Musings on the Organizational Chart

Organizational Charts

In business school, the various disciplines often teach their course concepts as if they are unique to them, and independent of other disciplines. For example, I was always amused as each discipline at some point explored the idea of the organization chart and how a company should be structured. This was not left to the discipline of management to teach, although they certainly did teach it, too. Marketing management covered it, as did financial accounting, managerial accounting, managerial finance, and production management. The thing that amused me was the perception taught from each discipline that all other disciplines should report to theirs on a "proper" org chart. I majored in transportation in undergrad, and operations were the head of the org chart in transportation classes.

Org charts are sometimes politically motivated. I worked in a company where the CFO reported to the CIO who reported to the CEO. This was to create a buffer between the CFO and CEO. Although the CFO said he didn't mind when his box was moved down from the C row, as long as it cut down on how many conversations he had to have with the CEO. However, within a year, that CFO was gone, and the box mysteriously, with no explanation, migrated back to top row and direct reporting to the CEO again.

There is a lot of flexibility in setting up a chain of command in a company. Org charts can be flat or steep. The point is, the reporting structure needs to function effectively and support established business goals. In a company that is growth-oriented, it may make sense to have marketing take the lead, or for marketing to have a parallel organization to the rest of the company that is structured to carry out the promises made by marketing. In a mature service industry, operations may dominate the organization. It still seems to me that if financial accounting drives the company that somebody with a clue should tell them which way to steer, because by their nature, financial accounting only looks at where it has been.

(See what I mean about looking back vs. looking forward in this article highlighting the difference between accounting and finance.)

Another consideration for setting up an org chart is keeping a business goals consistency as you move up the chain of command. For example, a marketing group charged with spending money to build customer awareness tends to be a cash drain on the organization; it would be counter-productive to align that group under a senior manager charged with controlling costs. That senior manager could curtail the marketing group's activities to successfully control costs, but the result would be reduced brand awareness and (potentially) a losing scenario for the company as a whole.

Bottom line, the organizational chart can take many different forms, but at its heart it needs to help the business achieve its goals.