The organization chart is a visual representation of the formal organization of a business. The
chart shows the structure of the organization and the relationships and relative ranks of its
positions; it helps organize the workplace while outlining the direction of management control
for subordinates. Even the one-person small business can use some kind of organization
chart to see what functions need to be performed; this will help ensure that everything that
should be done is getting done. “Organization Chart for a One-Person Small
Business” illustrates a simple organization chart for a one-person retail business.
Organization charts offer the following benefits:
• Effectively communicate organizational, employee, and enterprise information
• Allow managers to make decisions about resources, provide a framework for managing change, and
communicate operational information across the organization
• Are transparent and predictable about what should happen in a business
• Provide a quick snapshot about the formal hierarchy in a business
• Tell everyone in the organization who is in charge of what and who reports to whom
There are, of course, several limitations to organization charts:
• They are static and inflexible, often being out of date as organizations change and go through growth
• They do not aid in understanding what actually happens within the informal organization. The reality is
that organizations are often quite chaotic.
• They cannot cope with changing boundaries of firms due to outsourcing, information technology, strategic
alliances, and the network economy.
In its early stages, a small business may choose not to create a formal organization chart.
However, organization must exist even without a chart so that the business can be successful.
Most small businesses find organization charts to be useful because they help the owner or the
manager track growth and change in the organizational structure. The real challenge is to
create an organizational chart that reflects the real world. Small businesses have a definite
advantage here because their size allows for more flexibility and manageability.
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