Leading a Successful Reorganization

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An Exclusive Interview with Stephen Heidari-Robinson and Suzanne Heywood

Reorg AuthorsI had the opportunity recently to interview fellow authors Stephen Heidari-Robinson and Suzanne Heywood, former leaders in McKinsey’s Organization Practice, about ReOrg: How to Get It Right, a practical guide for successfully planning and implementing a reorg in five steps—demystifying and accelerating the process at the same time. Based on their twenty-five years of combined experience managing reorgs and on McKinsey research with over 2,500 executives involved in them, the authors distill what they and their McKinsey colleagues have been practicing as an “art” into a “science” that executives can replicate—in companies or business units large or small.

1. What are the most popular reasons for doing a reorganization?

Our company Quartz has undertaken a survey with Harvard Business Review to understand the nature of reorganisations which we also discuss in our book, ReOrg: How to Get It Right. We looked at why they happen, how they happen and what drives success versus failure, and have 2500 results so far. We can tell you that statistically, the most popular reason for launching a reorganisation of just under a quarter of cases is responding to a change in customer needs or a change in the business environment. Joint second is to enable company growth and to cut costs with slightly under 20% of both.

The fourth most popular one is to respond to a leader’s desire to reshape the organisation in their own image, and we can also tell you that that last reason is statistically the least successful reason for reorganising. It’s very clear that you need to have a business rationale to change your organisation, not just do it because of one leader’s whim.

2. What is the biggest misconception that people have about successful reorganization efforts?

We think the biggest misconception is that deciding on the concept of the organisation and how it’s going to affect senior leaders in the company is the hardest thing to do.

Actually intuitively that’s pretty easy. You can have support from consultants to do it but you know there are a finite number of ways in which you might organise. You could think of them for yourself. You could have a debate with your senior leaders about what you want to do and what you don’t want to do. If someone doesn’t want to join that bus they can leave the bus and the rest can continue. So intuitively that’s kind of obvious.

Actually the hardest thing to deliver in a reorganisation is all the plumbing and the wiring that follows that. You don’t change the performance of people by just changing someone’s boss’s boss’s boss’s boss. It’s actually in detailing out the processes, the interfaces, the governance, the capabilities required, the behaviours that you need and how management information is going to be reported. All those areas that are actually much, much, much more difficult and receive far less attention than the high-level cartoon that gets announced as soon as you know what it means for your senior leaders.

3. What are some of the typical mistakes people make with reorganizations?

We think one mistake goes alongside the biggest misconception which is not having an end to end plan of how to deliver the reorganisation from soup to nuts, so from thinking about what business objective you want to achieve to running the organisation in a different way. People seem to do it in a ‘one thing follows the other’ type way and that means that the whole process lasts a long time, on average about 12 months. Our statistics are very clear- if you deliver your reorganisation in six months or less you’re far more likely to be successful because you disrupt the organisation for less long and you get the results that you wanted quicker. In order to deliver that you need to have a good plan. Whether you have a good plan or you don’t is one of the biggest causes of whether or not you’re successful. Only one third of reorganisations have a good plan.

The second typical mistake is to focus almost entirely on lines and boxes of the org charts and perhaps even also roles and number of people, so thinking about what the organisation looks like, rather than how it works, which is a lot about governance, processes, skills, behaviours, the way in which teams can function together. About 90% of organisations cover structure and roles. 50% or less look at these other areas of processes, governance and people.

4. Why are reorganizations so difficult to do well?

Here is a very simple answer: because they involve people.

No one likes change, or very few people like change and they like disruption even less. They don’t like getting involved in a process where they think they’re going to need to fear for their jobs (and they always assume that they do, regardless of whether or not this is for growth or cost savings.) Usually it is the case that some people will leave the organisation as a consequence of this, even if they don’t have the right skills for growth. There are processes that lead to a lot of fear. We do think leaders often tend to outsource the problem to either consultants or an internal team, rather than gripping it themselves. In fact, what could be a more important role of leaders in an organisation than deciding how they want to deploy their people in order to get the business outcomes they want. Really we think it’s a failure to grapple with the people aspects of the organisation that make them so difficult.

5. What are some communications pitfalls people should watch out for?

We think there are two. One is that you overcommunicate enthusiasm too early. You talk about how brilliant this is that you’re getting to do all the things that you’ve always wanted to do in the organisation, you’re going to increase ROI, you’re going to drive these operational metrics that sound ethereal to people; whereas all that your staff are hearing about is that maybe we’re going to lose our jobs. And so you get some dissonance between your enthusiasm and the practical reality for people.

The second communication pitfall is that you just don’t communicate at all or enough. You wait until you have the answer, which is usually what the high-level org chart looks like and what your management team is going to be before you start communicating. Actually the answer that people want is what it means for them! But in any case, regardless of when you communicate or you save it until then; in the meantime everyone decides what they think it means while you’re struggling to put together an answer that’s going to satisfy them.

The way to communicate better is really to communicate from the beginning, to communicate very regularly (more regularly than you think, maybe every couple of weeks), to make the communication almost boring, to start off by being honest that you don’t know what the answer is but you tell people why we’re doing this, how they can get involved to shape a better answer. And when they’re going to hear what it means for them. It won’t eliminate the worries that people have about reorganisation but it will dispel some of that anxiety- at least they know what’s happening, where, when, and when they’ll know what it means for them, rather than just showing up in the office and having been made redundant, or worrying about that.

Reorg Book Cover

6. What is the first step in planning an effective reorganization?

The first step of planning an effective reorganisation is to understand what value it is supposed to deliver and to estimate what level of costs. Not just external costs, but opportunity costs of your leaders and people, and disruption cost that it might engender and to do the math as to whether or not this is a good thing to do or not. All reorganisations lead to some disruption so you better be very clear about what the size of the prize is and how you know that you’re going to get it. It’s not a good idea to just do this because you think it’s a best practice. Again the statistics are very clear that there will be some level of disruption no matter what happens.

7. Why do big companies reorganize so often?

We think it is the case that change in the business world is happening more and more frequently and a wise person once said that your organisation is perfectly set up to give you the results that you have today so if the biggest reason of reorganisation is responding to a change in customer needs or a change in the business environment, requiring different results, then it probably does stand to reason that something about your reorganisation may need to change. So it probably is right that companies are quite frequently looking at how they optimise their organisations to deliver better results.

There is a different question about whether or not big companies should be going in for intergalactic ‘change everything’ reorganisations like a shift from business units to functions. Too often, the shift between two different intergalactic ways of operating will happen every five years depending on who’s in charge at that point in time or what the prevailing thought is from your favourite consultants.

We think those are not very helpful and too often they also lead to starting at the top, try and change everything at the top, giving up midway through. Not really changing what frontline people actually do and therefore you haven’t really solved any problems and next time you do a reorganisation you’re actually solving the same problem you had. That’s not a good reason to keep reorganising and so we are fans of surgical interventions to increase performance where it makes sense, rather than these big companywide reorganisations that big corporates tend to go in for.

8. People seem to think Agile everything is better. Is there such a thing as an Agile reorganization?

This is a very good question. A lot of consultants at the moment are promoting the Agile organisation as a solution to every single company’s woes. We can guarantee two things. One is that in five years’ time they’ll have a different concept that they want to sell. And the second is that this will not solve every company’s woes. So we firmly believe that every company has specific strengths and specific weaknesses and they require specific interventions to solve them. What interventions you need might be shaped by things that you learned worked elsewhere but again, an intergalactic template is not going to solve all of your problems.

We think what’s also interesting is that of course Agile has been around for a very, very long time and only recently are people promoting it as a way to organise, which often shows that best practice is often yesterday’s practice.

And secondly, it might be interesting to know that the sector that is the least good at reorganising is the technology sector so if you’re taking all of your advice from technology firms, then you might not be learning from the best.

Then on the specific question of Agile, Quartz works in technology quite a lot so we can see that Agile as a way of running projects is often a very good idea, especially if the project in question is focused on business to consumer. There’s a high degree of variability about what it is that should be the answer and you have the opportunity to test with real customers what they like and what they don’t like as you go along. Agile is a great thing to do if that’s your context. If that isn’t your context and if you’re delivering something that’s fairly predictable and there isn’t an opportunity for experimentation and there isn’t a wide amount of customers that you can test it with, Agile might not be the best approach for your project. Maybe a lean approach is better. We also think that from working with tech, an Agile approach where everything is experimental is not the right way to run your company. It is helpful sometimes to set clear goals and boundaries and then maybe do Agile within some of those as a way of delivering. We don’t think that there is such a thing as either an Agile template that you should reorganise to nor an Agile way of doing a reorganisation.

We know plenty of tech examples where people change jobs one day, change jobs again, a few days later and get made redundant shortly after that. Unfortunately when you’re doing reorganisation it does help to do it somewhat sequentially. Knowing why you’re doing it, really diagnosing what the problem is, then working out what the thing is you should be doing and then working out the plumbing and wiring and then seeing did it work or not. Otherwise you’re just whipsawing people backwards and forwards and they don’t tend to like that, and that then drags out your reorganisation in any case.

9. Should people ever stop a reorganization before it is complete?

This is also a very good question. We think too often they do for not very good reasons. Our survey shows that you typically will change about 20-30% of your organisation in the course of this and that’s about right. There are probably plenty of things that you’re doing well that you don’t want to change and there are plenty of things that you do ok that is fine to keep doing ok. You should focus on the things you want to fix. Unfortunately, if people just start at the top and try to change everything, they’ll change the top 20-30% and not really drive changes in frontline workers and so by definition they often end up stopping a reorganisation before it’s complete for bad reasons. They tried to change everything and it was never achievable.

Now, should you stop a reorganisation if the business context underneath you changes and renders the reason for you doing what you’re doing redundant? Actually this is quite a high cause of problems with failed reorganisations so I’d actually argue that if that is the case then probably you should stop and rethink and go back to the drawing board. It’s not a good thing to realise and you never want to plan this but you shouldn’t keep pushing something that isn’t ultimately going to work. Obviously that should probably be a last case scenario, and you’ll actually minimise the need that you’ll have to stop a reorganisation halfway through if you follow our previous advice, which is to do it in a focused way on the things that matter, and to do it quickly, because that’s more likely to drive success.

Thank you the great conversation Suzanne and Stephen! I hope everyone has enjoyed this peek into the minds of the people behind the in-depth book ReOrg!

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