How to draw organisation charts
The typical organisation chart does not tell you much about how the organisation is supposed to work. Normally, charts are drawn in layers: all the people reporting in to a boss are on the same level and so on down the structure. Because there are multiple layers, the chart often extends to multiple pages.
If an attempt is made to distinguish between people reporting in to the same boss, it is normally done using pay grades or titles. So that those with an SVP title are higher up the chart than those with a VP title and so on.
This simple format is partly a result of the simplicity of the computer programs used to construct the charts. But, it is also a result not knowing a better way.
A good organisation chart can achieve the following:
– explain who reports to whom
– communicate information about the business model of the organisation and
– define the relationships that should exist between boxes in the chart.
The operating core
The first step in drawing an organization chart is to define the operating core; and to decide how this operating core is divided up. There are three ways to divide up the operating core: by function, making each box a cost centre; or by business unit, such as product, market segment or geography, where each box is a profit centre; or by matrix, where profit reporting is made on more than one dimension.
The operating core of a single restaurant would be structured as functions: for example buying, cooking, serving and marketing functions. The operating core of a chain of similar restaurants would be structured into business units, with each restaurant as a profit centre. The operating core of a group of restaurant brands would also be structured into business units. Each brand would be a separate business. The operating core, therefore, may be different at different levels in the structure.
If the operating core consists of functions the relationship between these functions is that of a “tight team”. Profit can only be calculated once the activities of all the functions are combined. Hence the functions need to work closely together to ensure their combined activities are achieving the objective. Monday morning meetings or something equivalent are needed to ensure regular coordination between the functions. This also has implications for the role of the leader of these functions. He or she will be “hands-on”: frequently involved in easing tensions, deciding priorities and guiding action.
If the operating core consists of business units, the relationship between the units will be much looser. Coordination does not need to be as close: each can operate with a good degree of independence. The relationships between business units can be quite distant. Monthly or quarterly meetings may be sufficient to achieve needed coordination. Also the leader of the collection of business units is likely to be “hands-off”. Because he or she is not needed to ensure coordination on a daily or weekly basis, much more can be delegated to each business unit within the constraints of defined policies and strategies.
Above the operating core
Once you have clarity about the operating core at any level, the next challenge is to define any parts of the structure ‘above the operating core’, yet still at the same level.
Obviously the boss or leader sits above the operating core in the organization chart. But it is also helpful to position some other activities ‘above the operating core’.
The way to do this visually is to have the operating core boxes all on the same level of the chart. Then draw a horizontal connecting line just above the operating core boxes. Then draw a vertical line, from the horizontal line, to the boss or leader. Make this vertical line long enough to allow additional boxes to be added to left and right of this line .
So what boxes should hang off to the left or right of this vertical line? Four kinds of support functions:
- Policy functions: these are functions with policy roles, whose job is to set and monitor policies for the operating core. Examples are accounting rules from finance, people management rules from human resources and IT rules.
- Shared services: these are activities that could be carried out within each part of the operating core, but have been centralized for reasons of economy of scale or skill. The relationship is a service one: the operating core is the customer and the shared service is the supplier.
- Partner functions: these are also functions that could be embedded in each part of the operating core, but have been centralized for competence or control reasons. The relationship is that of a partner rather than a supplier. The representative from the function has a seat at the table of the relevant part of the operating core. Examples are HR business partners, central research, IT business partners, finance business partners, etc.
- Lobby functions: these are units whose role is to influence the operating core to give more attention to some area of importance. If the operating units all involve manufacturing, the lobby function might be lean manufacturing. If the operating units are structured by product, the lobby function might be global accounts. Often one of the roles of a lobby function is to facilitate coordination. So, where a number of business units operate in one country but report in to their global divisions, there is often a country management structure whose job is to coordinate the business units in the country, but whose power is limited. One of the features of the lobby function is that it has responsibility that is greater than its authority. It is expected to influence, but does not have the power or resources to execute.
The final part of drawing the chart is to place the “bossy” functions on the left and the “service and influencing” functions on the right of the vertical line. So that policy functions and partner functions go on the left and shared services and lobby units go on the right.
In practice, finance, HR and IT typically contain, within their empires, at least three or sometimes all four of these support functions. This can make it difficult to decide which side of the line to place them.
There are two responses to this. First, place them in which ever of the four roles is dominant. Second, consider splitting the function into its separate roles. For example, many companies are achieving significant improvements from separating shared services from policy functions. The reason for the success is that the skills needed to manage these different support roles are very different. The same is true for lobby functions. They are often more successful with a separate reporting line to the overall leader. There is, however, less evidence about the value of separating policy from partner roles, and these are often combined in functions where they both exist.
Content from Advanced Organisation Design course at Ashridge Business School