For businesses to remain competitive, particularly in response to industry advancements, restructuring the organization may become necessary. Understanding the core principles of reorganization is crucial for its effective implementation in pursuit of organizational goals. It represents a proactive measure to enhance the business model. Reorganization can occur for various reasons and is implemented as a step of change to align work processes with a new strategy.
Various internal and external factors can lead to such changes in a company. External factors can be economic, political, cultural, and technological. Internal factors can involve corporate strategy, management style, enhancing employee skills and competencies, organizational size, and technology-related changes.
What is Reorganization?
Reorganization refers to the changes made in its business model, structure, or processes. This can encompass workforce changes, reorganization of the company hierarchy, or introducing new processes and might be driven by reasons like launching a new product or meeting customer needs.
For instance, if cutting down operational costs necessitates restructuring, it might mean significant layoffs. Management might opt for reorganization if a segment of the business needs transformation. If executed correctly, these changes can enhance the business in one or several areas.
Who Manages Reorganization?
In businesses, reorganization typically involves:
Management: They strive to keep the organization active and operational. Often represented by the board of directors, they can evaluate and support the reorganization activities.
Employees: While a company might not directly include employees in the reorganization, involving them early can help reduce resistance and boost success.
HR Team: HR professionals craft plans to guide reorganization and convey changes to the staff.
Stakeholders: The involvement of stakeholders or investors might depend on the company's size and the scale of the reorganization. Large companies with influential investors might include them when making significant decisions.
Reasons for the Need to Reorganization
- Valid Reasons
Operational Efficiency: Are multiple people doing the same job that one person could handle? Do you have excess staff or those without enough tasks? The 'we've always done it this way' mindset might lead to inefficiency. Reorganization can optimize staff potential and boost productivity.
Financial Burden: As unfortunate as it is, financial constraints or declining revenues might necessitate reorganizing your business.
Merger: Mergers and acquisitions can be a great way to combine strengths and emerge as a more formidable enterprise. They typically lead to changes in processes, organizational structures, workforce, products, and services.
Digital Transformation: The pandemic highlighted the significance of digitalization in companies. But large-scale digital transformations can also necessitate substantial restructuring. You might need to enhance your employees' skills on how to utilize modern technology.
- Invalid Reasons
Reorganization is a complex endeavor. Whether it's restructuring a department or the entire organization, the whole process requires extensive planning, time, and energy. Just because reorganization demands effort doesn't mean it's always the right thing to do. There's a difference between being busy and being productive, and reorganization alone might not guarantee productivity.
Pressure from newly appointed top management to restructure: We know what typically happens when a new CEO arrives -- some long-standing employees might depart within weeks, and new hires often chosen by the CEO join. The departure of trusted, longstanding employees is not the right path for reorganization.
Assuming reorganization will solve all your issues: Even if restructuring a department yields better outcomes, things might still not be perfect. It isn't the only process to focus on. Janelle Hill, CIO at Gartner, states, "Many of us start reorganization to solve problems, but in reality, it should just be one part of a problem-solving plan."
You might also want to experiment with other approaches for better outcomes, like a new marketing strategy, a 4-day workweek, or allowing employees to work from home on certain days, especially post-pandemic, as remote working models have become widely adopted.
"Even a good decision can be wrong if made for the wrong reasons."_"
- Jonathan Pryce
How to Manage Organizational Change
- Start with your business strategy
To set the foundation for a reorganization initiative, the top management should identify the reasons behind the need for such a move. Without understanding the company's new direction or the challenges it seeks to address, there's no effective way to guide the reorganization process or measure its success. Your business strategy will provide you with the goals and benchmarks that need alignment with the restructuring plan.
- Identify the strengths and weaknesses of the current organizational structure
With your strategy in mind, reflect on areas where your existing organizational structure excels or falls short in achieving company objectives. If you don't have an organizational chart, begin by crafting one to provide a high-level view of the current setup.
Gathering feedback should also be integral to evaluating the organizational structure. Too many firms plan restructurings without factoring in the perspectives of those impacted by both departmental and broader company strategies. Your employees possess valuable insights about what's working and what isn't; harnessing these perspectives is critical.
However, getting genuine feedback isn't easy. Employees may hesitate to share their thoughts on the reorganization unless they believe their opinions are taken seriously and can remain anonymous. Consider facilitating an environment where staff feel their voices are valued, possibly by distributing anonymous surveys.
Ensure you weigh both the potential benefits and drawbacks of a potential reorganization, factoring in aspects such as potential staff layoffs or other rearrangements. If reorganization doesn't address the issues, it becomes an exercise in futility, possibly resulting in losses for your company.
- Evaluate your options and design the new structure
After pinpointing the issues with your current setup and gathering feedback, the next step is to design a new organizational blueprint considering all job functions.
Your new structure should entail:
- Vertical and horizontal lines of authority
- Matrices detailing who holds decision-making power in departments
- Profiles of employee skills and experiences
- Definitions, distributions, and interrelationships of functions across the organization
- Considering the pros and cons of different organizational designs (e.g., hierarchical, flat, matrix, etc.)
- Announce the reorganization
After weighing various reorganization options and deciding on the best path forward, it's imperative to inform all stakeholders of the impending changes.
Don't just impose changes on your staff. Prioritize transparency and communication throughout your company's reorganization phase. Separate communications may be needed with managers or direct reports to answer questions and facilitate their support.
- Implement and periodically review your company's reorganization
The final step involves executing the reorganization. Remember, adapting to change can be challenging, so allow your staff some time to adjust to the reorganization and measure its impacts appropriately. If the newly restructured setup doesn't meet your ultimate objectives, you can make necessary tweaks.
Managing the Workforce During Reorganization
- Understanding Your Current Workforce
Reorganization can be a challenging period for the workforce. Sudden layoffs are never easy and can ripple out, affecting the morale of the remaining staff. Before making decisions about who to retain or let go, you must set your strategies right. Restructuring might also mean the creation of new job roles, and your decisions should be grounded in these new positions.
Identifying which employees will fit well in these new roles is crucial. This involves understanding an employee's skills and temperament suited for the designated job. Assessment tools can be used to review skills, competencies, and personality traits.
Understanding competencies might involve meetings with employees and reviewing their performance evaluations. The key is to be extremely cautious before making decisions about hiring, firing, promotions, transfers, or rotations.
- Organizational Structure
The organizational structure clarifies the roles, scope, and responsibilities of employees. Having a clear structure to clearly understand everyone's job function is vital. Before embarking on the reorganization process, you should have laid out the organizational structure based on your needs.
For instance, suppose you're restructuring to become a small business specializing in niche products. Instead of a vast workforce for mass production, you might need a few master craftsmen.
In this context, the key is understanding what the organizational structure will look like post-restructuring and planning accordingly.
- Redesigning Jobs
After you've precisely defined your organizational chart, the next step is to redesign roles and responsibilities in line with the new strategy. You can also compare the new job roles with the old ones to understand their similarities and differences.
This will give you a clearer picture of how well employees fit into their respective roles. In some instances, new positions might emerge. Instead of hiring new employees to fill these roles, consider supporting the training and development of your existing workforce.
Embracing Change in Business: The Pitfalls to Avoid
Change, especially in a business context, is rarely easy. But it's essential. Despite the challenges, reorganization can ensure a company's survival, competitiveness, and success in crucial times.
Gartner's Reorganization Myths: The IT Department Case
Many companies are undergoing significant reorganization to meet the demands of digital transformation. Yet, few achieve their intended results. The immediate impact of reorganization isn't always clear-cut, and it takes time to see the return on investment.
Change affects the entire organization. When employees adjust to changes in reporting, management, and objectives, workflows tend to slow down. Changes can disrupt communication and delay decision-making. Despite these challenges, business leaders often opt for reorganization.
Leaders planning a reorganization should avoid these five common misconceptions:
Myth 1: If it worked somewhere else, it'll work here too.
CIOs often believe that copying an organizational structure that worked in another context will speed up their goal achievement. In reality, these "copy-paste" strategies often fall short. Simply altering the organizational chart is part of the process of identifying and addressing core issues, which should be done towards the end. Leaders should identify the root causes of business challenges and design a comprehensive plan to tackle them. Effective restructuring should almost be the final step.
Myth 2: Reorganization improves team dynamics
IT leaders may opt for change to enhance organizational competencies like productivity, agility, efficiency, innovation, or collaboration. However, due to the disruptive nature of restructuring, things often get worse before improving. Effective reorganization requires CIOs to communicate their vision clearly and encourage their teams to trust and progress smoothly through changes. Leaders can employ strategies like "Breakfast with the CIO" to foster more open communication.
Myth 3: Reorganization will boost employee performance
It's common for leaders to shuffle employees between roles, hoping to enhance individual performance. These efforts presume that poor performance is a call for help. Before embarking on performance management, leaders should be receptive and explore all options. After addressing underperforming team members, it's vital to focus on the wellbeing of the remaining team. The saying "one bad apple spoils the bunch" is apt here. Leaders must be vigilant against any lingering negativity.
Myth 4: Reorganization yields instant positive results
Structural changes aren't a magic potion for all performance-related issues. High-performing teams depend on robust intra and inter-team relationships. Placing individuals under a shared reporting structure doesn't necessarily foster trust; it can even stimulate competition. Teams need to understand shared expectations, figure out collaboration methods, and leverage each member's strengths to achieve top-tier results. Restructured teams need to undergo this slow but essential process to establish the necessary trust and relationships.
Myth 5: Reorganization shows a commitment to change for peers and clients
Reorganization is often seen as a quick, low-cost, and noticeable change. However, a new organizational structure doesn't inherently prove seriousness about business outcomes and requirements to peers or clients. The primary focus should be on results, not processes.
By establishing solid IT foundations, you can build trust with your business peers. Ensure consistent project delivery on time, within budget and scope, and maintain financial transparency. Once the foundation is set, concentrate on overall corporate performance outcomes. Maintain agility and regularly share results with business partners, ensuring alignment with market dynamics.
Feel free to explore our Organizational Development service to gain a comprehensive understanding of organizational change.