Thinking about a restructure? Three tips for getting it right.
Organisational restructures are often driven by a multitude of factors: missed targets, regulatory changes, the need for new capabilities, shifts in leadership, mergers, acquisitions, or even shareholder dissatisfaction. Sometimes, they’re justified but, in our experience, many times they’re not.
Large companies and government entities frequently find themselves navigating these changes, yet a significant number of restructures ultimately fail. In fact, a well-cited study by The Boston Consulting Group revealed that while over 90 per cent of companies with more than 1,000 employees have recently altered their structures, less than half of them consider these reorganisations successful.
In our experience, restructures are undertaken far more often than necessary. Given the potential disruption and costs associated with restructuring, how can you ensure that all your effort yield positive results? Here are three critical tips to guide leaders through this complex process.
1. Don’t restructure unless you’re sure it’s necessary
A restructure can be a blunt instrument. It can make broad and sweeping changes that affect many employees and processes, rather than targeted, nuanced approaches to specific issues, which are often more effective.
Restructures can result in such significant negative impacts that you might as well have not restructured in the first place. Examples include:
Disruption: Restructures can lead to significant upheaval, affecting employee morale, productivity, and engagement. The shock of change can create uncertainty and anxiety among your people.
One-size-fits-all: Restructures often attempt to force one solution to solve diverse problems, failing to account for the unique needs and contexts of different functions or teams.
Loss of talent: Valuable employees may be lost in the process, either due to redundancies or voluntary departures. This can undermine your capabilities and leave you worse off than when you started.
Drops in operational efficiency: The complexities of managing a restructure can lead to implementation issues, with teams struggling to adapt to new roles or structures. At best, this has the potential to cause operational inefficiencies – at worse, you’re dealing with key activities grinding to a halt.
Short-term focus: Often driven by immediate financial pressures or market changes, restructures may prioritise short-term gains over long-term sustainability, leading to further issues down the line.
Lack of stakeholder input: When employees feel excluded from the decision-making process, it can foster resentment and reduce buy-in for the changes, impacting overall effectiveness and the likelihood of people adopting your new structure.
So, if you’re not going to restructure, how do you make your business more efficient and effective?
In our experience, if you’re considering a restructure to improve performance, it’s more commonly issues with one or more of the following factors that’s the problem:
How measurement and reporting is undertaken
How work is governed
How dependencies are managed
How decisions are made
Leadership capability.
None of this is about how flat the structure is, or whether there are matrix relationships or not, or how agile you are. Ultimately, you can move a bunch of people around into different roles or teams but if that is all you’ve done, it’s not going to be enough.
All this talk of failed restructures getting you down? Here’s a joke to cheer you up. Why did the restructure go to the gym? It needed to flatten its layers…
2. Ensure that form follows function
All organisations are a system. They’re a collection of processes applied to, or by, resources to deliver an outcome. The organisation structure, at its best, is an efficient and effective way to organise your resources to address that system and deliver that outcome.
There are several scenarios where a restructure will be deemed necessary. These scenarios may include:
Merger or acquisition
New strategy
New business model
Realigning the business
Expansion.
Where this is the case, form (the sticks and boxes that make up the structure) must follow function.
What is ‘function’ in this context?
Function is all about answering two questions
What type of organisation do you want to be?
What does your organisation do to produce value?
What type of organisation do you want to be?
Before diving into putting people into boxes, there must be an understanding of the type of organisation you’re trying to create – an organisation that leaders aspire to lead, and people want to work for.
The type of organisation you want to create will drive how people should be structured. For example, do you aspire to be:
Customer centric
Agile to make the best use of resources
Nimble to enable responsiveness to the market
Market leading
Highly collaborative
Strategic.
All these aspirations (or what we call, design principles) will require an organisation to be structured a different way. Read more about design principles in this blog.
What does your organisation do to produce value?
Organisations are large, complex systems. To turn this structure into a series of boxes with people’s names in them, you need some sort of framework to describe what it is your organisation does to produce value. The goal is to break it down into smaller, more manageable chunks, to make the task more efficient and effective. Read more about how we use value chains as the basis for organisation design here.
3. Don’t forget the glue that holds it all together
You can (usually) define who does what within an organisation. Within each function or business unit, there can be clear outcomes, responsibilities and measures. The remaining challenge for organisational effectiveness is to define and sustain a way for each of those units to work together as one coherent system.
Simply moving people into new roles and teams isn’t going to be enough to ensure that outcomes are achieved. We use governance and interactions as the glue that holds it all together – it determines how work will get done between different functions, teams and roles.
What do we mean by governance?
Governance is the relationship between the people that are accountable and the people they have delegated responsibility to. Governance ensures that everyone’s being held to account – that they are delivering outcomes.
For example, a Chief Financial Officer (CFO) is accountable for ensuring the right financial resources are available to an organisation at the right time. The CFO delegates responsibility for different aspects of this outcome to their direct reports and then uses governance mechanisms, such as a weekly leadership meeting, financial reports and one-on-one meetings, to ensure the outcome’s being achieved.
The weekly leadership meeting they run has documented terms of reference and an agenda to ensure the most valuable use of time – that only the topics the group need to are discussed, as well as key risks and issues. Things like status on initiatives and business as usual updates are covered in other channels.
Examples of governance mechanisms
Steering Committee for a program
Weekly Leadership Meeting
Board Meeting
Weekly Status Report
Monthly Performance Review
Corporate Plan or Business Plan
Budget.
What do we mean by ‘interactions?
Interactions are the relationships between people who have dependencies on each other to do their work. Interactions are critical as they give people what they need to deliver an outcome. Interactions ensure silos aren’t created and keep communications open.
For example, a Sales Director is responsible for selling a product or service. However, to do this, the Sales Director is dependent on the Marketing Director to make potential clients aware that the product or service exists. The Sales Director uses three key interactions to manage the dependency – a quarterly Go to Market Plan, a weekly account meeting and a monthly account report.
Examples of interactions
Project Team Meeting
Status Report
Account Meeting
Discovery/Design Workshop
Team Meetings
Go To Market Plan
Communications Channels (e.g. email)
Testing (e.g. Reviews, UAT)
Service Level Agreements
Dashboards.
Conclusion
While restructures are often seen as a necessary response to various pressures, they can lead to unintended consequences if not approached thoughtfully. By carefully assessing the need for change, ensuring that structure aligns with function, and fostering strong governance and interactions, leaders can navigate the complexities of restructuring more effectively.
Ultimately, success lies not just in shuffling names in boxes around, but in creating a cohesive system where all parts work together toward shared outcomes.
Find out more about our operating model and organisation design work here.
Want to talk to us about how we can help you with your restructure? Reach out to:
Fadi Zeitoune, principal
clare morris, director