Does a Small Business Need an Organizational Chart?

Why an org chart when everyone knows each other?

The organizational chart does not have a good reputation among owners of small companies. It evokes corporations with layers of hierarchy, boxes and lines, bureaucracy and power struggles. In a company with twelve people it seems superfluous: everyone knows who does what, and whoever has a question goes to the boss.

That, however, is a clue. If everyone goes to the owner with every question, there is a structure after all, just one that is written down nowhere: everyone reports to one person. This leads to the guiding question of this analysis: Does a small company need an organizational chart, and if so, which form helps it instead of merely creating bureaucracy?

To answer it, we first clarify what an org chart shows and what it does not. Then we introduce a thinking model, Graicunas’s span of control, which explains why an owner cannot lead any number of people directly. After that we review findings on spans of leadership, weigh two perspectives, and describe what an org chart for a small company can look like.

Every company has an org chart. The only question is whether it is written down or whether all lines converge on the owner.

What does an org chart show, and what not?

An organizational chart is the graphic representation of a company’s formal structure. It shows which units and positions exist and who has authority over whom. Distinct from this is the process organization, that is, how work flows from one position to the next. An org chart does not depict that.

Geary Rummler and Alan Brache (1995) pointed out this gap: an org chart shows the departments but not how work flows from one to the other, and in their observation most problems arise precisely in the white space between the boxes. That is why the process map complements the org chart, as the guide to the process map shows. One picture answers the question of who reports to whom, the other the question of how an order runs through the company.

A third picture concerns responsibilities. A position is the smallest organizational unit assigned to one person with an employment contract. A role is the bundle of expectations that others direct at a person in their position. An org chart that shows only names conceals that many people in small companies hold several roles. Why this distinction matters for growing companies is described in the analysis on thinking in roles rather than people.

The thinking model: Graicunas’s span of control

The span of control is the number of people who report directly to a manager. In 1933, the Lithuanian management consultant Vytautas Andrius Graicunas presented a calculation showing why this number cannot grow indefinitely (Graicunas 1933). In his reasoning, a manager has relationships not only with each individual but also with groups of people and must keep track of the relationships among those people.

His formula reads: number of possible relationships equals n times (2 to the power of n divided by 2, plus n minus 1), where n is the number of direct reports. The result jumps quickly. With three people there are 18 possible relationships, with six already 222, with eight 1,080.

Lyndall Urwick, one of the most influential management writers of his time, turned this into a rule of thumb: a manager can directly lead at most six people whose work interlocks (Urwick 1956). He later stressed that the principle does not apply at the lowest level, where employees do similar work and are steered by results (Urwick 1974). The qualification matters: six technicians each handling their own sites are less of a burden than six department heads whose decisions depend on each other.

Like a juggler who works confidently with three balls and has to think about every throw with seven, a manager reaches the limit not because of the individual person but because of the connections among all of them. The formula is not a law of nature. Hopej and Martan (2006) compared it with another method for determining the span of control and concluded that both have essential weaknesses and that better methods are needed. As an image of the problem, it still works.

What studies show about the span of leadership

Jacobsen, Hansen, and Pedersen (2023) examined the relationship between span of control and leadership more closely. They surveyed 393 nursing managers and 1,699 nurses in Danish hospitals and linked the data from both levels. Their result: employees experienced more leadership behavior and were more satisfied when their manager had a medium span, compared with very narrow and very wide spans.

The reasoning is instructive for small companies. With wide spans, distance grows: the manager is less often available, and leadership becomes less visible to employees. With very narrow spans, the authors observe something else. Managers with a professional background then find it hard to let go of their professional work, are more involved in day-to-day work, and take on tasks themselves. They then lead less actively.

Both apply to the owner of a small company at the same time. They are often the best expert in the house and work alongside the team, and at the same time everyone reports directly to them. The study comes from large public organizations and a single profession, and it shows associations at one point in time. Its direction, however, fits what Greiner (1972) describes as the first growth crisis: the company becomes too large to run solely through the founder. The essay on the owner’s role in a growing business discusses this crisis.

Bureaucracy or clarity? Two perspectives

The first view says: an org chart creates hierarchy where none is needed. Small companies thrive on short paths and on everyone talking to everyone. Whoever draws boxes creates territorial thinking and boundaries of responsibility at which customers get stuck. This view has a true core. An org chart that emphasizes departmental boundaries can worsen the handovers described in the article on interfaces between departments.

The second view says: an org chart makes visible what applies anyway and provides orientation. New employees know whom to turn to. Applicants, banks, and key customers see that the company consists of more than the owner. And the owner sees at a glance how many lines converge on them.

I consider the second view right once one condition is met: when the owner can no longer lead everyone personally. The span of control serves as an indicator. If more than about six to eight people with interlocking work report directly to the owner, an org chart is no longer a formality but a diagnosis. Before that, a role map is enough. And even then, the org chart should stay flat and be complemented by a process map so that the white space does not grow.

What does a good org chart for a small company look like?

An org chart for a small company fits on one page and follows a few rules. It shows functions and roles, not only names, so that only a name has to be exchanged when staff change. It makes the owner’s roles visible, including those they hold only temporarily. And it names a deputy for each lead, as the guide to organizing deputy coverage describes.

• The org chart fits on one page and carries a date.
• Each box names a function or role, with the name below it.
• No manager has more than about six to eight direct reports with interlocking work.
• A deputy is named for each lead.
• Roles the owner holds only temporarily are marked as such.
• Alongside the org chart, there is a process map showing how orders run through the units.

1. Record the current state

   Draw who actually reports to whom and whom they ask for permission, not who should according to the contract. Count the direct reports per person.

2. Check spans of control

   Mark every person with more than six to eight direct reports whose work interlocks. In growing companies, this is almost always the case for the owner.

3. Form units

   Combine positions whose work is closely connected into units and appoint a lead for each. A decision map sets out the lead’s decision rights.

4. Add roles and deputies

   For each unit, add the roles it holds, and for each lead, the deputy.

5. Announce and maintain

   Present the org chart to the team, store it in the shared location, and update it with every staff change.

What follows beyond the picture, and where the limits are

As shown above, the org chart in a small company is less an ordering instrument than a diagnostic tool. It makes visible how many lines converge on one person. A more general rule follows: structure should follow growth, not run ahead of it. Whoever draws three levels with eight people creates bureaucracy. Whoever has no second level with twenty people creates a bottleneck.

An org chart changes nothing by itself. Only the decision rights tied to a lead and the clarity about responsibilities that the RACI matrix creates for individual workflows turn boxes into a functioning organization. And beside the written structure there is always an informal one: the experienced colleague everyone asks, even though she has no leadership role.

The limits are clear. Graicunas’s formula is a theoretical calculation whose assumptions are disputed. The study on spans of leadership comes from hospitals, not from trades or retail. And the rule of thumb of six to eight people is an orientation that can deviate up or down depending on the type of work.

Conclusion: does a small company need an org chart?

The guiding question was whether a small company needs an organizational chart and which form helps it. The answer hinges on the span of control. As long as the owner can lead everyone personally, a role map is enough. Once more than about six to eight people with interlocking work report directly to the owner, an org chart becomes useful because it shows that a second level is missing. Graicunas’s calculation and the findings on medium spans of leadership support this threshold.

What helps is an org chart that fits on one page, shows roles rather than only names, names a deputy for each lead, and is complemented by a process map. The sober observation is: a small company does not need an org chart to look orderly, but to see where all the lines converge on the owner.

What you can do this week

1. Count how many people in your company report directly to you or regularly ask you for permission.
2. Draw on one page who actually reports to whom.
3. Mark every person, yourself included, with more than six to eight direct reports.
4. Consider which positions could be combined into a unit with its own lead.
5. Add a deputy for each lead and store the chart with a date in the shared location.