Corporate hierarchy: how it works and how to create an organizational chart
What ifyour company's organizational chart told a different story from what you see every day in your actual work?
In many organizations, the corporate hierarchy dictates who reports to whom, but it does not really explain how the work is done, where the most strategic skills are concentrated, or who makes complex decisions.
We often find ourselves faced with structures that appear clear on paper but are of little use in guiding performance, growth, and change.
Today, talking about corporate hierarchy means understanding how roles, responsibilities, and skills combine to create value. Similarly, it also means rethinking historical tools such asorganizational charts, transforming them from static snapshots into organizational levers.
In this guide, we look at how corporate hierarchy really works, how to build an effective organizational chart, and why a skill-based approach is increasingly central to making structures consistent with actual work and with people's development.
What is a company organizational chart (and what does it represent today)?
A company organizational chart is a visual representation of an organization's structure: it shows roles, hierarchical relationships, and areas of responsibility.
Traditionally, it has been used to clarify who reports to whom, providing a formal map of the lines of command. However, when discussing company organizational charts and giving a classic example, we often find ourselves faced with a set of titles and levels, without really explaining how the work is done.
Today, the meaning of the organizational chart has expanded.
It is no longer enough to indicate positions and reporting lines: a useful organizational chart should help to understand who does what, what decisions each role oversees, and what skills are used to create value. In increasingly skill-based organizations, the structure is a system that distributes complexity, responsibility, and operational capabilities.
This is why the organizational chart becomes a decision-making tool and not just a descriptive one. If well designed, it supports HR and management in decisions regarding staff allocation, role development, internal mobility, and organizational growth.
Types of company organizational charts (and when to use them)
The first thing to say about corporate hierarchy and organizational charts is that there is no single structure that works for all organizations.
There are, in fact, different types of organizational charts, which reflect different choices on how to distribute responsibilities, coordinate work, and make decisions. Let's look at some models.
Classic hierarchical organizational chart
The classic hierarchical organizational chart is the most widespread and historically established form of organizational structure.
As the name suggests, it is based on a vertical chain of command, in which each role reports to a higher level and has a well-defined scope of authority.
From an operational point of view, the classic hierarchy makes it very clear who decides, who executes, and who is responsible for what. This can be an advantage in stable contexts, where processes change little over time and efficiency depends on standardization. At the same time, however, the structure tends to become rigid: roles are defined more by position than by skills, and the evolution of actual work often proceeds faster than the formal organizational chart.
We would like to point out that, from a skills-based perspective, this model has its limitations. People's growth is often linked to vertical promotion rather than skills development, and their real contribution to value can remain invisible if it does not coincide with their hierarchical level.
Functional organization chart
Continuing with organizational charts and examples, the functional organizational chart organizes people according to their function (HR, Marketing, IT, Finance, Operations, etc.), regardless of the projects or initiatives they work on daily.
We can define it as a model designed to maximize technical efficiency and depth of specialist skills, creating teams that are homogeneous in terms of skills, professional language, and functional objectives.
This type of structure is particularly effective when the value of the organization depends on solid, up-to-date vertical skills. Within a function, it is easier to share best practices, standardize processes, develop technical skills, and build consistent growth paths.
From an HR perspective, the functional organizational chart also makes it clearer who is responsible for skills development and professional quality within each area.
The downside comes when the work requires strong cross-functional collaboration. If not supported by clear coordination mechanisms (such as project managers, cross-functional teams, or shared goals), this model can create organizational silos: each function optimizes its own goals but struggles to see the big picture.
Therefore, when viewed from a skills-based perspective, there is a risk that people will be identified solely by their role, limiting the visibility of transferable skills or skills that are useful in other business contexts.
Organizational chart by processes or projects
In process- or project-based organizational charts, the organizational structure does not revolve around traditional functions, but rather around workflows, customers, or initiatives to be implemented. People are assigned to multidisciplinary teams that are created to meet a specific objective and may be dissolved or reconfigured at the end of the project.
This model is typical of consulting, digital, or innovation-oriented organizations, where value is created by the ability to quickly integrate different skills.
From an HR perspective, it is a structure that makes it much clearer how skills are actually used: it is not so much the role that matters, but rather the concrete contribution that each person makes to the project.
The main advantage is high adaptability. Teams can be built based on the skills needed at that moment, promoting continuous learning, cross-pollination between roles, and greater individual accountability. At the same time, however, this model requires very solid governance: without clear rules on who decides what, how priorities are assigned, and how performance and contributions are evaluated, there is a risk of creating confusion, overlap, and role conflicts.
From a skills-based perspective, process- or project-based organizational charts work best when supported by clear skills mapping and shared criteria for allocating people, preventing flexibility from turning into organizational ambiguity.
Skill-based organizational chart (focused on skills and responsibilities)
The skill-based organizational chart is an evolution of traditional organizational models, because it shifts the focus from titles and reporting lines to the skills actually used, the level of responsibility, and the real contribution to company value.
Following this approach, it is not only important where a person is positioned within the structure, but also what they can do, their level of expertise, and in which contexts they generate impact.
This model is particularly suited to hybrid, growing, or transforming organizations, where roles are not static and people participate in multiple projects over time. The organizational chart thus becomes a dynamic map of work: it highlights critical skills, facilitates the allocation of people to projects, supports internal mobility and development, and helps HR and management make more informed decisions about priorities, workloads, and investments in skills.
From an operational point of view, a skill-based structure increases the transparency of the organization because it directly links strategies, processes, and people. However, it should be noted that this requires a solid foundation: a clear competency model, shared evaluation criteria, and tools that allow the skill map to be updated over time.
How to build an effective organizational chart in a skill-based organization
If you want to build an effective organizational chart in a skill-based organization, the first thing to do is change the starting point. You don't start with titles or "historical" positions, but with the work that needs to be done and the skills needed to make it work today and in the near future.
- The first step is to identify the skills that are critical to the company's strategy and key processes. Before defining roles and levels, you need to ask yourself which skills generate value, which are rare or difficult to find, and which are at risk of becoming obsolete.
- From here, you can define responsibilities. A truly effective organizational chart clarifies who is responsible for what, what decisions they can make, and in which areas they have autonomy. This reduces overlap, ambiguity, and decision-making bottlenecks, especially in contexts where people work on multiple projects or cross-functional teams.
- The next step is to link roles, skills, and levels of mastery. It is not enough to indicate that a certain skill is required: you will need to specify the level required for each role and how this level changes over time. In this way, the organizational chart becomes a living tool that supports professional growth.
- Finally, a skill-based organizational chart really works when it is used to support growth and internal mobility, not just to describe the existing situation. If updated regularly and integrated with HR processes, it allows you to identify transferable skills, facilitate job rotation, plan succession, and reallocate people in a more sustainable way.
Hierarchy and skills: why the future is skill-based
In recent years, it has become increasingly clear that corporate hierarchies only work if they are supported by clear and shared criteria. When organizational levels are based solely on titles, seniority, or the history of roles, there is a risk of creating structures that are perceived as arbitrary, difficult to explain, and inflexible.
A skill-based approach, on the other hand, makes the hierarchy more equitable because it links responsibility, decision-making power, and job level to demonstrable skills and actual contribution to the work.
Putting skills at the center also increases transparency. People better understand what is required to grow, what skills to develop to access roles with greater responsibility, and why there are differences between seemingly similar positions. In this way, the hierarchy ceases to be an opaque system and becomes a readable map of responsibilities and development opportunities, reducing conflict, frustration, and perceptions of injustice.
Looking at it from an HR perspective, a skill-based hierarchy is a strategic lever because it enables more robust decisions about career paths, succession planning, and workforce planning.
In this sense, the future of hierarchy is not the absence of structure, but a more intelligent structure, based on what people know how to do and how they contribute concretely to the value of the organization.
How Skillvue supports skill-based hierarchies and organizational charts
Building truly effective hierarchies and organizational charts requires reliable data on what people can do, how they work, and the level of responsibility they are capable of handling.
Skillvue supports this shift by helping companies move their focus from formal titles and positions to observable and measurable skills.
Through structured skill assessments , we can obtain an objective evaluation of technical and soft skills, level of mastery, and potential, creating a solid foundation for aligning people, roles, and responsibilities in a consistent manner.
To discover how Skillvue can support your organization, start here.
