to restructure or not to restructure…

30 07 2011

(kottke.org)

That is the question.

Often a new executive or manager coming into an organisation will restructure. This has the effect of looking like a “go-getter” action sort of person who is getting things done, addressing the issues and making changes.

International literature indicates that a restructure hold an organisation back by 12 months. A merger or demerger has an 18 month impact. For that period of time staff are busily working out their roles in relation to others, reporting structures, remaking committee structures and reporting lines, budget lines and delegations, policies and procedures, remaking relationships with other units – a significant productive-work-time cost. While time is spent reforming the organisation, other innovations get put on hold. Meanwhile your competitors may be working on their product and service innovations.

On top of that there may be direct financial costs: new staff and executives, new letterhead, business cards, websites, signage. The effect on staff of restructures and particularly frequent restructures is cynicism and change-fatigue (leading to change-resistance), particularly if a “spill and fill” methodology is employed. Such a method can also cost significantly in payouts for those who are retrenched as part of the restructure.

So why would you restructure? It is not always a bad idea – sometimes restructures can make a quantum leap for the organisation.

1. When the current structure doesn’t actually work. This may be because the industry has changed, but it may also be that the current structure has grown over time rather than having been designed to fit organisational outcomes.

2. To align with the CEO’s mental map. For the CEO to have a good grip on the organisation and an understanding about work flows and process flows, it does need to align with their mental understanding of how organisations work. This is probably the least easy reason for staff to understand.

3. To cut costs through significant savings. As noted above, there are very significant costs inherent in a restructure, so the savings predicted by the new structure need to be significant. As opposed to the immediate costs of a restructure, the benefits can flow long-term – providing you aren’t going to restructure next year and the year after….ad infinitum. Cost savings might be realised through eliminating a unit or function, or through merging two or more units. However these need to make sense from an organisational point of view – eliminating the R&D section because they are costly and not directly linked to an income stream is not going to help the organisation long-term.

4. If the industry or the goals have moved. If the organisation is undergoing significant change in purpose, a restructure might be necessary to change the direction. When Nokia changed from manufacturing rubber boots, cables and consumer electrical products into focussing on electronics, it would have been necessary to restructure to meet the needs of the new industry.

Have you been through a restructure, merger or split recently? Has the dust has settled, has it worked? Did it achieve what it was meant to achieve? Was the process well managed?

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