The organizational chart might seem like a basic document, but it's actually a crucial tool that ensures transparency in HR processes and boosts efficiency across the company. It helps each employee understand their role, their responsibilities, and whom they can approach in case of challenges.

An organizational chart, also known as org chart, is vital for any company, regardless of size—whether small, medium, or large—or industry, be it construction, manufacturing, restaurants, or corporate. It visually represents the internal structure, helping to maintain clear communication. Without a well-defined system, teamwork can quickly break down, especially in larger companies, leading to confusion and inefficiency.

What is an organizational chart and why is it important?

In the European Union (EU), there aren't any specific laws requiring companies to create or use organizational charts. However, the idea of organizational structure, which these charts usually represent, is indirectly shaped by various legal frameworks and guidelines that companies need to follow.

As highlighted in an Investopedia article: „A company may choose to follow several models of corporate governance. These can have traditional, pyramid-shaped leadership roles, or have flexible leadership structures. Most public corporations consist of a board of governors or directors, and one or more executives. [...] These bodies exist because the evolution of public ownership has created a separation between ownership and management.”

Daniel McCallum, a Scottish-American engineer, is credited with creating the first organizational charts for American businesses around 1854, with the chart drawn by George Holt Henshaw. The term "organization chart" gained popularity in the early 20th century, promoted by industrial engineers. By the 1920s, these charts were becoming more common in administrative and business enterprises, with the term "organigram" emerging in the 1960s.

The definition most professionals rely on for an organizational chart is that it is a visual representation of a company's internal structure, outlining the hierarchy of roles, responsibilities, and relationships within the company

Typically, an organizational chart consists of rectangles representing departments or positions, with lines connecting them to show hierarchical relationships.

For the HR team, this tool makes it easier to manage all employees. How? First, the organizational chart provides a clear overview of team assignments, available positions, interdepartmental collaboration, and management levels. HR then updates the chart as changes occur within the company and ensures it’s accessible to all employees.

For employees, the organizational chart acts as a roadmap of the company, helping them get familiar with their work environment. With access to this information, communication between teams is faster, as employees know exactly who to contact for different issues or projects.

The Framework of an Organizational Chart

Whether you're an employee, HR professional, or director, you've likely already seen and worked with an organizational chart. Here’s a complete list of the organizational elements that any type should include. This will help you review your company’s chart or create one from scratch.

• Company branding: The name, logo, and other visual elements that represent the organization’s identity.
   
• Hierarchical structure: Displayed using boxes or rectangles, each representing a role, position, or department within the organization. These boxes are arranged based on the level of responsibility.
   
• Organizational details: The names of departments, positions, and employees. You can also include contact details or other relevant information, but without cluttering the boxes.
   
• Reporting relationships: Shown by lines that clearly depict the flow of authority within the organization.
   
• Last updated date: Included to ensure the information is current and to track any changes.

When designing the organizational chart, make sure the structure aligns with the company’s strategic plan and that all elements are grouped according to clear criteria. A chart that's hard to interpret is just as unhelpful as not having one at all.

Simple and easy-to-understand layout

There are various types of org charts to choose from, but the most important thing to have in mind are your company’s unique needs. Make sure the model you want to work on accurately reflects your organizational structure, as well as the culture. Whether you go with a vertical chart or a matrix format, make sure the information is easy to find and understand.

The model that Papervee clients find easiest to use is the hierarchical organizational chart, or vertical structure. Everything is clearly laid out, without unnecessary details, and adding photos enhances clarity. The best part is that the entire chart can be automatically generated in the Papervee platform, requiring no effort from users to create this important document. Plus, the chart is automatically updated and accessible to all employees in the company. Learn more HERE.