Reorganizing the Organizational Chart: An Idea Whose Time Has Returned

Why the Pyramid-Shaped Org Chart Might Be Obsolete

1850-locomotiveWhat does your org chart tell you? What does it tell your employees? Your customers? Is it merely a picture of jobs within a chain of command?

This wasn’t the original intent of the organization chart. It had a strategic purpose and was a real-time tool for management decisions. Today’s organizations can benefit enormously from that history. Reorganizing the organizational chart in this way might be an idea whose time has returned.

A railroad man named Daniel McCallum is generally given credit for creating the modern organization chart in 1854. But McCallum’s chart was not the top-down, pyramid-shaped design to which we’ve become accustom. That was later developed by Alfred Chandler, a Harvard professor. Chandler advocated a top-down hierarchical approach that consolidated power and control in top management. It looks something like this:

Traditional-Org-Chart

The Big Data Problem Existed 160 Years Ago, Too

Interestingly enough, McCallum’s org charts were created to combat a new issue facing management: too much information. According to an article by Caitlin Rosenthal published in McKinsey Quarterly, the growing use of the telegraph ushered in a new era of “big data.”

For management, trying to capture this information, process it into decisions, and get it into the right hands in the field proved an immense task.

Turning Management’s Thinking Upside Down

McCallum knew that trying to move this new mountain of data up and down a chain of command was inefficient. So he devised a new strategy: delegation of power at the local levels. The organization chart he developed took on the structure of a tree, as shown here.

NY-Erie-Org-ChartA more detailed view at the local level is shown below. McCallum knew that the supervisors here were nearer the action, had the most up-to-date information, and were best suited to make timely decisions.

NY-Erie OrgChart detailBut McCallum’s goal was not simply to decentralize everyday tasks and empower line supervisors to make real-time operating decisions. He also set forth a plan whereby they collected relevant statistics on a timely basis, such as cost per ton-mile and load per car. These were then delivered to upper management for use in analyzing business strategy and finding opportunities to improve results.

Nordstrom Inverts the Organizational Pyramid

Many organizations have long understood the need to put decision-making power in the hands of their people on the front lines. Upscale retailer Nordstrom is well-recognized for this practice. In fact, during the orientation of their newly hired associates, Nordstrom management gives them just a few basic instructions. One is to instill their hierarchy of importance, with customers at the top. This is shown in the sales funnel chart below.

Nordstrom-hierarchy-of-importanceDirectly below customers is the floor sales staff. Why? Because they are the ones who deal with the company’s most important people—customers—every minute of every day.

As a result, Nordstrom management gives these people authority to make customers happy with their shopping experience. This includes their very famous return policy (which isn’t, in fact, an actual policy). New sales associates are told to follow one simple rule: use your best judgment. (They are also told that one of the reasons they were hired was that they met Nordstrom’s exacting demands in this area.) This approach has clearly served the company extremely well from a customer relations standpoint.

Reorganizing the Organizational Chart: Place the Focus on Your Customers’ Experience

The “big data” issue has come full circle in the 160 years since McCallum designed his first org chart. Maybe it’s time to rethink things and re-examine the applicability of a more decentralized structure. Time to reorganize the org chart.

Many enterprises already operate this way, or at least in a manner that isn’t a rigid as the “command and control” pyramid. Perhaps, then, it just makes sense to put our view of the organization into a more practical visual structure. Here’s a rethinking of the traditional organization chart that was presented at the beginning of this article.

New-Org-ChartAs you can see, the org chart been inverted to more closely emulate the pattern of McCallum’s trunk-and-roots structure. It also adopts the Nordstrom paradigm, placing the importance of customers (and prospects) at the top of the hierarchy. Recognizing where these people touch the front lines of the company’s organization could be important in hiring decisions. It will also determine how the organization strives to empower them in the proper handling of customer relationships.

This thinking also gives the organization chart a higher purpose. Rather than being just a visual display of titles and a reporting hierarchy, the new org chart has a more holistic, strategic approach. It forces the entire enterprise to focus on providing the best possible customer experience, and aligns very nicely with Lean principals.

I recommend you read the article by Caitlin Rosenthal (linked below), which inspired this article.

Big Data in the Age of the Telegraph by Caitlin Rosenthal. McKinsey Quarterly, March 2013.

2 Responses to “Reorganizing the Organizational Chart: An Idea Whose Time Has Returned”

  1. Evenanerd February 4, 2014 at 11:08 am #

    Ken,

    Who would have thought those railroad guys would be that creative and forward thinking? The idea of line workers being closest to the action must have been pretty revolutionary at the time. Thank you for sharing your insights and your software in such an informative and entertaining way. You are my new content marketing hero.

    • Ken Wilson February 4, 2014 at 11:58 am #

      Thanks, Geni. I really like the story about the railroad guys and am grateful to Caitlin for originally sharing it. When you think about it, the companies most loved by their customers and employees probably use an inverted org chart–at least philosophically–whether they realize it or not.

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