5 Keys to Designing Your Perfect Org Chart

No one in their right mind wakes up in the middle of the night thinking, “I need to design a perfect org chart.” Why? Because, technically, you don’t need to have an org chart—unless you’re running into some problems. And typically, these problems fall into one of two camps.

  1. Complexity Issues
  2. Strategy Issues

Complexity issues arise when your organization has grown and what used to be simple no longer is. For example, when you had a smaller team, let’s say a small business (or department) of five or six people organizational issues were pretty simple. In that kind of environment, everyone on your team “knew” what everyone else was doing. Rules were probably pretty lax. Communication was probably very informal. And everyone on your team helped do a little bit of everything.

However, as your team grew and now comprises, let’s say, eighteen employees, complexity has raised its ugly head. Now, everyone doesn’t know what everyone else is doing. Communication is incredibly complex. Your employees now have very specialized roles but it’s often unclear, especially for those who were with you when you only had five or six employees, who reports to whom. In fact, some of your people may have one direct report, but others as many as four (which, as you can guess, is a major problem). In other words, complexity calls for clarity (and the need for an org chart—or, at least, a better one).

On the other hand, strategy issues are related to design questions about the future of your business. Let’s say your business now has 12 employees (congratulations). The question is, “In order to get to the next level (or fulfill your strategic plan), what are the next positions you need to add?” Or let’s say you want to double your business in the next twelve to twenty-four months. If that’s true, what kind of organizational structure will you have when you’re twice the size you are now? To answer those questions, you need an org chart.

In other words, the only reasons to care about org charts aren’t related to org charts, they’re related to the twin motivators for any change in your life—pain or pleasure. Either you’re in pain (complexity has taken over and something needs to be fixed in order to release the pain) or you’re in pleasure (strategically, you’re dreaming about the future of your organization that you want to have vs. the one you currently have). Either way, you need a better org chart (which I’m calling here, “the perfect org chart”).

In order to do that, you’ll want to use all five of the following keys to designing the perfect org chart for your business.

Note: don’t overcomplicate this process by trying to figure out the best software program to use to design your org chart (or how to get the boxes to look right in PowerPoint). Delegate that away. All you need to design your perfect org chart is a yellow pad of paper and a pen. Someone else can make it look pretty.

I. Design for What Your Want, Not What Is

One of the more difficult transitions for most business owners to make is to get out of what is and to think about could be. Why? Because it’s difficult to forget what you’ve been working on for the past x number of years. It’s hard to forget all the decisions you’ve made and the people you’ve hired. It’s difficult to let go of everything that you’ve done up to this point.

However, if you want to design your perfect org chart moving forward, that is exactly what you need to do. Some people like to call this “Zero Sum Thinking.” In other words, you choose to let go of everything that’s brought you to this point as if you were starting all over again from scratch (i.e. zero).

Based on everything you know now (primarily through experience), if you were to do it all over again, how would you design your perfect org chart for today moving forward?

Forget what you have. Focus on what you want. This is your chance to design your perfect org chart.

II. Design for the Position, Not For the People You Have

Probably the biggest mistake most business owners and entrepreneurs make when they’re creating their perfect org chart is they start by designing it based on the people they already have. I hear this over and over again when they say, “Okay, next we have Danny who’s my Director of Operations …”.

Did you catch the mistake? They started with a name (Danny). However, when you’re designing your perfect chart, no names should be present until it’s completed (including your name).

In other words, at the top, it should NOT say, “Bruce” or “Marjorie” or “Warren.” Instead, it should say something like, “Owner” or “CEO” or “Managing Partner” or “Executive Director.”

Anytime you’re tempted to put a person’s name in a box or a title you’ve used in the past, let it go.

For example, when you were smaller, you might have called someone who helped out with office issues your “Director of Operations” (probably as an inflated title).  However, now that you’re larger, moving forward you may conclude that at your current size that position should be filled with a COO (Chief Operations Officer). Forget that Anik doesn’t have the skill set to be a COO. If you need a COO moving forward, that’s what you need. Don’t simply insert, “Director of Operations” because that’s what you’ve had for years.

III. Design For Formal Reporting Authority, Not Skill Sets

Have you ever had four bosses? If you have, it wasn’t a great experience, was it? Well, it’s not great for your people either. The good news is that designing your perfect org chart can help alleviate that.

For example, in a small business, it’s not unusual for people’s responsibilities to drift based on their expertise. Let’s say you hire a woman, let’s call her Natasha, as a sales rep. She starts working at your company and you soon learn that she’s really good with Quickbooks. Before you know it, she’s helping each month put financials together and then developing your budget. You also realize that she’s pretty good at writing copy so she’s now helping George, your Marketing Director, with creating copy for your marketing collateral.

The question is, who should Natasha report to? Should she report to your Operations Director, your Sales Manager or your Marketing Director? Currently, that’s not clear.

What should be clear, when you create your perfect org chart, is that a sales rep should report to the Sales Manager (i.e. see point two above, you don’t design for the person, you design for the position).

Now, your business may be the exception, but frequently when I help business owners with their org chart (especially if they have more than eight employees), they almost always have several people who fit under several different bosses and that’s a problem.

Back in my old pastoral days, we used to say, “Anything with two or more heads is called a monster.” No one likes to have multiple bosses. This exercise is your chance to correct that.

IV. Make Sure Every Function Is Covered, Even If It’s Not a Position

As a business owner and/or entrepreneur, apart from positions, you always want to make sure that every function is covered by someone. For example, you may not have a position called “strategy” but you want to be clear on whose responsible for strategy formulation in your business. Note: I suggest that should be you.

The reason this is important is because you may need to add a new position or clarify what current position should be responsible for a specific function. Now, in case you’re not sure what functions should be covered, here’s a good list for you to start with.

In your business (on your perfect org chart), who’s responsible for each of the following functions.

  • Strategy
  • Marketing
  • Sales
  • Customer Service
  • Finance and Accounting
  • Collections
  • Technology
  • R&D/Product Development
  • HR
  • Legal
  • Operations/Administration
  • Ordering
  • Delivery/Fulfillment
  • Department Responsibilities, etc.

Note: feel free to add to any additional functions based on your industry since different industries have different functions.

That said, looking at your org chart as it’s designed right now, do you now need to add any positions to carry out any of these functions? Or can your current design handle all of them?

V. Reduce Your Direct Reports to Three to Five People

Probably the biggest issue that most business owners and entrepreneurs complain about most of the time is, “I’m just too busy.” Or “I’m overwhelmed.” Or, “I have no time.”

This occurs for a number of reasons, but the main one (related to today’s discussion) is that they’re wearing too many hats and have too many direct reports. For example, once you create your perfect org chart and then start filling in names, one of the things that will probably become clear is that your name is in too many boxes.

For example, it’s not unusual for the business owner/entrepreneur to also be the sales manager (as well as the main sales person). It’s also not unusual for them to be the bookkeeper/accountant. It’s also not unusual for them to oversee all operations. Etc. You get the picture. Way too many boxes leads to an overworked and overwhelmed business owner.

On the other hand, it’s also not unusual for the business owner to have too many people reporting to them, especially when the business owner has less than ten employees. However, to do your role as the business owner, you can’t do that well and oversee ten or twelve or more people. Note: you probably can’t do that well with seven or eight people either.

So my recommendation is that as you’re designing your perfect org chart, you try to reduce your direct reports to three to five people. Every number beyond five will make or keep your life more complicated. Plus, your job has too many important responsibilities that won’t get done well if you’re trying to manage too many direct reports.

Trust me. If you take my advice on this one, you’ll be forever grateful. I’ve done this countless times with plenty of business owners and leaders and I’ve never heard one of them regret it and come back to me saying, “Please, I want to go back to more direct reports!”

So, there you have it. Five keys to designing your perfect org chart.

  1. Design for what you want, not what is
  2. Design for the position, not the people you have
  3. Design for formal reporting authority, not skill sets
  4. Make sure every function is covered, even if it’s not a position
  5. Reduce your direct reports to three to five people

If you follow these five keys, you’ll be infinitely ahead of most business owners and you’ll have either eliminated some of the pain you’re currently experiencing or increased your sense of fulfillment as you’ve laid out where you want to head. Either way, you’ll be happier and a better leader/manager of your business.

To your accelerated success!

P.S. In another post, I’ll talk about what to do when you realize you either have the wrong people in the wrong positions or you have too many people’s names in too many boxes. Those are different issues. But for today, be happy that you now have a perfect org chart for where your business is today.

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