“All models are wrong, but some are useful.” George E.P. Box
Organisational charts have been used as a tool to visualize company structures for over a century. Though these visual representations of an organisation's structure have evolved over time, there have been few fundamental changes since their inception. Come on a trip down history lane to learn about the genesis of the modern org chart, where they have fallen short, and what we can do about it.
The Purpose of Org Charts
Clarity: They provide a clear visual representation of how different groups, teams, and roles relate to each other.
Communication: Org charts help everyone understand reporting lines and formal communication pathways.
Decision Making: They assist in identifying key decision-makers and understanding the chain of command.
Planning: HR departments use org charts for succession planning and identifying gaps in the organisational structure.
Onboarding: New employees can quickly grasp the company structure and their place within it.
The Evolution of Org Charts
In the beginning…
The first known org chart was created in 1855 by Superintendent Daniel McCallum to illustrate what was one of the largest and most complex organisational structures in the US, the New York and Erie Railroad Company.
Unlike today’s ubiquitous pyramid charts, McCallum’s chart functioned as both a chart and a map, with each sprawling line containing a mixture of people who moved with the train and those who remained on the line.
As real-time communication was difficult, the organisational structure needed to enable clear communication lines across both the physical and organisational lines.
McCallum believed in the division of responsibilities and making those responsibilities transparent.
By illustrating them through this map, he created a shared understanding of how everyone worked together to fulfil the company’s objectives.
Welcome to Modernity
In 1917, the org chart structure that we are most familiar with was birthed by the Tabulating Machine Company, now known as IBM. Unlike the complex, nature-mimicking chart created by McCallum, this chart was symmetrical, pyramidal, functional, and rigid. Attempting to contain practical information about the divisions, departments, and dispersions of the company, this chart became the model that most still follow today.
While the structure has merit in its clarity and simplicity, it’s unlikely to represent the real relationships, communication lines, and workflows of any company, and so provides little value beyond illustrating reporting lines.
Alternative Approaches
As organisations have become larger and more complex than ever before, new organisational structures have emerged to rise to the challenge of increasingly dynamic and unpredictable markets. Though there are many models out there, most of them are built from the same fundamental structures, with a few tweaks for flavouring.
Holacracy: Self-Management at Scale
Holacracy represents a replacement of traditional hierarchical structures and processes with a set of self-management principles and rules. Holacracy is intended to distribute authority and decision-making across self-organising teams rather than concentrating it behind closed doors in the executive board room.
Components
Circles: The organisation is structured into circles of responsibility rather than departments. Circles can be nested within each other based on roles and responsibilities within a domain as it evolves.
Layers: The hierarchical layers of the company are defined by the work to be done, independent of individuals. Instead of saying “We need this new role”, you would start with “We have this responsibility that needs fulfilling”, opening opportunities for different approaches to fulfil that need. This can work well with companies where roles and responsibilities are frequently evolving, and constraining people to a fixed job title is neither practical nor aligned to reality.
Roles: Instead of job titles, people can fill multiple roles that are defined by:
Purpose
Domains
Accountabilities
Tactical Meetings: Operational meetings focused on progress and metrics
Governance Meetings: Regular meetings to enable the creation, modification, or removal of roles and policies.
Constitution: A comprehensive set of rules that govern how the organisation operates.
This article from Blinkist does a great job of illustrating how roles can emerge and evolve within a holacracy.
Upsides
Increased Adaptability: Allows for quick adjustments to changing market conditions.
Employee Empowerment: Gives individuals more autonomy and decision-making power.
Clarity of Roles: Provides clear definitions of responsibilities and expectations.
Reduced Micromanagement: Distributes authority, replacing top-down control with self-management principles and practices.
Challenges
Complexity: Can be difficult to understand and implement.
Time-Consuming: Governance processes can be time-intensive, with frequent meetings.
Role Proliferation: Can lead to a large number of roles, complicating compensation and performance management.
Cultural Shift: Requires unlearning traditional management behaviours.
Try out this example chart inspired by holacracy by clicking each circle to zoom to the next layer. Build your own with the Canvas:OS+ template in Notion!
The “Spotify Model”
Over a decade ago, Spotify developed an engineering team structure in an attempt to address challenges with alignment on large interconnected pieces of work. Their approach aimed to balance autonomy with alignment through several constructs like squads, tribes, chapters, and guilds. In 2012, an article was written on their engineering site explaining their approach and how it had helped them resolve some of their alignment challenges.
Fueled by hungry consulting firms searching for new hype trains to sell, the “Spotify Model” has been sold to companies of all shapes and industries, in the hopes that they will glean from the success Spotify had many moons ago. Although it’s an operating model, not a formal org structure, the global popularity of the model and the fact that it represents a matrix-style organisation makes it a worthy mention
It’s also worth noting that Spotify no longer uses this approach. Like any forward-thinking company, they continue to learn and experiment, evolving their structure to align with their growth and aspirations.
Principles
Autonomy: Squads decide what to build and how
Alignment: Tribes ensure coordination
Community: Chapters and Guilds provide professional growth
Culture: Strong emphasis on innovation and trust
Components
Squads
6-12 people
Cross-functional and self-organising
Like a mini-startup with end-to-end responsibility
Has a specific mission/product focus
Tribes
Collection of squads working in related areas
Usually no more than 100 people
Led by a Tribe Lead
Responsible for a specific product area
Chapters
People with similar skills across squads
Led by a Chapter Lead
Focuses on professional development
Example: All Android developers form a chapter
Guilds
Communities of interest
Cross-cutting across the organisation
Voluntary membership
E.g. Web Development Guild, Test Automation Guild
Example Relationships
Upsides:
Cross-team coordination: Provides mechanisms for coordinating large pieces of work
Autonomy: Retains the autonomous self-organising team structure that propelled Spotify’s early success
Learning: Enables employees to join informal guilds to learn and connect with others
Challenges:
Competing interests: Like any matrix org, there can be tensions between the needs of Tribes and Chapters.
Dual operating systems: This is often implemented within larger organisational structures which can lead to incompatibility issues.
Lingo: Quirky jargon to be learned
Read more about Spotify’s experience and learnings from the approach here.
Haier - The RenDanHeYi Model
The Chinese home appliances and consumer electronics company has seen substantial growth over the years to become a global leader in their industry with ~26 billion USD in revenue, 100k+ employees, more profitable than any other domestic or international competitor, and only 4 layers of management across their Chinese operations.
Part of their success is attributed to their RenDanHeYi model, where “Ren” refers to each employee, “Dan” refers to the needs of each user, and “HeYi” refers to the connection between each employee and the needs of each user.
“With the RenDanHeYi model, we move away from being organised like an empire to be more like a rain forest. Every empire will eventually collapse. A rainforest, on the other hand, can be sustained.” CEO Zhang Ruimin
Haier’s RenDanHeYi model comprises seven elements:
Microenterprises (ME) - small, independent operating units
Leading targets - bold goals for growth and transformation
Internal contracting - freely negotiated agreements between operating units
Voluntary coordination - platforms and platform owners
Open innovation - online product development
Internal venturing - support for internal start-ups
Ownership - substantial financial upside for employee-investors
3 types of ME:
200+ Transforming ME's - Market-facing, re-inventing products with customer-centric web-enabled tech
50+ incubating ME's - Home-grown startups. Responsible for 10% of Haier's market cap
3800 node ME's - Internal services sold to support market-facing ME's, i.e. manufacturing, design, HR, sales, finance, etc.
At Haier, every ME is free to contract or not with other ME's. A typical user-facing ME will have dozens of contracts with node ME's. They are free to use internal node ME's or go outside the organization if their needs cannot be met.
To reduce friction during contract negotiations, minimum performance standards and margin splits are used to negotiate a mutually beneficial agreement. Every internal contract has a performance clause based on the leading targets. For example, a market-facing ME's performance affects every node ME that serves it, and the pay of those who work within them.
Every node is thus invested in the success of the market-facing node, as they stand to gain profits or losses based on the market ME's performance. Node ME's can and do go out of business if they fail to meet targets and gain ME customers.
At Haier, it's barely an exaggeration that employees are paid by customers, not the company. The leading targets and the impact on employees' pay create a direct correlation between market performance and remuneration.
ME's voluntarily collaborate where there is an opportunity for collaboration or sharing practices, technology etc. This collaboration can form a platform, typically covering around 50 ME's with significant crossover in product categories or capabilities, i.e. IoT home appliances or IoT capabilities.
Platforms have an owner, but critically, no one reports to them, nor do they have a staff group. Platform owners build influence by bringing together ME's with shared interests, i.e. they want to be involved because it serves their ME.
Haier sees itself as a hub instead of a company, existing in a wider international ecosystem.
Read more about Haier here.
Food For Thought
While there are many options to optimise your organisational structure and systems, the path is unlikely to be straightforward. When adopting any new organisational model or structure, consider:
Culture: Success depends primarily on your company culture as it stands, not as you imagine it to be. How well do you currently handle change in your organisation?
Scale: Are you intending to scale to multiple regions, countries, or markets? If so, what structures will enable you to scale without reinventing the wheel at every step?
Adoption: For any substantial changes, what kind of training and onboarding is needed to effectively embed it in your ways of working?
Tools: What kind of tools will you employ to visualize and communicate your structure? How will they be kept up to date?
Roadmap: Try creating an outcome-based roadmap to map your target destination, where you are now, and how you’ll get there.
Get Started
As organisations continue to evolve and adapt to changing markets, so too will the org structures and the charts that represent them. With the wealth of technology and data at our fingertips, we can move from static structures to dynamic representations that change in real time as our companies evolve.
Connect with me for a partner to help you optimise your operating system from the inside out, or do it yourself with the Canvas:OS+ Template in Notion.
Read More
Pingboard - The Evolution of the Org Chart
Buffer - 10 Org Chart Styles We Admire (And the One We Use at Buffer)
Blinkist - Holacracy, Explained
SVPG - The Product Model at Spotify
HBR - Beyond the Holacracy Hype
HBR - First, Lets Fire all the Managers
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