Part 1 | Defining Your Hierarchy - What Is a Functional Hierarchy?

What is a Functional Hierarchy?

The first step in creating a baseline for your organization is getting an understanding of your functional hierarchy.? A functional hierarchy defines how you operate your business.? It may or may not mirror your reporting structure or financial hierarchy.? In my experience, it rarely does, however.?

Most companies have a reporting structure that has evolved over time. Young organizations tend to be organized under whoever is perceived to have the knowledge to oversee a functional area.? As they mature, organizations tend to reorganize under silos that encompass an internal function, a specific service, or customer deliverable.? Sometimes companies are broken into types of work being executed.? In any case, it's likely that their financial reporting hierarchy is not updated to match.? This results in expenses being allocated to departments that they are not even associated with.?

Your goal in this exercise is to generate a 'Functional Hierarchy'.? In the approach I'm outlining you will need to forget your physical and financial reporting structures.? Your goal is to gain an understanding of how your organization is delivering daily work, regardless of who is reporting to whom.?

Don't be alarmed if your functional hierarchy mimics your physical or financial one.? All that means is that you are well organized around the delivery of products to your customers.? However, the only way to know if that's true is to be cautious that you are not just assuming anything or following a predefined path.

Here are some tips to follow while executing the coming steps in defining your hierarchy.

• Be careful that you are not referring to your org. chart.
• Don't consider reporting relationships or individual employees.
• Work only with generic department, team, and role names.
• Ask a lot of questions, interview front-line resources, and figure out who is actually doing the work.

Parts of a Function Hierarchy

Functional Hierarchies are made up of Functional Areas, Departments, Teams, and Roles.?

• Functional Areas - The highest level of the hierarchy and allows you to group departments by their value to the organization. For example Revenue Generation and Product Delivery.
• Departments - Represent the physical structure of your organization.? These include things like Accounts Payable, Procurement, Helpdesk, Shipping, and Solution Architecture.
• Teams - The subgroups within a department that are focused on specific functions.? Teams typically form through the need to have specialized knowledge or skillsets.
• Roles - Describe the individual jobs that your people do.

What's Next?

Be on the lookout for the next four articles in this series!

• Part 2 | Identifying Function Areas
• Part 3 | Defining Your Departments
• Part 4 | Identifying Your Teams
• Part 5 | Describing Your Roles