3 types of business organizational charts and their distinct uses
The majority of businesses don’t start out highly organized. There are usually only a few key people, which makes the workflow easy to track. However, once managers are assigned and departments start to form, it's beneficial to create a business organizational chart.
Business organizational charts are distinct from most other diagrams. Rather than listing data and statistics, they give an overview of the relationships between each position and person in the organization. While not designed for daily use, organizational charts can be a great tool to visualize how a business is expanding across time.
The following sections go over the major types of business organizational charts, as well as how to choose the one that works best for your business.
What is a business organizational chart?
A business organizational chart provides a visual outline of an organization’s current structure. Regardless of the size of the business, the chart should include every single position and cover how each one relates to the others. By clearly defining all the different departments and hierarchies, you’ll be able to easily see how work and information flow through the entire organization.
Furthermore, using a simple chart format allows even the most complex businesses to be clearly documented. An up-to-date business organizational chart can help employees understand their role in the wider context and executives assess how changes may affect the organization as a whole.
3 types of business organizational charts
Business organizational charts come in many different forms with many different functions. For example, some may focus on geographical divisions, product segments, or aesthetic differences (i.e., circular org charts), while some may remove management altogether. However, most business organizational charts will fall into one of the three following structure types.
The most conventional types of organizational charts have a hierarchical structure, also referred to as a functional top-down organizational chart. The organization is structured by rank, starting with the supervisors or senior management at the top, then middle management, then moving down through the ranks.
For a better idea of how a hierarchical structure works, think of a family tree—with a father and mother at the top, several children in the middle, and even more grandchildren at the bottom.
Furthermore, hierarchical structures typically group roles by departments (i.e., engineering, sales, IT) that form their own line or branch within the chart. Once a business grows too large to fit into a manageable hierarchical chart, it can be separated into divisional structures, with logical divisions being geographical offices, product lines, and any independent grouping. There are pros and cons to using a hierarchical structure.
Pros: A hierarchical organizational chart is one of the simplest and most logical, as it presents a clear picture of direct reporting relationships within the business. It also naturally groups employees with similar specializations together, which may help with future restructuring.
Cons: Setting a fixed chain of command creates a rigid structure and doesn’t allow for flexibility between departments and employees. Although an organizational chart only accounts for formal relationships, a hierarchical structure can limit the interaction and ease of communication within a company.
Matrix structures are useful when an employee has more than one supervisor. For example, a graphic designer may work on several projects across an organization, and therefore be part of several departments. In a matrix organizational chart, the roles and relationships are set up similar to a table, with lines linking each employee to all their direct managers. To better see if a matrix structure will suit your company, consider the following pros and cons.
Pros: A matrix organizational structure provides a lot of flexibility, especially for businesses that often operate with cross-functional teams. It works well for dynamic work environments where each employee can be linked to others yet still report to a managing supervisor.
Cons: Having multiple links across an organization structure can create confusion within a company. Oftentimes, a manager may be overwhelmed with so many direct reports, while an employee may not know which of their responsibilities to prioritize.
Horizontal or flat structure
A horizontal or flat structure is more often used for small businesses, startups, or organizations without much hierarchy. It essentially consists of two tiers with little to no middle management. A horizontal structure implies close relationships between executives and employees, with each position functioning with a high degree of independence. To decide if a horizontal structure would work well for your business, see the pros and cons below.
Pros: A horizontal organizational chart is ideal for getting a startup off the ground because each employee has to carry a lot of weight within the company. Rather than a full-scale department, there are typically only a few people to handle all of the business functions. This enables each employee to be involved in decision-making and allows for quicker coordination.
Cons: Within a flat organization, it’s common for responsibilities to go beyond the defined role. While this is fine for small business owners it can create confusion once operations begin to scale.
3 famous business organizational charts
To see how a business organizational chart has real-life applications, we rounded up three successful companies with their own, distinct organizational structures.
Amazon: Hierarchical structure
Amazon has seen phenomenal growth since it was founded in 1994, but the company structure has remained surprisingly similar. While its exact business organizational chart is internal, it was revealed to CNBC in 2017 and 2019, and appears to be divided by divisions.
Amazon has six key department heads, including Amazon CEO Jeff Bezos, the CEO of worldwide consumer, the CEO of Amazon Web Services, and other senior vice presidents. Each of these top executives has its own sizable organization of direct reports, who in turn, have numerous other employees to manage.
In Amazon’s case, with so many management and business divisions across the globe, it makes sense to divide the overall organization into key business solutions and employ a hierarchical structure within each division. This allows you to see how work flows from the top level managers to their employees in each specific division.
Zappos: Horizontal structure or holacracy
In 2014, Zappos CEO Tony Hsieh famously adopted holacracy as a self-managed, self-organized way of doing business. Holacracy is an extreme form of the horizontal structure where all employees are enabled to do what they think is best for the organization. Although there are still leaders to hold others accountable, everyone in Zappos has the authority to create changes in the company and decide on their own work.
Zappos has always been known for its strong emphasis on a forward corporate culture, but this step into holacracy has been one of the most heavily discussed management moves. In fact, in March 2015, Hsieh offered all employees a significant severance package if they refused to embrace the holacracy movement within the company. This led to Zappos losing 14% of its employees. The company is still a holacracy, continuing to adapt and evolve its management structure as it moves forward. Despite initial resistance, Zappos has shared that reducing its layers of management has helped it respond better to customers, which is a founding purpose of the company.
General Electric (GE): Matrix structure
Although the structure GE currently uses is not confirmed, it saw success with a matrix organizational chart in the 1980s to early 2000s. Matrix structures are known as the most challenging to implement, with the possibility of employees experiencing conflicting purposes and heavy workloads. However, former GE CEO Jack Welch wanted to create an organizational structure that maintained a centralized headquarters within its multinational offices.
Welsh was dedicated to the matrix structure until his departure in 2001, claiming that it removed any departmental boundaries and increased the flow of ideas between employees in a collaborative culture.
How a business organizational chart evolves with time
To get a better picture of how to create a business organizational chart, let's consider a software startup with a founder and three other employees—one to generate sales, one to handle customer service, and one to help develop the product.
This startup will likely use a horizontal or flat organizational chart, with the founder at the top and the three other employees as direct reports on the second level. Even as the business starts to require other departments, such as marketing and human resources, it will continue to expand horizontally until each department begins to hire its own staff members.
Once this happens, the next organizational chart will have a hierarchical structure. Say, the sales department adds two more sales agents, and the customer service department adds three more customer service associates. This will grow the organizational chart to three tiers, with the founder now being a CEO or managing director, the three employees now being managers of their own department, and the newest hires making up the lowest level of the chart.
Should the company start to hire employees who contribute to more than one department, such as a developer or content writer, they may decide to start using a matrix organizational chart. This will effectively include the employee as someone who reports to several managers within the organization.
You can easily outline your own structure using one of the many organizational chart software tools available. The most popular ones include Pingboard and Lucidchart, although Microsoft Excel and Powerpoint can also be used as org chart software and include preset organizational chart templates.
Getting Down to Business
In choosing the best chart type, keep in mind its primary function—to provide a visual presentation of the internal structure within your organization. Simplified to include just roles and relationships, a business organizational chart gives a clear picture of how everything works. It outlines the chain of command, the flow of work, and how information is communicated from top management to team members.