Chain of command in an organization defines the reporting relationship in the organization and indicates which person in the organization reports to whom. It also tells the flow of the authority and accountability of the employees in the organization. A chain of command indicates at what place in the organization does the decision making happen.
A chain of command is shown in the diagram illustrated below. If decision making in the organization is at higher level of the chain then the organization is called a centralized organization usually small organizations follow such type of structure and if the decision making is at various levels in the organization. In this structure organization is said to be decentralized as many people have an authority of making decisions.
Also the chain of command in any organization forms the basis of the organization structure. There may be different kinds of organization structure based on the needs of the organization like functional structure, Product structure and matrix structure.
According to the needs of the business the organization come up with the chain of command for example: in a startup which needs its people to innovate the hierarchy and the chain of command is not strict and any one can directly contact anyone but in a military where decisions need to be strictly followed the chain of command is very strict and people need to comply with it.