How are you managing dynamic distribution lists when HR and AD org structures don’t match?

There are really two separate use cases here: functional groups and business-structure groups. If HR mixes those concepts, the membership rules become arbitrary and automation will eventually produce surprises. Decide which structure each list represents, then require the owner of that structure to provide usable membership data.

Another option for less formal collaboration groups is to let managers own their team groups and maintain membership themselves, but that only works if the groups are not being used as an authoritative company-wide reporting mechanism.

The custom attribute approach is reasonable, provided HR owns the data and it is populated automatically from the HR system. A simple code or business-function value is usually easier to manage than trying to recreate a recursive reporting tree.

I’d also add monitoring from the start: alert when a group’s membership changes dramatically, and create a report or catch-all group for accounts with missing or invalid values. That way, a renamed department or missing attribute does not silently remove people from important lists.

At this size, I would avoid manually maintaining distribution lists. Have the HRIS export the organizational values you need, sync them into directory attributes, and build the dynamic lists from those attributes. If the HR system only supplies manager and job information but not the organization structure HR actually uses, that gap needs to be resolved with HR leadership.

A CSV export with stable identifiers would still be much better than a PDF. You could process it on a schedule and keep the directory synchronized without asking IT to interpret a document by hand.

You need to establish a single source of truth. Dynamic groups can only work from structured directory data; neither Active Directory nor Exchange Online can reliably consume a PDF organizational chart. If HR’s structure is authoritative, the HR system needs to provide the relevant fields, either directly or through a scheduled export into AD or Entra ID.

If HR cannot supply maintainable data, then the lists cannot be treated as an automated IT responsibility. Someone has to define who belongs in each group and communicate changes.