Knowing your business's managerial structure is important for maintaining order.
- Establishing a structural hierarchy within your business can establish expectations at every level.
- A clearly defined chain of command helps employees understand whom they should seek help from in certain situations.
- A breakdown in the chain of command can cause significant strife within your workforce.
- This article is for a small business owner or human resources professional determining why their organization should have a clearly defined chain of command and how such a structure should be set up.
A strongly defined chain of command can go a long way toward addressing issues that may come up in your workplace. Though you're more likely to see an extended chain of command at the corporate level, small businesses can benefit from establishing a structural hierarchy that fits the company's size.
What is a chain of command in business?
A chain of command is akin to an organizational chart – it maps out the relationships between the people, their positions within the company and how they relate to each other.
Creating a chain of command for your small business helps entry-level employees understand whom they can turn to for assistance. Similarly, your middle and upper-level managers will understand who reports to them and to whom they report. It can help engender a company culture that values collaboration, structure and efficiency.
Key takeaway: A chain of command is a type of organizational road map that lets everyone within a company easily understand their place and to whom they can talk to for guidance.
How do you establish a chain of command?
The time to begin thinking about your company's structure is when you're starting your small business. As the owner or CEO of your company, you naturally start at the top of the chain.
As more people join the company, your business structure begins filling out, with certain people who immediately report to you, followed by employees who report to your managers and so on. By first identifying all of the roles and their responsibilities in your company from the highest level on down, you can improve decision-making, reduce confusion, and simplify communication with your employees.
"Most companies and teams need clearly defined boundaries to operate efficiently,” Trisha Barita, founder and owner of Legal Skinny, said. "Without a chain of command, lines get blurred on who actually is in charge of a task and it can lead to resentment and frustration within a team as well as inefficiency and failures on a project." When establishing a chain of command, think of your structure in terms of the different levels of management that individuals will fall into. Generally, corporate chains of command include the following levels of management:
Commonly referred to as senior management, this tier comprises roles like chief executive officer, chief financial officer and chief operating officer. Individuals at this level monitor the company's overall health, set goals and initiatives, make important high-level decisions, and oversee the entire organization. Top-level managers monitor how the company is doing and address issues that crop up at the macro level.
Other positions that fit this niche include chairman of the board, president, director, vice chairman or even the owner.
Employees in this tier report to the company's top-level managers. As such, they're the first group of people to follow through on their superiors' decisions, communicating and delegating larger companywide projects to their direct reports. One of their main responsibilities is ensuring that teams work efficiently by mentoring staff while reporting to their higher-ups about the progress the team has made.
Some positions that could fall into this tier include general managers, branch managers, regional managers and department managers.
Front-line managers often fill customer-facing positions. These employees report directly to middle management, are directly involved with daily operations and ensure that their subordinates are hitting their goals.
The types of positions that fill this tier include some department heads, office managers, staff managers, key holders, supervisors, etc.
Key takeaway: By placing management within certain tiers on the chain of command, it becomes easier to visualize how decisions are made and where accountability lies.
What is the importance of establishing a chain of command?
When it comes to running a business, order and structure go a long way. As you hire more people, your chain of command becomes more vital to the business's seamless operation.
"A great chain of command ... clarifies roles, increases productivity, reduces frustration, improves morale, and makes happier customers," said Manny Hernandez, founder and CEO of OMNI. "Every employee recognizes the structure of the company when a chain of command is in place."
Conversely, operating without a chain of command can sow chaos and disorder among employees. Without a clear idea of who can address a situation, grievances can bubble up to the surface, ultimately impacting morale. Ethan Taub, CEO of Goalry, believes this outcome is only natural in a business without a designated structure.
"Without a chain of command, we would see a big clash of personalities, lack of management and chaos in the workplace," Taub said.
There are many benefits to establishing a chain of command in your small business. The following are some of the ways an effective outline of your company's structure can benefit your employees.
More efficient communication
Knowing who can address questions or concerns is helpful for employees. By establishing a chain of command, everyone knows who their supervisors are and, thus, whom they can go to if a situation must be immediately addressed.
Mistakes happen. When things don't go the way they should, a chain of command can easily help determine where the problem originated and how it can be remedied so it doesn't happen again.
Decisions are made up the chain
If you've ever heard someone say they have to "run it up the flagpole" or "that's above my pay grade," they're referencing their chain of command and saying that the question or issue at hand should be discussed by that individual's boss or manager.
A clear chain of command informs employees about the types of decisions their direct manager can make and which types of decisions others in the organization have the authority to make.
Eliminated or decreased disorganization
Chaos breeds problems in the workplace. Without a hierarchy in place, questions get answered by the wrong people, no one is held accountable and rumors start to fly. As these problems foment within the company, disputes can grow into fractured teams, a reduction in morale and a potential for high employee turnover.
This outcome can also happen if the chain of command is broken. If employees "leapfrog" above their superiors to get something handled by an even higher up or a senior-level manager addresses a problem with the front-line management team rather than the mid-level manager first, that kind of circumvention can lead to resentment.
"When you break the chain of command, you are openly usurping your boss, disrupting the flow of communication and responsibilities, and likely causing their boss a major headache", said John Cho, founder of My Pet Child.
Key takeaway: Creating a chain of command can affect employee morale, productivity, and the efficiency with which issues are addressed by management.
What are vertical versus flat chains of command?
Though many companies operate under a more traditional chain of command model, newer companies have begun adopting a more unorthodox and flatter hierarchical structure. Typically, smaller companies operate in a flat structure, since there are fewer employees to place in a vertical organizational structure.
This flat organizational structure, Hernandez says, is more informal in nature and operates more as an employee-developed system that can encourage communication and collaboration between different teams.
You will typically see flat structures in tech companies, especially those that started out as very small companies. One high-profile example is Tesla, whose CEO Elon Musk once said that anyone in the company "can and should email [or] talk to anyone else according to what they think is the fastest way to solve a problem."
While that can be seen as a noble effort, Hernandez warns that a flat structure has some disadvantages as well. People can get too comfortable with one another, resulting in a more informal and disorganized company culture.
Key takeaway: Whether you choose a vertical or flat chain of command, pick the structure that is best suited to your company's size and culture.