Do You Really Need A Reorg?
In today’s fast moving and ever changing corporate environment, chances are that you must have experienced at least one reorg in your career. According to Harvard Business Review, around two-thirds of reorgs deliver some kind of improvement in performance. Perhaps, this is one reason why reorgs are so common!
As John Ferraro, the former COO of Ernst & Young says, “Every company today is being disrupted and so must frequently reorganize to keep up with the incredible pace of change. Those that can do this well will thrive in the current environment and be tomorrow’s winners”.
But are all reorgs successful? Apparently, not! In fact, data shows that ~10% of them cause serious damage to the company. Research also shows that reorgs—and the uncertainty they can lead to about the future—can cause greater stress and anxiety than layoffs, leading in about 60% of cases to noticeably reduced productivity.
Having said that, I have personally been a part of many reorgs and led some of them. The key is to know why you are doing one and then to execute a plan with thoroughness and empathy. Some reasons for the reorgs that I have been a part of are listed below:
Performance: low performance of teams in companies is a big drive for reorgs. In such cases, reorgs help in realigning expectations and priorities. If done right, they give a boost to productivity and performance.
For a startup that I once advised, we decided to do a reorg because the performance of the sales teams, supporting different business lines, were below expectations. So the CEO took a call to consolidate them under a chief revenue officer, which dramatically improved the performance.
Distributed functions: when certain functions or teams are distributed across geographies, it becomes tough for them to have a voice on the table. It becomes important to reorganize to give them a collective voice.
At one of the companies that I worked for in the past, we did a reorg because the company was structured by markets. However at its size and scale, we realised that it was particularly cost inefficient for us. Consolidation through reorg really helped us to drive tons of cost savings and improve our return on investment.
Over-hiring: over-hiring in some parts of the organization is a big reason for reorgs. This one is even more relevant during frothy environments when companies get funded really fast and are under pressure to deliver accelerated growth. When the markets correct, companies find their teams to be bloated and have to downsize to manage their expenses.
Exits of senior leaders: exits can also lead to a requirement for a reorg to align teams.
I was part of a reorg once where a senior leader has many functions under them. However when they were exiting, it made sense to distribute the functions in a way that they were evenly spread.
Market conditions: sometimes a reorg is motivated by market conditions. Pivoting your business structure according to the conditions of the market is sometimes necessary to keep your business competitive and efficient.
Having seen many such reorgs from close up, I have realized that there is no one method to guarantee success. But, here are a few things that you can keep in mind:
A reorg should support the strategy of the company. So think long and hard about it before embarking on it. Thinking short-term and doing multiple reorgs can lead to fatigue.
A reorg should be done for the service of the company and not of a particular leader.
Reorgs impact people the most. So they should be done in a respectful and fair manner. This is true even if a reorg means letting go of some people.
Stakeholder alignment is a must during reorg. Don’t try to do it in a silo, but build consensus around it with your key stakeholders.
Lastly, reorg is just the beginning. What happens after a reorg defines its success. Teams have to come together to accept the change and collectively drive towards success.
These are just some of the ways which have helped me to manage reorgs in the past. Reorgs are tough and require leaders to show tenacity. But they are also great tools to take companies through the tough times and onto the path of scaling up.
Have you been through a reorg? What are the challenges you have faced and how did you steer your team through them?