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Business Restructuring: Constructive or Destructive?

Blog: The Knowledge Economy

Any business containing more than two people may find it necessary at times to engage in an organisational restructure. The perceived need to do so can spring from multiple sources:

  • Poor financial performance,
  • Changing market conditions,
  • Mergers or acquisitions,
  • Business growth or new opportunities

Unfortunately and all too often, the restructure message to the employees of the business, seems to go hand-in-hand with the negatively perceived terms:

  • Cost-cutting
  • Downsizing
  • Rightsizing
  • Streamlining

The method of restructuring can result in:

  • Eradicating part/whole layers of employment, including management,
  • Spilling all positions: requiring employees to apply for a reduced number of jobs,
  • Invoking forced redundancies,
  • Offering voluntary redundancies.

Selecting an appropriate organisational structure is key to the restructure process. It is not sufficient to just take the existing structure and add or remove roles. To be implemented successfully, it is also essential that the culture of the business be factored into the decision making process. The leadership styles of individuals and how they need to interact, can strongly affect how any particular structure may operate. In reality, this critical factor is usually ignored.

Examples of Organisational Structures

  • Functional: (eg Sales, Finance, Manufacturing, Claims) Provides better opportunity to standardise on business process.
  • Skills-based: (eg Planning, Architecture, Development, Testing, Accounting) Supports process standardisation.
  • Output-based: (eg Goods and Services) May increase business process duplication.
  • Geographic: (eg Country, State, Region) May increase business process duplication.
  • Hybrid: (eg Function by Geographic, Outputs by Functional).
  • Matrix: Provides both vertical and horizontal reporting lines.

Personal observations of restructure exercises

  • Rightsizing never seemed to result in an increased headcount.
  • Management layers were shed regardless of what value individuals may have brought to the business: The on-costs of resources were the key criteria for termination rather than the value they added.
  • In offering voluntary redundancies: those that could get jobs – left, those that could not – stayed. The overall capability of the business was lowered.
  • Significant Intellectual Capital was lost, requiring hiring new or re-hiring terminated employees, frequently as higher priced contractors – incurring increased costs.
  • Capable individuals prepared to take lesser roles were excluded from ongoing employment, with the rationale that the roles were beneath them.
  • Succession planning in the new structure was rarely considered.
  • The morale of ‘surviving’ employees was often extremely low, with significant negativity and bitterness over perceived or actual demotions, losing colleagues and opportunities.
  • Reallocated employees often took on dual roles: their old job where the function had been eliminated but not the requirement, as well as their additional role. An increased responsibility and work-load, often at a same or lesser remuneration.

There are definitely times when it is imperative that a business restructures. To do so successfully and with the least employee conflict or dissatisfaction, it is essential that the business:

  • Identify the skills and knowledge required, to deliver the capabilities and services needed to support its customers and aligning with it business goals and vision.
  • Define the type of organisational structure desired and the culture required for its support.
  • Maintain constant and accurate communication with employees explaining both why and how decisions are being made. Learning that your job is in jeopardy 5 minutes prior to or following a media release – is not really acceptable.
  • Create an organisational structure with supporting Position Descriptions and well-defined accountabilities, that align and supports the delivery of all of the needed business capabilities, business goals and vision.
  • Analyse all relevant skills offered and knowledge held by employees: not just those used in in support of their existing roles.
  • Align resource skills with business requirements.
  • Identify gaps and duplication.
  • Allocate resources, ensuring succession planning, to new organisational structure.
  • Offer the opportunity of retraining to surplus resources to fill identified gaps where feasible.
  • Provide redundancy packages to those resources who are truly surplus to requirements.
  • Fill remaining gaps with external resources.

A poorly handled restructure can be a painful exercise. Not everyone will be satisfied with the end result. Departing employees can be resentful and actively promote a negative message to the market place. Surviving employees can feel threatened and disenfranchised by the process. A misconceived restructure can be extremely destructive, costing far more than any initially perceived benefits.

Open communication, well understood decision making and change management processes and clear goals are critical to a successful restructure. In adopting a transparent and sensible restructure strategy, the end result can be constructive.

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