A major reorganization (or “reorg,” which is a common abbreviation for them in many companies) often seems to be accompanied by a sense of fear, paranoia, uncertainty, and distraction for a variety of reasons. However, in our experience, one of the most significant and fundamental errors businesses make is failing to involve people, or at the very least failing to do so early enough in the process. This article focuses on the lessons we’ve learned about that age-old but still frequently handled and misunderstood subject: communication. It is based on the new book ReOrg: How to Get It Right (Harvard Business Review Press, November 2016), which outlines a step-by-step approach to reorganizations.
We believe it makes sense to consider how to engage employees and other stakeholders—unions, customers, suppliers, regulators, and the board—at the same time, but employees always need the most care. Those in charge of reorganizations frequently fall into one of two pitfalls when speaking with their staff. The first one is “wait and see,” while the second is “ivory-tower idealism.” ”.
The first trap is when the reorg leader believes that everything should be kept a secret until the very end, when they will have all the answers. The leader demands that the reorg team and senior leadership make a secret pledge, and is shocked when information is leaked to the rest of the organization. (In our experience, it always does. (Remarks like “They were asking what my team does,” “I had to fill out an activity-analysis form,” and “I hear that 20% of jobs are going to go” all contribute to the spread of rumors. The leader eventually announces the new structure and acknowledges that some job losses will be necessary, but insists that the changes will help deliver fantastic results after the reorg team creates a high-level org chart.
Ivory-tower idealism is little better. The leader in this scenario is so ecstatic about being able to address all of the issues from the past and complete all of the goals in one go that they can hardly contain their excitement. He or she chooses to kick off the procedure with a webcast to all employees, informing them about the exciting business opportunities ahead, followed by a series of walk-arounds in important facilities and offices. The leader puts a personal blog on the company intranet. However, due to human nature, nobody believes what they hear. They continue to believe that the reorganization will result in job losses, and the enthusiasm of the leader strikes them as discordant or even callous. A charismatic boss may all too easily find themselves shipwrecked on a cynical shore.
First, you must communicate frequently—much more frequently than you might believe is natural. We learned how crucial constant communication is from Centrica CEO and former head of BP’s downstream division, Iain Conn, who oversaw three significant reorganizations. Conn said, “You need to treat people with real respect and dignity, telling them what is happening and when.” The biggest error is to communicate just once and believe that you have finished. Even if people have already heard what you have to say, keep communicating so they know you mean it. Never overlook the importance of communicating with both employees whose jobs may be in jeopardy and the vast majority of those who will stick with your business and help it succeed. ”.
According to research, employees who worry about their jobs have significantly worse physical and mental health than those who have secure employment. For example, a 2012 study of unemployed workers in South Michigan found that nearly half of them experienced mild to severe depression. By explaining in plain terms what they already know, what will happen later, and when it will happen, leaders can reduce that anxiety. They can also reassure people by emphasizing what will remain constant, such as the company’s core principles, its emphasis on customer centricity, or even the mere existence of this or that department. If it is possible to communicate the reasons behind the company’s reorganization and the overall strategy, the task will be incredibly simplified. In essence, communication should shift from initially informing people to then exalting them once—and only once—they learn what their new jobs will entail. This realization typically follows the first significant strategic announcement, which addresses the idea of the reorganization and, as a result, tends to excite managers much more than the rest of the workforce.
Both two-way communication through town hall meetings and broadcast communication via digital channels are crucial tools. Each communication is an opportunity to explain the one central idea of the reorganization (such as switching from print to digital or making local managers responsible for their profits and losses) and the three to five most significant organizational changes required to achieve this.
The workforce needs time to talk about what a reorg means for their particular area of the company. Direct communication is therefore crucial in addition to the traditional strategy of creating question-and-answer briefings and cascading information down the organization through managers. Anyone with a question about the reorganization should know who to contact on the reorg team or in their own department at all times—but especially when the new organization is being implemented. It can also be beneficial to gather suggestions or grievances that employees do not want to voice out loud, for instance by setting up a private email address or conducting routine online surveys. Of course, it’s crucial to monitor how well those digital tools are performing. Three months into one reorganization, it was discovered that emails meant for the entire organization had only been sent to the inboxes of senior leaders, where they had remained. The leaders of the digital dialogue failed to elicit the response they had hoped for.
Engagement becomes more difficult when a growing company is involved in the reorg. Elon Musk, the CEO of Tesla and SpaceX, told us that maintaining cohesion is one of the biggest challenges for businesses as they grow. Initially, as businesses grow larger, they become more productive through the specialization of labor However, once they have 1,000 or more employees, you start to notice declines in productivity per employee as communication breaks down. A junior employee in one department who needs to speak with a senior employee in another department should be able to do so directly rather than going through their manager, director, vice president, and so on until they reach the appropriate person after six bounces. I support “least path” communication rather than “chain of command” communication. ”.
Some businesses extend their engagement to include a variety of employees at an early stage of the reorganization design. For instance, Lawrence Gosden, the wastewater director of Thames Water, the largest water utility in the United Kingdom, which serves London and a large portion of southeast England, involved 60 employees from a variety of departments, including the front line, in developing the organizational design: “We put them in a room with a lot of diagnostic material on the external challenges and some great facilitation, with the idea of stretching thinking on how we should solve the problems.” Then, we asked this group to develop a vision for what the new organization should do, including how to save money. The group developed a straightforward vision centered on customer service. We then distributed the newly created content to all 4,000 staff members so that they could each consider what it meant to them. This led to a remarkable amount of ownership in the vision and the strategy we needed to implement. Despite the fact that many people were losing their jobs, the majority of the organization came to support the change and understood why it was necessary. ”.
Such upfront transparency is risky and won’t be successful in every reorg. However, it is even riskier to rely solely on a small group of intelligent people to plan out the specifics. By working in new ways and under a new boss (or a different boss’s boss), the employees of the new company will decide whether it will provide value when it launches.
Given the costs of not having an employee communications strategy, most executives eventually do so, albeit frequently too late. Fewer leaders, however, devote significant time to other stakeholders. Depending on the business context, up to four additional groups may require attention in addition to the staff, who typically require the most attention:
Executives should follow this advice from Lord John Browne, executive chairman of L1 Energy and former CEO of BP. He has also served on the boards of Goldman Sachs and the UK civil service. You should advise them to ignore the road bumps even though the path may be difficult. The design and your anticipated results must be understood by the board. You must establish straightforward milestones and assess whether you are meeting them by reporting back on them. ”.
Reorganizations take a lot of time and energy, including emotional energy, in almost any situation. However, when effective communication strategies are in place, leaders can at least lessen unwarranted anxiety and pointless ruminating. To increase the likelihood that the reorganization will succeed, planning should begin long before employees learn about the changes, involve stakeholders from outside the company, and go far beyond the release of the concept design.
The company’s client communications team in Western Europe is led by Rose Beauchamp, who works out of McKinsey’s London office. Up until recently, Stephen Heidari-Robinson served as the UK prime minister’s advisor on energy and the environment. Suzanne Heywood is the managing director of Exor Group. The authors of the recently released book ReOrg: How to Get It Right (Harvard Business Review Press, November 2016) are Stephen and Suzanne, both of whom worked in the London office.
Reorganizations in a company
Why do companies reorganize?
There are many reasons for company reorganization, but they typically center on improving financial performance and maximizing efficiency. Here are seven explanations for why a business might decide to reorganize:
What is company reorganization?
Designing and implementing significant changes to an organization’s organizational structure is known as “company reorganization.” Another name for this is corporate restructuring. Corporate reorganization frequently involves changing budgets, selling divisions, restructuring reporting officers, and changing managers. The IRS revenue code identifies seven types of corporate restructuring. These are the seven types of corporate restructuring you might encounter at work:
1. Mergers and consolidations
Mergers and consolidations join two companies. A merger specifically denotes the fusion of two or more businesses through a legal agreement. While mergers occur when two businesses or other entities combine to form a new one
2. Acquisition (target corporation subsidiary)
A subsidiary acquisition is also a type of merger. This kind of merger involves a parent company using a subsidiary company to buy out a particular organization. In a Type B restructuring, the parent company and the target company are not merged; instead, the target company and the subsidiary are merged.
3. Practical merger
Practical mergers are a type of reorganization that concentrate on buying a business to liquidate. In this instance, a business purchases another business in order to obtain voting stock and other assets. The acquiring company then distributes the assets after liquidating the voting stocks.
4. Transfer spin-offs and split-offs
Splitting a single company or organization into two or more companies is referred to as a type D reorganization. This type of division is commonly referred to as a spin-off or split-off. Transferring assets is a component of Type D restructuring, which differs from Type C restructuring in that it doesn’t involve a third party.
5. Recapitalization
Recapitalization is a type of reconfiguration that concentrates on a company’s capital structure. Type E restructuring modifies an organization’s debt and equity, in contrast to the other six types of restructuring, which alter businesses at an organizational level. This procedure, which aims to stabilize a company’s financial situation, involves trading one form of capital for another.
6. Identity change
Changes to a company’s identity or its place of business are examples of Type F reorganizations. This might involve a name change, a material amendment to the company charter, or a corporate move.
7. Transfer of assets
Type G is a type of reorganization that involves bankruptcy. A bankrupt company can transfer its assets to another organization. By doing this, the acquiring company’s tax obligation with respect to the assets it gains from the reorganization is reduced.
Who is part of designing and implementing a reorganization?
Corporate finance officers, members of the C-suite, attorneys, and outside consultants can all contribute to the creation of a company reorganization. Members of the information technology and human resources departments work to implement the plans and initiatives once the design is complete. The new standards and procedures must be adhered to by all other staff members.
How to perform a company reorganization
Honest evaluation and communication are the most essential elements of your success if you are a part of the design or implementation of a company reorganization. Here are six steps for performing a smooth company reorganization:
1. Evaluate current strategy
You need to look at the strategy, structure, and business model in place in order to accurately assess a company’s current state. Determine strengths and weaknesses. Keep the initiatives, programs, and systems that result in the desired results and replace or change the ones that don’t. This procedure may involve gathering information, conducting research, and speaking with experts.
2. Ask questions
Ask questions of your consumers, shareholders and employees. These people can probably point out problematic areas and highlight positive aspects. Although you can collect this data informally, formal surveys or inquiries have advantages.
3. Communicate plans
Be open and honest when communicating your reorganization plans. Transparent communication demonstrates respect, can provide perspective and security to your stakeholders, and can also stop rumors or speculation.
Outline your overall plans and objectives, and make an organizational chart based on roles to demonstrate any changes in reporting. A company-wide meeting to which the outline and chart are presented should be followed by smaller team meetings and easily accessible reference materials.
4. Prepare severance plans
It’s crucial to create severance plans in advance if your restructuring calls for layoffs. Severance payments must be reasonable, legal, and show respect for the work that has been done by the recipient in their position. It is also wise to offer an employee buy-out. This is the time when a few people have the option to accept a severance package voluntarily.
5. Implement the plan
Decide when you will implement each section of your reorganization plan. Implementation can include an official merger or relocation. It can also involve introducing new teams or programs and training staff members for new roles or tasks. Keep to the scheduled dates and inform all parties involved of the upcoming changes.
6. Assess and reflect
By establishing a special committee for this task, assess and reflect. The committee should follow the original objectives and outcomes as a benchmark for achievement. In order to assess progress, they should also carry out surveys and regular data analysis. Reflection is necessary to evaluate the effectiveness of the reorganization changes and can also help determine whether additional action is required.
FAQ
Why do companies go through reorganization?
- Mergers and consolidations. …
- Acquisition (target corporation subsidiary) …
- Practical merger. …
- Transfer spin-offs and split-offs. …
- Recapitalization. …
- Identity change. …
- Transfer of assets. …
- Evaluate current strategy.
What is the process of reorganization?
- Start with your business strategy.
- Identify strengths and weaknesses in the current organizational structure.
- Consider your options and design a new structure.
- Communicate the reorganization.
- Launch your company restructure and adjust as necessary.
What is the difference between reorganization and restructuring?
Restructuring is a necessary step after any merger or acquisition to get rid of redundant work systems, take into account preferences of new managers, and ensure consistent practices. Organizational transformation enables companies to adapt to changing business conditions.
What is the example of reorganization?
A reorganization is a significant and upsetting overhaul of a struggling company designed to get it back on track for profitability. It might entail eliminating or selling divisions, changing management, reducing budgets, and firing staff.
