How Well Does Organizational Restructuring Boost Performance?

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An organizational restructuring is an option many companies initiate when faced with lack-lustre performance. The thinking is that by reorganizing the reporting structure, it would bring renewed energy, eliminate redundancies, and better align work teams. The initiative draws attention throughout the organization but often brings marginal performance improvement.

There are several reasons why organizational restructuring is not as effective as leaders anticipate.

Superficial Understanding of Root Cause

Business results are outcomes of the business model, operations dynamics, and competency of people. The ever changing marketplace also impacts performance. Issues with any one of these parameters damper results.

Without a clear understanding of the root cause that leads to poor performance, shuffling boxes on the organizational chart does little to improve performance.

For example, different business units in a telecom company had their own procurement team. Fickle vendor performances caused project delays which impacted profits. While exploring the issue, the CFO learned that inconsistent practices across business units had also led to escalating costs.

The CFO decided to centralize procurement. He believed the company would benefit from economies of scale and vendor performance would be better managed as there would be fewer vendors.

With the focus on centralization, little energy was invested in improving vendor performance. In the end, the company did achieve some savings but the issue with vendor performance was never addressed.

Misaligned intentions

Restructuring is a stressful change for the impacted teams. Employees wonder whether their jobs are safe. They worry about changes in roles and responsibilities. It is common to see concerns and skepticism.

A main intent of a reorganization is to pull together teams that need to work more tightly. The desired improvements include elimination of redundant activities and streamlining workflows.

The CFO for the above telecom company wanted savings from centralizing the procurement function. For the procurement teams, they felt the reorganization would not address the issue with vendor performance. As a result, teams resisted change.

In this case, there wasn’t sufficient discussions to share the crux of the issue and how the reorganization would address the problem. If both sides were able to have open dialogs on what each looked to achieve, more attention would have allocated to address vendor performance which would end with win-win outcomes for both sides.

Lack of discipline to fulfill restructuring goals

The announcement of the restructuring is just the beginning of implementation. As milestones are set, the focus is on completing the transition to the new reporting structure. Without definitive restructuring business impacts, it is difficult to gauge whether the reorganization is a success.

Hence, leaders need to explicitly identify and communicate the specific end results they aim for. They need to put a mechanism in place to track and monitor outcomes.

If the telecom company had identified a target for vendor performance improvement, it would have been more convincing to get buy-in from the procurement teams.

When the intentions become clear, participants would see their interests are addressed. They will step up and commit to the change.

Setting targets and monitoring results require discipline to implement a proactive routine to be honest about results. The lack of it puts the restructuring initiative in peril.

Organizational restructuring is a change that requires leaders and team members to step up. Objectives need to be clear to those driving the initiative and those impacted. In order to address the root cause that instigates the initiative, folks from both sides need to align and work together. Otherwise, a shuffling of roles and responsibilities without true commitment would not yield the intended performance improvement.

If you are interested in learning whether a reorganization can fix process problem, have a look at this post.


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