Organizational chart

   The organizational chart provides a great deal of information about the organization as a whole and the interaction of its parts. From a chart, one can see the organization's structure, its hierarchy, the degree to which it is centralized or decentralized, and its chain of command. Each of these is summarized below.

Organizational structure

   First, organizational charts detail an organization's structure. It may be functional, in which work units are divided based on what they do and named after those functions (e.g., research and development, marketing, sales, etc.). The structure may be divisional, based on product, customers served, or geographic location. Finally, an organizational chart may represent a matrix structure, in which work units are organized by both function and division.

Organizational hierarchy and centralization

   In addition to outlining the type of organizational structure, the organizational chart also indicates the number of management levels, whether the organizational structure is tall or flat, and the span of control at each level. Tall organizations have many levels of middle management and small spans of control. Each manager supervises and directs few employees, and the chain of command has many managers. Conversely, a flat organization has fewer management levels and larger spans of control. Because managers supervise more employees, employees tend to have more autonomy and discretion in their jobs.

   Organizational hierarchy and the number of management levels often indicates the degree of centralization within an organization. Centralized organizations are those in which most of the decision making occurs by a few people at the top of the hierarchy. This typically creates a top-down management structure, in which top-level managers strongly control the direction of the workplace through their decisions and supervision. Conversely, an organization with a decentralized structure allows greater decision-making and authority at lower organizational levels. Highly decentralized companies may have units that operate nearly independently of one another. The degree of hierarchy on an organization's chart normally will help one to determine the degree of centralization or decentralization within its structure. Typically, the taller the organization, the more centralized it is; flatter organizations generally require more decentralization, because managers each have broader spans of control and cannot direct and closely supervise so many people. Additionally, as previously described, the organization's structure may indicate the degree of centralization. Functional structures tend to be more centralized than do divisional structures.

Chain of command

   The vertical and horizontal lines connecting the rectangles on an organizational chart indicate reporting relationships and chain of command. That is, they indicate which employees are directly responsible for the supervision of others and who has ultimate accountability for a group of employees.