Considering an Organisation Restructure? Keep These Things in Mind
Organisational restructuring is a monumental task that companies do not take lightly.
If an acquaintance responds to the commonplace question, “How’s business these days?” with “We’re restructuring”, it would be no surprise for this response to be met with a collective pause, deep sigh, groan, or even cursing.
Organisational restructuring is a monumental task that companies do not take lightly.
Organisational restructuring is the process of making significant changes to an organization’s operational and financial structures and processes to transform the business for the better. Organisations typically undergo restructuring in response to financial triggers, such as poor sales revenue, unmanageable debt, marketplace competition or saturation, poor earnings, or lack of funds to maintain or grow operations. However, there can be other causes, which we’ll explore below.
Market forces are fluid, and businesses must react to (or plan in advance to mitigate) changes in the business environment. For instance, changes to the lending environment may unexpectedly make access to capital difficult. Or, new regulations stemming from a change in political leadership may add stress to a supply chain that otherwise was reliable. Restructuring offers businesses a means of adapting to the new business environment while remaining relevant and competitive.
Nokia, once a leading mobile phone manufacturer, faced challenges with the transition from traditional feature phones to smartphones and the dominance of platforms like iOS and Android. Consequently, Nokia underwent multiple rounds of restructuring, including significant layoffs and divestiture of its mobile phone business. The company then shifted its focus to network infrastructure and telecommunications services.
Innovations in technology, production, communication, and other business processes can necessitate changes to a business’s operations. The business risks being outpaced by competitors who adapt to new technologies and efficiencies more quickly. Restructuring may be required to adapt the business’s operations to the new tools at its disposal.
Ford Motor Company underwent a restructuring in the mid-2000s as it faced financial challenges. The company implemented the “Way Forward” plan, which involved downsizing, closing plants, and reevaluating its product lineup. As a part of this change, Ford embraced a shift towards more fuel-efficient and technologically advanced vehicles. The restructuring included a focus on innovation, with an emphasis on electric and hybrid vehicles. The company also introduced a global product development process to streamline operations and respond more quickly to market demands.
When a company is bought by another company, or acquires a company, a restructuring is often necessary in order to incorporate the two business’s functions and processes into one.
For example, Amazon acquired Whole Foods Market in 2017. After the acquisition, Amazon initiated changes in Whole Foods Market’s operations. This included price reductions on various products, integration with Amazon’s online platform for grocery delivery, and leveraging technology to enhance the customer shopping experience. The acquisition and subsequent restructuring aimed to align Whole Foods Market with Amazon’s broader retail strategy.
If a business is not earning the returns it expects or needs to earn to remain profitable, leadership may decide to change the business model in order to compete. This may involve changing the product or service offering entirely, or the means of delivery.
Originally a DVD-by-Mail rental service, Netflix recognized the changing landscape of media consumption with the rise of online streaming. The company changed from a DVD-rental model to online streaming, becoming one of the dominant online streaming platforms in the industry.
As restructuring plans get underway, some employees may hold back vital information out of fear that offering honest feedback that casts them or their departments in a poor light could be used against them. For this reason, it is important to create a means for employees to leave their feedback anonymously.
Additionally, leadership must be mindful of employment and/or union contracts that exist, as these contracts may need to be renegotiated.
Corporate reorganisation impacts every employee and process in the company, which means a detailed execution plan is required. Synchronizing all employees to abandon certain processes and initiate new ones is a monumental task requiring tenacity and persistence amongst key stakeholders. If alignment is off, or if leadership attrition spikes, the entire reorganisation effort can fail.
When two companies merge to do business together as one, a restructuring can and often does take place. Combining two workforces typically leads to changes in operations and workflows, which are components of a restructuring.
Similarly, when one company acquires another, certain aspects of the company whose operations are being acquired may be eliminated or enhanced.
Legal restructuring enables organisations to change their legal structure, business practices, or reduce debts and achieve better payment terms by filing for bankruptcy.
General Motors filed for bankruptcy in 2009 due to the global economic downturn. As a result of this filing, GM underwent a legal restructuring that involved a government-sponsored bailout and a significant reorganization of the company’s operations.
Financial restructuring occurs when changes are made to the capital structure of the business.
United Airlines filed for Chapter 11 bankruptcy in 2002, which the company attributed to economic challenges arising from the 9/11 terrorist attacks, high fuel prices, and labor disputes. As a result of filing for bankruptcy, United restructured its debt, renegotiated labor contracts, and implemented cost-cutting measures. The financial restructuring process enabled the company to continue operations and emerge from the bankruptcy in a more viable financial position.
When a company redefines its strategic direction, often with regards to its market position, target audience, or core offering, it is said to have undergone repositioning restructuring.
McDonald’s, the global fast-food giant, has undergone several rounds of repositioning as it adapts to changing consumer preferences and addresses health concerns associated with fast food. Specifically, McDonald’s implemented a repositioning strategy by introducing healthier menu options and revamping its restaurants with modern designs. Both changes were aimed at attracting a broader customer base and enhancing brand perception.
A cost-reduction restructuring occurs when a company cuts costs in its administration and operations such as furloughs, layoffs, and changes to departmental budgets.
To improve financial performance, Delta Air Lines restructured its fleet to include more fuel-efficient aircraft, improved operational efficiencies, and renegotiated labor agreements.
Turnaround restructuring involves revitalizing a financially distressed or underperforming company so that it is positioned to restore profitability and long-term viability. This might involve replacing or re-aligning company culture, business models, organisational structures, or product lines so that they are in sync with company goals.
In 2012, Best Buy, a consumer electronics retailer, responded to challenges from online retailers and changing consumer preferences by implementing a turnaround strategy. As a part of this strategy, Best Buy closed underperforming stores, reduced costs, and improved its online and in-store customer experience. Additionally, the company invested in price matching and price competitiveness to regain market share and enhance financial performance.
Divestment restructuring reduces the scope of a business by selling, spinning off, or otherwise disposing of certain assets or business units to streamline operations and improve performance. One reason for divestment is in response to antitrust litigation. For instance, if a company has become so large that the courts deem it to be a monopoly, it may respond by selling off portions of its business.
In 2017, Yahoo! Inc. sold its core Internet business to Verizon Communications. The divestment of its digital advertising and media assets marked a change in strategy for the company, which retained its stake in Alibaba and Yahoo Japan.
In a spin-off restructuring, a company creates a new, independent entity by separating and divesting a portion of its business. Companies typically employ this strategy as a means of enabling both the parent company and the new entity to enhance their focus on their unique operations as well as increasing their flexibility.
In 2015, Hewlett-Packard (HP) split into two separate entities - Hewlett-Packard Enterprises (HPE) and HP Inc. HPE focuses on enterprise-level products and services, including servers, storage, networking, and software solutions. HP Inc., on the other hand, concentrates on personal computers and printers. The spin-off aimed to streamline operations, improve agility, and allow each entity to pursue its strategic objectives more effectively.
When a restructuring involves only internal processes, such as its organisational structure, business model, branding or product lines, it could restructure as frequently as it likes. However, strategically, this is seldom ideal, as planning for and implementing such changes requires an outsized amount of time and effort from leadership and the workforce alike.
There are limiting factors for restructuring that involve bankruptcy, for instance, in that waiting periods may come into play in between the first and second filing.
Layoffs are not always a part of restructuring, however, changes to employment terms, roles and responsibilities, and employer-of-record is common during a restructure. When a company is acquiring another company, layoffs may be avoided, however in a merger, layoffs are commonplace.
Generally speaking, when a restructure is slated to take place, changes to employment are expected.
Restructuring often involves making changes to an organisation’s workforce, however, before any changes are made, an assessment of the current workforce’s skills and capabilities is necessary.
First, assess what skills and experience the restructured organization needs. What job roles does it already have, and what new roles need to be created? What attributes do people need to have to successfully fulfill the responsibilities in those roles?
Next, gain a better understanding of the personalities and professional ambitions of the current workforce. Call meetings with supervisors to gain insights, and consider gathering objective information via standardized personality assessments.
Lastly, research the skills and attributes that comprise the current workforce. Analyze performance review files to get a sense of skill strengths and gaps.
Map out the job roles, scope, and responsibilities of each position on the new organisational chart. Be definitive in determining the total organisational headcount, including number of executives, managers, and individual contributors. When changes in composition are made to the workforce, employees will want to know the reporting structure and scope of their new role.
Once the new organisational structure has been laid out, it is time to ensure that the job description for each role reflects the new strategy the organisation is undertaking. During this process, it may become apparent that employee training and development is necessary to execute the new strategy. In some cases, new hires may be required.
In light of what was learned during earlier stages in this process, it is now time to decide whether layoffs are necessary. It is important to be mindful of the disruption that layoffs bring to a workforce’s ability to be productive. Once a decision is made, be firm and steady in communicating the course of action.
While the steps above represent a lot of work, it’s important to stay the course through this final, very important step: communicating with the workforce. Restructuring is stressful on employees, so it is important at this stage to demonstrate strong leadership through clear communication. Remind them of why they are working with this company, what they can expect from leadership (and what leadership needs from them) in the coming months, and what tools and resources the company has available to support them. Make sure they are aware of the new strategy the company is pursuing and what their role is in accomplishing it.
Before undergoing a restructuring, it is important to gain clarity on the problem the restructuring aims to address. What are the boundaries of the problem? A business may have many challenges at one time - which of these challenges will the restructuring remedy?
Conduct a risk/benefit analysis. While there may be many advantages to a restructuring, there are also risks to consider, such as employee attrition. The workforce may be fearful of the impending changes and decide to leave, or frustrated that the scope of their responsibilities is going to change. And, of course, there is the risk that the restructuring will not solve the problem.
Business leaders need to come together to identify the business strategy, set goals, and determine key performance indicators (KPIs) that the business can track to gauge progress. It is imperative that business leaders articulate a clear strategy and KPIs before proceeding with a restructuring.
With the new strategy in mind, assess the current organisational structure, looking for areas where the organisation is falling short of meeting its goals. Conduct interviews with managers in the organisation whose departments will be impacted by the restructure. They can provide insights into why certain processes are not working and what might be done to remedy these processes. These are important relationships to strengthen during the restructuring process as these leaders have an impact on morale.
As leaders create a new model, consider the responsibilities and decision-making authority necessary to achieve business objectives. Ensure that the vertical and horizontal reporting structure can be articulated clearly to the workforce, and that the assignment of business functions to various departments is reasonable. Lastly, consider the scope of responsibilities for current and future roles.
Consider which stakeholders leaders need to communicate with in what sequence, and create a plan to do so effectively. It’s important to keep in mind that leaders will be sharing this information with people who have different levels of organizational understanding and authority, so messages will need to be customized accordingly.
Before implementing the business’s new structure, it is important to test the new processes to identify any flaws in the new structure and processes. Testing also helps identify unexpected or unintended outcomes resulting from the organisational change.
Assessing and measuring the results of the organisational restructuring process provides early indicators of the success (or failure) of the organisational change. Conducting interviews with key stakeholders after testing concludes offers valuable insights that will help the organization reach its productivity goals as a result of the structural change.
The final step in the organisation’s restructure is the full rollout of process and personnel changes. Training on new technologies or tools that preceded the full rollout needs may need to be re-introduced. Monitoring and analysis must commence immediately upon rollout to ensure mistakes are minimized and outcomes are as intended.
One of the most significant mistakes in organizational restructuring is undertaking the process without clearly defined objectives and a coherent strategy. Without a clear understanding of why the restructuring is necessary and what the desired outcomes are, the process can become unfocused and ineffective.
Inadequate communication with employees throughout the restructuring process can lead to confusion, anxiety, and resistance. Failing to communicate the reasons for the restructuring, the expected changes, and how they will impact employees can result in low morale, decreased productivity, and increased turnover.
Neglecting to involve key stakeholders, including employees, managers, and external partners, in the restructuring process can result in resistance and opposition. It is essential to solicit feedback, address concerns, and involve stakeholders in decision-making to build buy-in and support for the changes.
Attempting to implement organizational restructuring too quickly without proper planning, assessment, and preparation can lead to unintended consequences and negative outcomes. Rushing the process increases the risk of overlooking critical factors, making hasty decisions, and creating instability within the organization.
Focusing Solely on Cost-Cutting (H3)
While cost-cutting may be a primary motivation for organizational restructuring, focusing solely on reducing expenses without considering the long-term impact on employees, culture, and organizational effectiveness can be shortsighted. Restructuring efforts should prioritize sustainability, innovation, and value creation in addition to cost reduction.
Underestimating the importance of change management in organizational restructuring is a common mistake. Failure to address the emotional and psychological aspects of change, provide support and resources for employees, and build resilience can result in resistance, low morale, and implementation challenges.
Restructuring efforts often involve changes to roles, responsibilities, and reporting relationships, which can impact talent management and retention. Failing to assess and address the skills, capabilities, and development needs of employees during restructuring can result in talent gaps, decreased performance, and increased turnover.
Organizational restructuring should be an iterative and adaptive process that allows for flexibility and course corrections based on feedback and changing circumstances. A rigid or inflexible approach can impede progress, hinder innovation, and limit the organization’s ability to respond to evolving challenges and opportunities.
Done effectively, organisational restructuring can save a business from ruin and/or prepare a business to seize future growth opportunities. By starting with a full understanding of the business’s goals, engaging in adequate planning, and executing according to plan, a business can achieve new heights as a result of its organisational restructuring.
Subscribe to our monthly newsletter to receive our latest insights and stories.
Keep up to date with Open Eye’s latest thought leadership and tools for businesses making a positive impact in the world.
