Org Chart Types: A Guide for the Aspiring Consultant
Org charts and org chart types. How companies structure reporting relationships. The stuff of Dilbert cartoons and tales of disaffected corporate woe, but also the glue that holds most organizations together in some semblance of order.
A Reader Question about Types of Organizational Structure
I’m overdue for answering a reader question, so let’s answer one about org chart types. This arose out of a post I wrote a while back about how to become a management consultant. In that, one of the pieces of advice that I offered was to become well versed in different organizational types and structures.
This led to a pretty natural reader question.
After reading your post on becoming a management consultant, I’m wondering if you have useful resources for tackling three of the areas you encourage learning:
1. Business Organization Structures
I’ve elided the second two things he asked about because speaking to all three would make for a pretty disjoint blog post. So today, it’s all about the org chart. (Not to be confused with organizational structures like LLC, S-Corp, etc, which I won’t talk about here).
So let’s define the actual purpose of org charts, and then walk through some of the most common examples. I’ll structure this post by how a company might adopt these structures at different points in its maturity. But first, I’ll speak to the philosophical why.
And I’ll try to do it all while striking a healthy balance between cynicism and exposition.
Org Charts: What’s the Point?
It’s worth a brief tour of what purpose org charts serve. Why have any type of organizational structure at all, let alone different options? And let’s take a deeper dive beyond the obvious, but sort of obtuse answer of “they organize the business.”
Organizational charts actually serve a number of different purposes. To understand what I mean, think of grade schools. Sure, they serve to teach the children academics, but they also mix in babysitting service and life-skills instruction, for good measure. Think of the org chart in these terms: serving multiple purposes like a Swiss Army Knife.
They answer questions that businesses need to answer for individuals:
- Where do I fit in to the larger organization map? Understanding where you are in your division/group, and how it interacts with the rest of the company helps you understand your charter.
- How do we manage the flow of information? Tribal knowledge of who to talk to about what doesn’t scale beyond a handful of people. Org charts help define who talks to whom about what.
- Who gives me orders? Absent clarity on this point, prioritization of your tasks becomes difficult. If 4 people ask you for 6 things, what do you do? Org charts help with this by establishing a chain of command.
A Cynical Caveat
All of that is true, and I believe it. This is the “official explanation” if you will. But it’s not the full story.
A lot of the ‘purpose’ is legacy and vestige. In other words, new organizations tend to ape old ones as they grow, unquestioningly adopting organizational charts and patterns that others have pioneered. In a sense, this is expedient. A lot less commerce would take place if every new company tried to completely reinvent the idea of being a corporation.
But it also tends to result in a log of cargo cult behavior. And I’ve talked at length, both on this blog and in my book, about how modern corporations tend to mindlessly carry forward Industrial Revolution-era work methodologies.
So understand that the org chart serves real and important purposes, but that it’s also adopted quite incuriously. With that in mind, let’s take a look at some common organizational structures.
1. The Ad Hoc Org Chart
As I said earlier, I’m going to walk through this in the way that a baby company might evolve its own org chart. Please note that I’m not suggesting all companies go through these different org charts in order. This isn’t a recipe for muffins. It’s just a convenient way to spin a bit of a narrative, and some of these skew more heavily toward smaller and larger companies.
Speaking of skewing toward small (really, really small), let’s talk briefly about the ad hoc org chart.
This basically means that you don’t really have an org chart, per se. And it happens when very small companies have yet to create one.
Imagine if you started a company that was just you. Would you build out an org chart, and populate every role with yourself? Probably not. (Even though business books would sometimes tell you to do so.)
Now imagined that you hired an assistant and, perhaps a second employee to help you with service delivery. There’s a pretty good chance that you still wouldn’t bother. It’s your business, and the two of them report to you. So, while this defines kind of an implicit structure, I refer to it as ad hoc, since you have yet to explicitly define it.
2. The Flat Org Chart
Next up, you’ve got the flat org chart. There are, I would say, three main ways to think of this, with three degrees of “flatness.”
- You and some folks start a partnership (or an efficiencer firm) where you’re all equals.
- A company owner hires some number of people, and all of those people report to the owner.
- Once things scale to the point where company owner can no longer possibly administer to all reports, a scheme (such as geographical or divisional scaling) for intermediate management develops.
You’ll notice that (3) is starting to sound not super flat. And that’s true. If you have a 300 person company with 2 reporting levels, this company is “flat” mainly in comparison to more traditional organizations of that size, which will often have multiple layers of management.
A Cynical Caveat
Be skeptical when companies call themselves “flat.” This makes it seem egalitarian, but that’s rarely the case. Many companies that do this actually have a few levels of management, but use flat in the relative sense. But, even if they are truly pretty flat, shadow power structures will exist. Any company with 30 people and a ‘flat’ org chart will have implied leaders/bosses, even if it doesn’t codify them as such on paper.
3. The Top Down Org Chart
The top-down org chart is sort of the essence of a company in the last 100 years. You’ve almost certainly worked at one of these.
Typically, it goes something like this, from the top down.
- The “C-suite” reporting to the CEO (CFO, CTO, COO, etc)
- Non-chief executives, such as vice presidents, reporting to the C*Os.
- Directors, reporting to execs.
- Managers, reporting to directors.
- Individual contributors, reporting to managers.
This structure can have more or fewer layers, and they can have different names. But it’s generally a common theme, which is a pyramid-shaped, command-and-control delegation structure. Orders roll downhill.
Organizations can scale pretty larger with this shape, which makes it so ubiquitous. It does tend toward bureaucracy and inefficiency as the organization grows larger and places more layers between strategy execution, however. It also creates sort of a caste of non-executive leadership, which generates excessive emphasis on office politics.
Another facet of this style of organization is that it generally sorts itself by business function. So, for instance, you have heads of sales, marketing, operations, finance, technology, etc. Those C*Os define the rest of the pyramid’s structure, with all of the people in marketing reporting into the CMO, all the people in engineering reporting into the CTO, etc.
4. The Divisional Org Chart
Next up, consider a style of org chart that you commonly find in pretty large organizations: the divisional org chart. Depending on the nature of the business, smaller companies may also structure themselves this way. But you’ll certainly find it when a company gets to enterprise scale, where “everyone in marketing together on the org chart” gets to be a little ridiculous.
The divisional org chart involves segmenting the business by a different criterion than job role. Here are some common examples.
- By product line. So a mega-retail company might have the clothing division, the home goods division, the electronics division, etc.
- By geographic area. A global conglomerate might have the North American division, the South American division, the East Asian division, etc.
- By program. In some cases, organizations might create divisions that are time-limited in nature, to take on a major initiative over 5 years and then dissolve, for instance.
Divisions are different from role-based separation in that each division typically has within it all people needed for business operations. So, take our retail example. Each division would have marketing folks, salespeople, distributors, IT support, etc.
In a sense, you can think of the divisions as mini-companies within the larger company. The divisions all report into the C-suite, but you can think of the “managing director” or whatever of the division as the CEO of a mini-company.
This tends to scale better at the largest levels, as compared to the simple top-down org chart.
5. The Matrix Org Chart
Last of the major org charts and, perhaps, most confusing, is the matrix org chart. The easiest way to think of this is to imagine its development and suggestion, which probably goes something like this.
As we’re growing, we’re getting too big to stick all of the developers, testers, marketers, etc. together in their own areas of the organization. So we can’t do top-down. But with the divisional structure, you wind up failing to share knowledge across the different specialties within each division, and we might find ourselves applying disparate standards to performance review. Couldn’t we… do both?!
So the matrix org chart is born.
With a matrix org chart, you combine the functional and the divisional, which kind of gives you at least 2 (and perhaps as many as 8) different bosses, (Bob). You have your divisional/program responsibilities for delivery, and your functional responsibilities.
This can manifest itself with situations such as individual contributors reporting day-to-day to some kind of project manager, but actually reporting, in org chart terms, to a manager that they see only occasionally. It can actually go a lot of different ways — that’s just a common example.
The fashionable “Spotify model” is perhaps the most currently famous and successful example of this. But you’ll see it in a lot of places, to varying degrees of effectiveness. Frankly, it’s often a bureaucratic nightmare.
The reason for this is that this is necessarily a complicated thing to implement, making it easy to err. And it also muddies the fundamental purposes of the org chart that I mentioned earlier, in particular, the one about “who gives me orders.”
Other, Exotic Org Chats
I’ll round out by mentioning a few other sorts of org charts that are less common. These are interesting in concept, and probably worth knowing if you aspire to do some management consulting, so that you can speak to variety and novel concepts.
- Open allocation. This came across my radar because of Github, but I’m not sure if they still practice it. The idea is that this structure allows employees to choose to work on projects/things they think are most valuable, rather than using the concepts of assignments. It’s kind of like crowdsourcing corporate strategy. Lovely idea, may not prove super-feasible if you want to grow very much.
- Holacracy. Holacracy is actually a registered trademark, and it represents a way to decentralize decision-making and encourage teams to self-manage. I think it gained the most notoriety through Zappos, who is a famous practitioner.
- Basecamp’s model. You can read more about it here, but Basecamp has generated some buzz recently, with the release of their latest book. They combine the flat organizational structure with ideas about how to timebox work and assign it out, and those are pretty interesting.
There are probably plenty of other companies that put their own spin on things as well, and perhaps even given that spin a specific name. I couldn’t possibly cover them all here, but if you’re looking to become an expert at such things, keep your eyes out for articles about companies structuring work in non-traditional ways.
Synthesize These Not for Picking One, But for Understanding All
I’ll close out with what might be the most important thing I say here, if you want to consult with organizations from a management perspective.
Please do not treat this as a lunch menu, where you pick the one you think would be the best thing for a given client. That’s not the intent.
Now, you might find yourself in a situation where you can offer some no-brainer advice. “Hey, you’re probably struggling because you’re growing too much for a pure, flat structure to make sense, so think of a top-down org chart.”
But the real idea is helping organizations answer the questions I led in with, about the org map, the flow of information, and chain of responsibility. Those are their actual pains, and that’s where their org chart maybe helping or hurting them. So think less of simply picking some stock org chart, and think instead of ways to help them, specifically, answer those questions, given the personnel they have and the way they conduct their business.
Knowing and internalizing these structures won’t necessarily help you give great advice right out of the gate. But it will arm you to make meaningful suggestions, speak from experience, and improve your advice as you go.