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BW Businessworld

A New Wave Of Restructuring

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India Inc. has got so used to dealing with uncertainty in the business environment that one tends to forget how recent some of these changes have been. Globalisation has altered competitive landscapes across markets, restructured supply chains across industries, and redefined skill sets required of leaders to succeed. Competitive performances and corporate asset values are under siege. The current economic and business climate is uncertain, even volatile. In some parts of the world, growth rates are still sluggish, and throughout the world competition for customers and talent remains intense.

Despite these challenges, some companies are taking decisive action to change their structures and strategies of leadership – and taking the lead in positioning themselves for success. Many C-suite leaders are taking to organisation restructuring as a tool to become more innovative and improve productivity in the hope of transforming their organisations. But most often than not, they fall short of the desired intent.  

What drives a business' need to organise or reorganise work, jobs and structures? The need could be identified by a line manager, a middle manager, a CEO or another executive who recognises that a group or groups are not cohesive or engaged. Or, the need to organise work might come from an external source — an upcoming merger or acquisition — or anticipated rapid growth, a new management team with new strategies or regulatory changes that will seriously change how work is done.

In our experience working with organisations of all sizes and industries, clubbed with our research on leadership and innovation, we have identified principles that can work well towards improving the likelihood of success – in times of organisation restructuring.

Identify specific problems the new structure needs to resolve:
The primary reasons why organisations restructure is because they want to either expand to a new geography, create a customer or product focus, or improve operational efficiency to reduce costs. Reorganizing for these intents is fine, but they fail to address the real problems arising from this intent. They end up reassigning P&L accountability, with the hope to drive competitive advantage without diagnosing and addressing the problem they are trying to solve.  

Our research had found a new CEO in a large utility company who, determined to cut costs, slashed the HR budget, thus eliminating some services which HR provided. Aligning jobs with the organisation's mission seemed like a waste of time in a culture where "everyone pretty much knew their jobs." Eventually, engineers wrote company policies and tried their hand at corporate communications. organisation charts were discarded because executives believed that as long as everyone knew what they were doing, the company would continue to travel the course as it always had. The reality was that job accountabilities were vague, and no one understood the structure in detail. Inevitably, things began to slip. One executive described the situationas "5-year-olds playing soccer, with everyone having a rough time getting a handle on what they were supposed to do."

Any restructuring should clearly organarticulate the challenges or problems caused by the new business priorities. For example, if a manufacturing company thinking of moving from a functional structure to a customer focused structure would face the problem of how to organise its production planning. The problem statement arises from the business agenda pursued by the organisation, regardless of the current structure.

Develop clarity on the operating model and governance
One of the key challenges of restructuring an organisation is to focus on the new governance – how the enterprise is actually run, day-to-day, and in particular, how key decisions about strategies and resources are made. Many attempts at change fail not because they affect structure but because they fail to change the basic mode of governance. Most restructuring teams focus on the structure rather than articulating what their operating model should be.

When developing the operating model, the team should take an outside-in approach, starting from the customer and then seeing how their units can best be organised to deliver value to them. It should then focus on the governance of each process and where it should lie in the operating model.

Not long ago, a US firm acquired a European competitor so it could gain access to expanding international markets. Before the acquisition, no unified sense of purpose existed. Between marketing and production, the only communication consisted of squabbling about internal resources. But after reorganizing into business units — each with globally unified product and market accountabilities — management was again focused on growth and profitability. It became clear why roles existed, how they added value to the new organisation, how they could share data, what their common goals were and why they had to work together for success.

Design layer by layer
Most CEOs use a top-down approach to redesigning their organisations. They restructure the top three levels and leave the cascade to middle-level managers. Such redesign only focuses on adjusting responsibilities, without addressing how work will really get done – how innovation will take place, how productivity will increase, and how product delivery will happen. Successful restructuring requires a step-by-step disciplined approach to implementation.

This includes, unit design, design of processes, operating mechanism and so on. In practice, the design process is rarely sequential or as neat as desired. Restructuring is inherently messy, interactive, and iterative, involving a lot of back and forth between different levels of the organisation. One approach which has seen particular success (see Figure 1) is having different teams anchor different type of activities:the Senior Team to provide direction and signoff on any decision;the Design Team to do the diagnosis, clarify the design intent, and develop the structure; the Action Group to do the detailed design work; and theImplementation Team to focus on execution and act as the agent of change.

Manage the informal network
The informal network is a very important part of any organisation. It is a source for information flow, organisation learning, and the dissemination of values and culture. But more often than not, these informal networks are forgotten when designing an organisation. Many processes that are accomplished through informal organisations are unintentionally destroyed during reorganisation, crippling the company's ability to get work done.

Go beyond roles and accountability
One of the most difficult things in a restructuring is to develop clear roles, accountability, and decision rights. It is the most difficult part not only because of the sheer volume of time and effort required, but because of the sensitivity involved. Most organisationsthat follow a systematic process of decision rights, role charter, and performance indicators can achieve the desired collaboration and alignment. But what most companies miss out on is the recalibration of capabilities required by the new roles. If capabilities are not recalibrated the role will end up doing the same work as before, with only an increasein the transactional cost due to the new, multiplereporting.

Along with identifying activities to be done by roles, the restructuring exercise should also identify new capabilities required for each role. These capabilities should be primarily around problem solving, teamwork, and know-how. Our experience has shown us that organisations that have focused on increasing these capabilities have managed to reduce manpower and increase productivity and efficiency. They have also been able to delayer their structure and become more flexible and responsive.

Designing jobs and organisations effectively is the most direct way managers can maximize their organisation's return on its total rewards investment.People and organisations perform best when workis assigned to well-designed jobs and when jobs are organised into effective units. When jobs have clear andexplicit accountabilities, people take initiative, they takeappropriate risks and they innovate as they understand their roles and how their work relates to the work ofothers in the organisation.

Re-staff roles
To achieve successful restructuring, it is important to ensure that the right people with the right skills are in the right places. Otherwise the most perfect organisation designs will fail. Thus, staffing becomes a major issue, particularly because old jobs disappear, many new jobs are created, and large numbers of staffing decisions are made in a short period.

Restructuring creates jobs for which few people are prepared in the old organisation. For example, when an organisation moves from a functional structure to a business unit structure, the skills needed in the new organisation would be more about general management as opposed to functional expertise. This makes staffing decisions for the new roles very difficult.In these circumstances, organisations try to tailor the role redesign individual capabilities of a few executives,but by doing so put their long-term interest at risk.

Organisations must take a pragmatic decision on the skills that are needed today and if they can be acquired from the market. They should then focus on building the rest of the skills. 

Focus on changing behaviours, beliefs and values
The organisation should focus on the softer aspect - the new culture required to make the structure work. Most organisations today are moving away from command and control structures to networked-based organisations. The onus of success is being shared down the front-line employees.

Here, organisations need to align their values, behaviors and messaging to reinforce the new structure, yet many fail to do so. For example, one manufacturing organisation post-restructuring introduced self-governing workgroups for its front-line operators. For it to work, the value of trust was most important. Yet, the organisation kept multiple levels of supervisors and continued with archaic systems like time entry, which sent out a message of distrust. It was apparent that the self-governing work groups would fail and so would the restructuring efforts.

Simply improving an organisation's climate can have a huge impact. This means creating an environment in which everyone is able to perform to the best of their abilities. Hay Group research has also shown that climate improvement programs can translate into a 30 per cent improvement in profitability.

Build endurance to see it through
Most restructuring initiatives are a long drawn affair. They cause turbulence and disruption within organisations, and impact business performance in the short-term. Leaders at the helm are at times forced to take shortcuts and abandon the initial purpose. Research has showed that successful restructuring is achieved only if the leadership has an unwavering resolve to do what must be done to make the company great. This means putting aside egos and giving up power to break down organisation silos or stop the blame game when things do not go as planned.

Collaboration is an enabling capability towards endurance. When ideas and leadership can come from almostany direction, a collaborative approach towork and leadership is absolutely necessary.The best companies have created reward structures to encourage collaboration, whileat the same time institutionalizing its practice. Our research on the Best Companies for Leadership 2010 found that Siemens has linked 20 per cent of its top executives' discretionary bonus payments directly to collaboration, as part of its One Siemens approach.

Clearly, the level of commitment to organisational restructuring at all companies has to increase steadily– as a testament to the growing intensity of the challenges every business faces. To be productive going forward, organisations can't operate from the rules of the past, which were largely around optimisation and scale. They have to be dynamic, creative and networked. And those organisations that get there faster will be the future icons of industry.

(The author is a consultant in the Hay Group)