Organizational Chart Definition - Investopedia

What Is an Organizational Chart?

An organizational chart is a diagram that visually conveys a company's internal structure by detailing the roles, responsibilities, and relationships between individuals within an entity. It is one way to visualize a bureaucracy.

Organizational charts are alternatively referred to as "org charts" or "organization charts."

Key Takeaways

• An organizational chart graphically represents an organization's structure, highlighting the different jobs, departments, and responsibilities that connect the company's employees to each other and to the management team.
• Organizational charts can be broad-based, depicting the overall company, or can be department- or unit-specific, focusing on one spoke on the wheel.
• Most org charts are structured by using the "hierarchical" model, which shows management or other high-ranking officials on top, and lower-level employees beneath them.
• Other types of charts include the flat org chart, the matrix chart, and the divisional org chart.

Understanding Organizational Charts

Organizational charts either broadly depict an enterprise organization-wide, or drill down to a specific department or unit.

Organizational charts graphically display an employee's hierarchical status relative to other individuals within the company. For example, an assistant director will invariably fall directly below a director on the chart, indicating that the former reports to the latter. Organizational charts use simple symbols such as lines, squares, and circles to connect different job titles that relate to each other.

Regardless of an organization's structure, org charts are extraordinarily useful when an entity is contemplating restructuring its workforce or changing its management complex. Most importantly, org charts let employees transparently see how their roles fit into the overall company structure.

Hierarchical Organizational Chart

This most common model situates the highest-ranking individuals atop the chart and positions lower-ranking individuals below them. Organizational hierarchies generally depend on the industry, geographical location, and company size.

For example, a public company typically shows shareholders in the highest box, followed by the following in descending vertical order:

• Chair of the board of directors
• Vice-chair of the board
• Board members
• Chief executive officer (CEO)
• Other C-suite executives (joined to one another by horizontal lines)

Other job titles that may follow c-suite execs include:

• President
• Senior vice president
• Vice president
• Assistant vice president
• Senior director
• Assistant director
• Manager
• Assistant manager
• Full-time employees
• Part-time employees
• Contractors

Many formal organizations are organized hierarchically and can be shown in chart form. These include corporations but also nonprofits, governments, schools & universities, and the military (as the chart below illustrates).

There is no single correct way to fashion an organization chart, as long as it identifies the officials, employees, departments, and functions of the firm, and how they interact with each other.

Other Types of Organization Charts

• Flat — also known as a "horizontal" chart, the flat org chart positions individuals on the same level or only a few levels, indicating more power equality and autonomous decision-making ability than is typical with employees in hierarchical corporations.
• Matrix — This more complicated organizational structure groups individuals by their common skill-sets, the departments in which they work, and the people they may report to. Matrix charts often interconnect employees and teams with more than one manager, such as a software developer who is working on two projects—one with their regular team manager, and another with a separate product manager. In this scenario, the matrix chart would connect the software developer to each manager they are working with, with vertical lines.
• Divisional — This chart subdivides the company based on some specific criteria. It could be by product lines offered or geographic regions. An example would be an auto manufacturer organizing its company by product type. The respective divisions would have a certain autonomy but this would likely incur additional overhead cost.

What Should an Organizational Chart Show?

An organizational chart should visually show what the hierarchical status of a particular employee relative to other individuals within the company. For example, an assistant director will invariably fall directly below a director on the chart, indicating that the former reports to the latter. 

Why Is an Organizational Chart Important?

Org charts depict an organization's hierarchy, which can clearly identify seniority and lines of authority that ought to be followed. It can also show which roles are responsible for what tasks, divisions, departments, or regions. This can remove ambiguity and improve communication.

What Are the Most Commonly Used Organizational Charts?

The two types of organizational chart formats that are most often used are hierarchical and flat. Hierarchical is the most common and it shows the ranking of individuals based on their role in the company in a descending vertical order. A flat format, also known as a "horizontal" organizational chart, places all individuals on only a few levels or just one level, and is indicative of an autonomous decision-making ability where this power is equally shared.

How Do I Make an Organizational Chart?

There are software packages and web templates available to help make an organizational chart. You can even produce one by hand. The key is to depict the organization's hierarchy, with more senior positions at the top. Underneath each position should be subordinate positions and roles, which may be segregated by division or department. Depending on how the organization is structured in reality, the chart should approximate it.

What Are Other Types of Organizational Charts?

Less commonly used, but still effective in defining roles, are the matrix and divisional organizational charts. The matrix organizational chart groups individuals by their common skill-sets, the departments in which they work, and the people they report to. It is dubbed "matrix" as it shows employees and teams interconnecting with more than one manager. Divisional would show the organization of a company based on some specific criteria, say a product line or geographical area. For example, an auto manufacturer might be organized based on the different types of products they offer.

The Bottom Line

Organizational charts allow one to visually understand an organization's structure and hierarchy. This can give an overview of how information and instructions are deployed through organizations, which can range from government bodies to corporations to the military. The most senior positions appear at the top of the chart with subordinate roles falling under them. The chart's appearance and flow will vary depending on an organization's size and how its roles are arranged.