How to Reorganize a Company – and Thrive

Nov 7, 2016
13 Min Read
How to Reorganize a Company – and Thrive

How to Reorganize a Company – and Thrive

It’s a great feeling to get a brand-spanking new reorganization chart done and then present it in all its unsoiled glory to the entire company.

Unfortunately, that gleaming chart with all its little color-coded boxes lined up with precision has little to do with making a reorganization successful. In fact, putting so much effort and aspiration into that spruced-up chart could be one of the biggest mistakes a company makes when it comes to reorgs, says Stephen Heidari-Robinson.

That’s because too many companies believe that once they present the chart, then the reorg is done. The reason behind it goes to the heart of how reorgs are often undermined before they begin.

“Some managers think the number of people reporting to them is a sign of their power, so the org chart becomes their battle ground,” says Heidari-Robinson, co-author with Suzanne Heywood of “Reorg: How to Get It Right.” “Many managers also shy away from the human element of reorgs and org charts provide something solid that they can hang on to.”

No matter the reason, the result is that “they miss out on the essence of a reorg: getting people to work in a different way in order to create more value,” he says.

While outlining reporting lines and accountabilities is important in a reorganization, defining the different ways that people should work in the new process and the skills and capabilities the employees need are just as important, “and sometimes even more so,” he says.

“You are only really finished when people are working in the new way and the value you wanted has been delivered, not when you announce the new org chart,” Heidari-Robinson says.

Heidari-Robinson led McKinsey & Company’s Organization Practice for energy clients in addition to developing the firm’s thinking on implementing reorganizations. He also served as UK Prime Minister David Cameron’s advisor on energy and environment.

He says a McKinsey survey done by him and Heywood finds that more than 80% of reorgs fail to deliver the value companies desired, and 10% actually damage a company.

“More important, they can be damned miserable experiences for employees,” they say.

Heidari-Robinson says he believes that the pace of reorgs will pick up as all industries face accelerating changes because of innovation. “That is not to say that every business change requires the whole organization to flip flop from one way of organizing to another,” he says. “Instead, we will see more frequent, focused reorganizations such as in a local business unit or function like research and development, operations or sales.”

The authors stress that the reorg process must begin before you begin to craft a new organizational chart because there are so many challenges that must be addressed. For example, a McKinsey survey of 1,800 executives found common obstacles include: employees and leaders actively resisting change; a drop in productivity because employees are distracted by the process; and unexpected changes need to be made such as in IT systems.

The authors contend that there needs to be a plan for reorgs that go beyond an organizational chart and a one-time announcement from HR. To get the most value out of a reorg, they suggest following a five-step process:

  1. Look at profit-and-loss. Leaders cannot forget that reorgs need the same kind of planning and research as a new product or service. The benefits, cost and time to deliver must be considered – including the loss of personnel because of the changes. McKinsey research finds that only 15% of executives draft detailed business targets for their reorgs, while 17% of reorgs are put in motion on a leader’s whim or because leaders see it as a way to shake things up. It’s critical that the reasons behind reorgs are communicated to employees, Heidari-Robinson says.

“Keep it simple, make it meaningful to your employees, and recognize that – until they know what their new jobs will involve, and in some cases whether or not they still have one – they will not be excited by the reorg,” he says. “So keep the communication business-like and be clear what will happen when, even if you don't know all the answers yet.

  1. Understand current weaknesses and strengths. Many companies launch a reorg without fully grasping what is working and what is not, which can lead to throwing away a strength or propping up a process that needs to be scrapped. Electronic surveys, for example, can gather information from the employee ranks that can then be compared to senior leadership input. Are leaders unaware of significant problems? Are employees more concerned about issues that are being dismissed by executives? While consultants can be helpful in gathering information and assessing strengths and weaknesses, Heidari-Robinson says he believes most organizations can take their own pulse. His advice:  base your analysis on hard numbers – not opinion—and  don't just rely on what leaders tell you.
  2. Consider multiple options. When considering a reorg, you’re either going to change the entire organization (usually because the whole thing is broken or there’s such a market upheaval that the current model won’t work) or you’re going to only change what doesn’t work (such as removing a layer of middle management). The step you need to take will be made clear if you follow the first two steps. But if you’re in doubt, go with only changing some elements. Don’t make the mistake of just focusing on the structure of the reorg while forgetting that it’s going to be the people and processes that make it work.

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“The rationale for reorganizations, expressed in plain English, is to encourage a large number of people to work in a different way to deliver more value,” the authors say. “Forget about all the jargon that you hear (target operating models, best practices) and keep this simple objective in mind.” 

  1. Get the plumbing and the wiring right. Once the above steps are completed, the consultants will depart and company executives will pull back and trust their teams to handle the details of the reorg and the transition. But the authors say their own experience – and research – shows that this is the most difficult part of the reorg to get right and where mistakes made earlier in the process “come back to haunt you,” Heidari-Robinson says. “You may even find that your beautiful new org chart doesn't really work because it created a dozen new interface problems across a core company process that you hadn't previously thought about, or that you don't have the right capabilities to staff it.”

 While some of the steps until this point may have seemed a bit intuitive, this step really demands knowledge and experience to get right, he says.

For example, if you didn't know that you should have rewired the IT systems to deliver management reports that match the new organizational responsibilities, you may find that your managers are driving your new organizational sports car without a steering wheel.  This kind of thing happens all the time,” Heidari-Robinson says.

  1. Launch, learn and course-correct. No matter how much planning and resources a company has put into a reorg, nothing is going to work perfectly once it’s launched. When you hear of things going wrong, confirm whether it’s a real issue “and not just moaning from people who prefer the old ways, “Heidari-Robinson says.

Be careful with any responses to hiccups – if you concede everything then you can undermine the organization and look weak. If you’re too rigid, “you risk screwing business up and undermining your credibility,” he says.

The reality is that there’s always going to be challenges you never imagined, so make sure everyone knows it’s OK to point out problems, then make the right calls by looking at hard business results, he advises.

“’You say sales in this area are falling because of this new process. Bring me the numbers,’ you say. Then, when you are sure that a tweak is needed, communicate it directly to the team it affects and be clear why you are making the change,” he says. “This will bolster your credibility with that team and undermine cynicism about the new model. “

He cautions that leaders avoid making “a big song and dance” about things that go wrong, and refer to them simply as “tweaks” so that employees don’t believe “everything is unraveling.”

The authors point out that leaders need to be specific in their objectives – clearly laying out the case for the changes and how they will be handled. Reorgs can cause a great amount of stress for employees, and leaders need to be ready to support them during the changes and help them adapt to new processes and procedures. Without that support, employees may fight the changes, resign or become so unproductive that it affects the bottom line. How reorgs are handled from the very beginning is a key indicator of whether it will be a boon – or a bust – for the company.

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