company have adequate staffing to meet important task deadlines. Studying the organization structure chart helps top management identify areas where these cuts can be made. Reorganization also may be undertaken simply to improve operational efficiency and not in response to financial difficulties. An example would be spliting off the financial planning department from the accounting department because the owner of the company wants the head of the planning department reporting directly to him rather than to the accounting manager.
Justifying Staff Requirements
During the annual budgeting process, department managers submit requests for additional staffing. The pictorial view presented on the organization chart allows a manager to show the business owner the duties and responsibilities of each position that reports to him and why he thinks more staff members should be added to his department.
Author: Brian Hill