What is an organizational chart and why is it so important?

Clarity around roles, responsibilities, and reporting structures is critical for any organization. An organizational chart offers that clarity by visually representing the structure of an organization, showing who reports to whom and how teams are arranged. 

In this article, Remote walks you through what you need to know about organizational charts, from what they are, why they’re important, and how to create one for your business.

What is an organizational chart?

An organizational chart, or org chart, is a visual diagram that represents the structure of an organization, outlining the hierarchy of roles, departments, and the relationships between them. It typically displays how authority flows within the organization, from top leadership to individual contributors, illustrating reporting lines and the chain of command. 

Org charts help clarify roles and responsibilities, making it easier for employees to understand who oversees specific functions, who reports to whom, and how various teams interact. They serve as a key reference for both internal and external stakeholders to comprehend the organization's structure.

At its core, an organizational chart answers these fundamental questions:

• Who is responsible for what?

• Who reports to whom?

• How do teams fit together?

Purpose of an organizational chart — why is it important? 

The purpose of an organizational chart is more than visualization. 

Employees collaborate and communicate better because organizational charts clarify the relationships between different roles, departments, and reporting lines within a company. Org charts also prevent confusion about responsibilities, and help new employees navigate the organization better during onboarding. Org charts can be ‌especially important in a remote-first environment where team members may struggle to understand organizational structure due to physical distance. In dynamic work environments, org charts serve as a quick tool for identifying key stakeholders despite frequent change.

Summing up, org charts are important because they help your company with:

• Better communication: Employees know exactly who to approach for approvals, advice, or collaboration.

• Role clarity: Clearly defined responsibilities reduce overlapping tasks and confusion.

• Efficiency: A well-structured team can work more efficiently with clear reporting lines, leading to faster decision-making.

• Onboarding support: New hires get up to speed quickly when they understand the organizational structure and their place within it.

How to create an organizational chart: A step-by-step guide

If you’re wondering how to create an organizational chart, it’s simpler than you think. Here’s a step-by-step process to create an org chart that fits your company’s needs:

1. Identify roles and responsibilities

Start by listing all the key roles in your company. This includes leadership positions, department heads, managers, and team members. Make sure to clearly define what each role is responsible for.

2. Structure the hierarchy

Next, decide how your company is structured. The four main types of organizational structures are:

• Functional: A functional organizational structure groups employees based on their specific functions or roles (like marketing, finance, or production). Each department is managed by a specialist in that area, ensuring that tasks are executed with expertise. This structure is efficient but can sometimes limit cross-departmental communication and collaboration.

• Divisional: A divisional organizational structure groups employees into divisions based on products, services, or geographic regions. Each division has its own resources like marketing and production teams, allowing it to respond quickly to market needs. This structure provides flexibility and focus but may lead to duplication of resources across divisions.

• Matrix: A matrix organizational structure combines elements of both functional and divisional structures, where employees report to both functional managers and project or product managers. This dual-reporting system promotes collaboration across departments and allows for more flexible use of resources. However, it can create complexity and potential conflicts between departments.

• Flatarchy: A flatarchy organizational structure reduces hierarchy by minimizing layers of management. It's a flexible and open structure where employees can collaborate directly with leadership. A flatarchy encourages innovation and agility, but can lack accountability due to unclear ownership.

3. Visualize relationships and reporting lines

Once roles are established, connect the dots‌ — ‌literally. Draw lines between roles to show who reports to whom. You can also use specialized tools like Lucidchart or OrgWeaver to create your organizational chart.

4. Keep it updated

An outdated organizational chart can be more harmful than no chart at all. Make sure to regularly update your organizational chart as teams grow or shift roles. This is especially important in fast-paced or remote environments where teams are constantly shifting.

Different types of organizational charts

Your organizational chart is unique as your unique business. Depending on your company’s structure and size, you might use one of the following organizational charts:

1. Hierarchical

A hierarchical chart reflects the most traditional organizational structure. Each employee has one direct supervisor, making it easy to understand authority lines.

2. Divisional

A divisional organizational chart visually represents a company's structure by grouping employees into divisions based on products, services, or geographic regions. Each division operates independently with its own resources and leadership. This allows teams to quickly respond to specific market demands while maintaining accountability within each segment.

3. Matrix

A matrix organizational chart represents a dual-reporting system where employees report to both functional managers and project or product managers. This structure promotes collaboration across departments while visualizing the complex relationships between different roles, functions, and project teams.

4. Flat

A flat organizational chart is suitable for companies with fewer management levels, like startups. Flat organizational chart depicts a structure with few or no layers of middle management, allowing employees and leadership to work directly together. It highlights an organization that values open communication, faster decision-making, and autonomy by reducing bureaucratic barriers.

Common mistakes to avoid when creating an organizational chart

While creating an org chart may seem straightforward, there are a few common mistakes to avoid:

Neglecting to update the chart

Regularly update your organizational chart to make sure it accurately reflects changes and new team members. Teams grow, shift, and change, and so should your org chart.

Over-complicating the structure

Avoid cramming too much detail into the chart. It should give an overview of your organization, not depict every relationship within the company.

Ignoring cross-functional teams

Make sure to account for employees who may straddle different departments or projects. Forgetting team members who are a part of cross-functional teams leads to inaccurate organizational charts.

Implementing organizational charts for success

Creating an organizational chart isn’t just about making a diagram‌ — ‌it’s about fostering transparency, clarity, and efficiency within your organization. For remote and hybrid teams, an org chart is an indispensable tool for maintaining structure and communication across distances.

If you’re looking to optimize your team structure, consider creating or updating your organizational chart today. A well-maintained org chart can help your team members reduce miscommunication, collaborate efficiently, and ensure ownership. 

For more insights on how structured, remote-first teams can thrive, download our Remote Workforce Report today. Learn how leading organizations are adapting to the future of work by improving team structures and fostering productivity in distributed environments.

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