The Importance of Having a Clear-Cut Organizational Chart for Businesses

Organizational charts provide a graphical representation of the internal structure within an organization. Overseeing the chain of command, the density of departments, and the lines of communication are vital for businesses. Important planning aspects, like allocating human resources and formulating time and cost forecasts, rely on a well-defined organizational structure.

Although the benefits of organizational charts are viable for organizations of any size, medium and large-sized enterprises will have a difficult time managing most of their processes absent an effective organizational chart. And by effective, we mean comprehensive, well-defined, and detailed. Every member of staff and management must be included; the horizontal and vertical relationships must be clear; each individual must be covered in detail. Expect a blog post on what makes for an effective organizational chart soon (feel free to sign up for our newsletter below so you don't miss it). For now, we'll be discussing the benefits of having one.

Allows for Better Communication

Having visibility of everyone's position within an organization clarifies the lines of communication. It helps members of the organization know who they need to report to, who they can go to for help, and who their peers are. Having access to the roles and responsibilities of each position is another convenience. This visibility provides a clear idea of what is expected from each employee, while managers can easily identify whom to assign certain tasks.

Clarifies Responsibilities and Scope of Authority

A clear visual of the chain of command presents the reporting relationships in an organization. If a deadline isn't met or if a task is inadequately completed, managers can determine the accountable parties by referring to the organizational chart.

Organizational charts also prevent confusion or overlap in authority. Employees are often interrupted from helping short-staffed projects by request of superiors other than their own. These interruptions hinder employees from performing their daily duties, which reflects poorly on their work. Organizational charts are a reference for each manager's scope of authority. Managers who need outside assistance are encouraged to refer to the chain of command and ask their fellow managers for support. This practice prevents employees from getting conflicting orders and from being overworked.

Makes for Better Planning

A clear-cut organizational structure aids in the effective planning of projects. Project managers can easily identify what human resources are available to them--if these are insufficient, they can determine which departments and individuals are suitable for support, and whom to ask for acquiring that support.

Overseeing the duties and responsibilities of each employee also simplifies the process of assigning activities. By visualizing the volume of human resources available for each activity, project managers can create a calculated, accurate project schedule.

Supports Company Growth

Growing companies have evolving organizational structures. Organizational charts help determine where this growth must occur. Underperforming departments and overworked staff are often a result of deficiencies in the organizational structure. Charts help identify understaffed departments and managers whose scopes are too wide. These pinpoint positions that need appointing.

If the organizational structure of a business is too wide, adding new layers of middle management might be a good idea. This can be achieved by reorganizing the chart (if there are enough human resources) or by recruiting for new positions.

In some cases, a department might be overcrowded and in need of separation. For example, a growing business hires more staff for its finance department as it expands. Some employees have accounting responsibilities, some have project accounting responsibilities, and some purchasing responsibilities. The finance manager has trouble supervising all these positions. Some tasks begin to fall through the cracks. In this case, it's better to form a separate accounting department, appoint an accounting manager, and move some of the finance department's staff over to accounting. A well-defined organizational chart helps detect similar situations and aids in the planning for effective solutions.

Conclusion

Defining your business' organizational structure helps everyone in different (but important) ways. It facilitates effective communication, strengthens the sense of responsibility, helps identify problem areas, and aids in the systematic growth of your business. If you're a startup with under 10 employees, grab a pen and paper and see what your organizational structure looks like. Perhaps you'll discover opportunities for growth. For larger companies... it might be a little more complicated. Luckily, we've got you covered!

You can easily create your business organizational chart with our SAP Organizational Chart solution. The SAP-integrated solution extracts employee data from your SAP system and forms a comprehensive organizational chart. Employee data isn't limited to positions and duties either--automatically embedding information like former employments, education, and spoken languages or CVs are some of the solution's features. You can choose to visualize the organizational chart for the entire company, a department, a team, or the details of a single employee. Visit our product page for more exciting features.