What the Organizational Chart Says about Decision Governance

The org chart shows much more than who reports to who. It is one of few core tools for learning about the existing decision governance setup, as well as for planning and implementing changes to how decisions are made. 

If you look across the org chart vertically, across reporting lines, here is what you can see in terms of decision rights and responsibilities.

• Decision authority decreases from top to bottom of the org chart. If role A reports to B, then B inherits all decision rights and responsibilities of A. This implies that competence for decision making (which is not the same as subject matter expertise) should increase from bottom to the top of the org chart. You can think of this as the reason why the better the judgment, the more it should be rewarded.
• Harder decisions should be made higher up. This can mean a few different things, if A reports to B:
  • The time horizon that A needs to be considering when making decisions needs to be shorter than B’s. 
  • The value and risk associated with outcomes that A’s decisions may have should be lower than those that B’s decisions involve.
  • The cost of resources needed for various options that A can consider should be lower than those that B would consider. 
• Incentives should recognize that A and B are expected to take different types of decisions. Consequently, B will usually have better incentives than A.
• It is likely that if A reports to B, B has demonstrated that they have the appropriate judgment to inherit A’s decision rights and responsibilities. As I mentioned above, this does not mean that B is a better subject matter expert than A, but that B is trusted to make appropriate decisions about the work that A as a subject matter expert can do, within the broader context of B’s scope of responsibility. The person overseeing a business unit cannot possibly be the most competent subject matter expert for all functions they oversee, but they will be the person trusted to decide about matters spanning various areas of expertise within their unit.

If you look horizontally across the org chart, you will see how the top management of the firm chose to group decisions that they then assign to individual top managers. If the firm is functionally organized, then they are grouping decisions by generic areas of expertise, and promoting subject matter experts to management positions. If the firm is organized by business units, in some combination of product areas and, for instance, geographies, then they prefer to promote through management those people who have developed expertise in understanding how generic / functional expertise applies to the specific products of the company, or in other words, they favor those able to manage connections between various subject matter areas.