What Are the Benefits of Having an Organizational Chart in Your Startup?

April 9, 2013 - 9 minute read - Posted by

As a growing start-up company, implementing an organizational chart may not be on your list of top priorities. You may think “why should I have an organizational structure when I only have twenty employees, and everyone knows their role?” It may also seem too much of a formal process for you. In general, people only think of organizational structure as a chart which outlines the reporting relationships of every employee in the company. However, I would argue that it encompasses more than this function; an organizational structure also allows you to ensure that your company’s human capital is aligned with your strategy and vision. It also increases the visibility and transparency of your organization. You have a clear view on how each of your team is contributing to your objectives and how teams are communicating to make sure that everyone is on the same page. In this blog, I will explore how to create an organizational chart, the types of organizational structure, and the advantages of having a clear structure for your company.

Forbes recently published an article titled Why Defining a Corporate Structure for Startups Matters and it gives some insights on how to create your own organizational structure. The main point is summarized below:

  • Record all the roles for your company. The best way to do it is to create a job description for your current and prospective positions. In your job description, clearly outline what the duties and responsibilities of the job-holder are and the minimum requirements for the position. Now, as a start-up, you will find that many of your employees may have more than one hat since everyone is helping out in the different areas of the business. Do not assign names to the positions as you do not want to hinder your current employees into a specific role for the moment.  The purpose of creating the various job descriptions is to take a proactive approach i.e. while you are building what your structure looks like, it forces you to think ahead of what specific positions you will eventually need in the near future.
  • Map out how work is done, the processes required for the business to perform efficiently, and how information is shared throughout your company. This guideline will allow you to determine your main teams and to assign the different positions into each unit. For example, you may want a design, marketing, customer service, and manufacturing team. One important part of this step is to ensure that your organizational structure facilitates communication through the organization. For example, you will absolutely design your sales team to be in direct communication with your development team. When your company starts growing in size, some of your employees may be in cross-functional teams reporting to different managers. An organizational structure will allow you to clearly identify the reporting relationships.

There are 3 main types of organizational structure outlined in this article taken from Small Business Chronicle based out of Houston and specializing in areas affecting small businesses.

  1. Functional Structure: The example given above on an organization having different teams such as marketing and design is a functional structure. In this type of organization, you group each portion of your organization according to their purposes. Many small businesses take this approach as each team can self-support itself with their employees’ strengths and competencies. One main disadvantage is ensuring that you are coordinating the communication between departments. Since you are grouping your organization by function, there is a natural organizational barrier that you may encounter. However, you can encourage a cross-functional meeting once a month to gather the leaders from each functional team and share how they are contributing to the objectives and re-align the objectives if needed.
  2. Divisional Structure: This type of organizational structure is mainly used in bigger companies which have different geographical branches or smaller organizations within the umbrella group. For example, if you operate in Vancouver, Toronto and Montreal, you would have a team responsible for each location. The leaders in each of the team will then report to the VPs of the headquarter branch. Divisional structure is beneficial to ensure that the needs of the companies are being met. It also allows you to identify each employee and their reporting relationships easily especially if you are based in only one of the branches.
  3. Matrix: Matrix is a hybrid of functional and divisional structure. For this type of organization, you use teams of employees to accomplish the work. The biggest advantage is that you are able to form teams according to the employees’ strengths and competencies. Usually, you will have a functional supervisor and a project supervisor working together to lead the new team. For example, you want to create a new product. Your functional supervisor will coordinate your current human resources to create your new design team or hire externally to fill the positions. At the same time, your project supervisor will oversee the operations of the project. There are newer forms of this structure such as adaptive organizational structure that the Yammer engineering team uses.

Various advantages come along with the organizational structure you decide to choose that best fits your company. The main benefit is that an organizational structure streamlines your operations. You can plainly identify the different teams you have, and streamline them by adding two smaller teams into one to increase efficiency. Organizational structure can also work the other way around i.e. help you during time of growth and expansion. You may find that as you are growing, your teams are getting too big and harder to manage. Therefore, you can look at your organizational structure and implement new teams.

One great feature that 7Geese organizational chart offers is the possibility to add open positions to your teams. This allows you or your hiring manager to see where you should increase your headcount and what the positions that need to be filled immediately are. Looking at the organizational structure in a performance management perspective, an organizational chart gives your employees the overall picture of your company. They have a better “line of sight” in terms of how their actions contribute to the higher levels of the company. Organizational structure also helps to reinforce your employees’ identity. Being able to identify who you are, which group you belong to, and where you stand in terms of the company as a whole, promotes employee retention and performance. The reporting relationships also empower employees as they can take the initiative to contact the right person and not having to always depend on the managers. For example, if I am in the marketing department and I need to talk to a designer about the features of a product, I can find who is in the designer team and directly contact that employee.

An organizational structure will benefit your company no matter what size it is. It help managers to effectively manage their teams, and also, it increases visibility for the entire company. A visible structure definitely encourages a culture of transparency within your company. Go ahead and create your organizational chart today!

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