September 17, 2009

More than hierarchy, organizational structures reflect corporate values and… hidden problems

Org charts are fascinating (living, breathing, pulsating) organism. I didn’t always see things this way. I remember being a number in an org chart and hating it. I was one of 100,000 employees working for corporation X many years ago, and whenever I looked at an org chart, all I saw was hierarchy. Who reported to whom? Who moved to the side? Who moved up? And why didn’t anyone ever move down? Some people sucked at what they did, and they kept getting “demoted up” – a promotion to get them out of the way.

It took me a few years to understand the true meaning conveyed by org charts: power plays, strengths, and management mistakes. I’ve now seen more org charts than I can count, and I routinely review them as a visual representation of the company’s strengths and weaknesses, and misplaced focus.

A few on my laundry list.

Ownership. I look for “ownership” of every important function on the org chart. If no one “owns” a specific function, who is in charge of it? For example, if everyone thinks they’re involved in strategy but there’s no person/group assigned to it, trust me, it ain’t happening. Wondering why the company has no direction? Look for “strategy” ownership on the org chart.

Marketing. One of the most misunderstood functions in most companies. I personally view it as a more strategic function, but it does span a wide range of strategic and tactical activities. How a company treats marketing says much about their focus. Having a “sales and marketing” department forces the marketing function to become more tactical. “Marketing and advertising” suites brand conscious companies and is also tactical. For high tech companies I prefer to see marketing as a stand-alone function and much more strategy focused (“marketing and strategy” organization?). For non-manufacturing SMBs, I’d like to see a minimum of one marketing staff for every 15-20 employees. Anything less than that and your sales will suffer.

Sales. It’s amazing how many companies have the wrong sales functions to match their product or service offering. A vertical market focus in the sales department is suitable for sophisticated product lines, and a geographical focus is more suitable for commoditized products. Mixing the two will create havoc. The titles alone portray much about the company’s focus. Is the title called sales, business development, or account management? Does this match the product line? Is channel sales separated from the rest? If not, the channel partnerships will suffer.

R&D. For high-tech companies, I’d like to see a stand-alone R&D organization. Mixing R&D with Engineering dilutes the strategic focus of the company. The engineering team takes the product to launch which is tactical by default. R&D needs to focus on future product lines and shouldn’t get bogged down by day-to-day tactics.

Quality & Assurance (QA). Again, for high tech companies, QA should be separated from engineering, otherwise, product quality is compromised. You need the negotiation between the two groups, and having one function report to the other doesn’t work well.

Human Resources. I’d like to see this as a straight line to the top management (president, COO, or CEO). Most companies organically leave the human resources function under the CFO or VP of Finance. This shows cost consciousness and lack of focus on human resource development.

Operations. Another area that routinely falls under finance to keep the costs down. This should also be a straight line to the top (or in smaller companies, handled by the top position in the company), as it spans the entire company. Operations and finance should be in position of negotiating together and one reporting to the other compromises operational efficiency.

Legal. For mid sized companies and up, it makes sense to have an in-house council group. Small companies with high transactional activities (licensing, for example) or high focus on IP development (patents) can also use at least one in-house council.

I’d love to hear your stories. What do you see on your company’s org chart? Does it match your company’s mission and corporate values? If not, it might be time for change management (let's talk!).

And let’s hope “demoting up” is eliminated for good. Please tell me it is.


  1. Like you, I can tell a lot about an organization from how they are structured. My interest revolves around marketing, where it fits into the corporate structure and how it is organizaed as a discipline. I believe there are five dimensions that companies must factor into their marketing structure: geography, products, customers/market segments, channels of distribution and channels of communications. How these are ultimately factored in (or in some case are left out) can be highly instructive.

  2. Hi Kat, great observation. Bu you know the org chart is not telling you sometimes the right story about company. If you have a company focused on and driven by strategic processes running effeiciently across the company (across all departments ), then the company´s org chart could be only formal. On the other hand I agree with your comments, that it can give you certain characteristic.

  3. Great article, Kat.

    I worked for Motorola in the early 1990s in a unit that combined marketing and strategy, and I agree that this is a powerful combination. I have never seen it done as effectively elsewhere.

    I would add two additional things to look for in your org chart analysis:
    (1) Span of control, especially at the CXO level. Who is on the CEO's direct line staff, and how many people really report to him/her? I've seen orgs with 15 direct reports (which again implies that little strategic work gets done, just lots of tactical decisions and meetings), and I've seen orgs with only 5-6 direct reports, making for a powerful executive council.

    (2) How many middle manager levels are there? Firms with 5-7 tiers of middle managers (VP, AVP, Sr director, Director, Sr manager) add a lot of bureaucracy to the decision process. In a sales environment, you will see very large account meetings. There are some very useful tools to map employee connectness and decision authority, and firms should periodically review their structures to prune the problem areas and get rid of bloat.

    The other question that I always ask is "Who are the heroes, the ones at any level who really get things done?" That opens up the informal org chart, and starts to show where the real corporate values lie.

  4. Org charts are also important when a company engages in a major corporate transaction such as a merger, sale, or private placement. It tells the other participants in the deal how the company is structured, what the command chains are, and who the key employees and officers are. It is also one of the first items requested in a due diligence request list.

  5. Hi Kat, i recognize your observation. I work myself in a private bachelor education institute. Ownership has to be made personal on all levels and management should incorporate ownership as a core value, not only on paper but into practice of course.

  6. Fun stuff Kat. I focus on high level change management so the first and second horizontal on the chart are where my clients stories start.

    Since change management is heavily influenced by internal politics I like to look for strangeness in a chart:
    Are directors on the same horizontal as VP's?
    Are there VP's with few reports?
    Does anyone report cross functionally?
    And my favorite where do the "people" leadership roles exist, if at all.

    tactics, lists and projects do not mix well with strategy (as a relay yes as a reporting structure no). You mention that a few times in you post- insightful and enlightening. Thanks