Impact of Restructuring

Introduction

Restructuring usually involves a major change in the operation or financial structure of an organisation to improve performance (especially efficiencies and profitability); usually involves changes in business activity and how people are organised; generally occurs in a downturn; it can have negative impacts like increasing the 'survival response' and undercutting innovation.

There are 2 main types of restructures:

i) those aiming for greater efficiencies and profitability (its central focus is cost-cutting, including staff layoffs)

ii) those happening in response to changes in either the internal or external environment (therefore a change to how the business operates is required; it can involve staff layoffs; usually requires a realignment of roles and individuals in key roles)

Traditional path for restructuring involves

- senior manager setting targets around cost savings, efficiencies, growth, profitability, etc

- consultants or inside experts analyse the organisation's business activities and people

- top management (with the help of middle management) makes decisions around activities, organisational structure, timing, etc

- generally implementation is done by insiders, unless special skills are required from outside

- downward communications dominates, ie cascaded through the hierarchy

NB Even the possibility of 'rightsizing', especially layoffs, will trigger the survival response, ie feelings of fear, anxiety, anger, etc, as it will be seen as a threat to people's livelihoods, egos, families, careers, etc
"...the prospect of being 'right sized' and forced into a new role not of one's choosing, or having to develop new capabilities to stay relevant or being shifted into a different part of the business with unknown bosses, colleagues and expectations can all set off major hazard warnings in our minds......energy is directed at protecting oneself..."
John Kotter et al, 2021

This means the focus is from opportunities and as a result, productivity and innovation will fall plus now there is the potential to derail the change initiative.

It can take time to return to some type of normality after a restructuring; with the regaining of trust in management taking longest.

Some problems with the traditional restructuring approach:

- usually done too 'big' and too quickly (lacked time to get all the necessary information to enable good decisions)

- decision-making done by a small,that elite group (usually consisting of senior management and/or outside experts)

- corporate communications (inadequate to handle the rumours, gossip, etc; trust in management can evaporate; usually focused on short-term cost-cutting)

- too slow recovery (of trust, attention, positive morale and individual productivity)

- innovation falters (owing to lack of trust, negative emotions, and focus on threats rather than opportunities)

- growth slows (as a result of this, management tends to keep cutting costs, by laying off people, etc as a way to keep short-term profits and the share price up, ie focus on short-term performance which can lead to some 'dubious' activities like accounting irregularities)
"...The traditional approach was designed for a slower-moving and less complex world in which change happened less often, business cycles were longer, and innovation was less important..."
John Kotter et al, 2021

The use of restructuring has been growing:
"...In 1979 fewer than 5% of Fortune 100 companies announced layoffs......45% of this group had lay-offs  15 years later.....another study of 2,000 companies reported that 65% resorted to lay-offs during and right after the 2008 recession..."
John Kotter et al, 2021

A study by Standard & Poor's and the Bruce Henderson Institute showed
"...a failure percentage, defined as underperforming against their industry benchmark in both one-year and five-year timeframes of 70% in 2001 and 75% in 2012..."
John Kotter et al, 2021

Any approach to restructuring needs to include

- building a case for change that highlights the future benefits (it should be more than the 'burning platform syndrome' as it only over activates a widespread survival response; need to consider longer-term opportunities and to build a positive case for change in both the hearts and minds of staff, ie
"... a perspective, and the emotional tone that supports it, it puts the short-term reality in a broader, more realistic context of the biggest opportunities for the organisation, its employees, its customers, and other relevant parties......the ultimate goal is much bigger and more inspirational than the immediate cost-cutting or restructuring..."
John Kotter et al, 2021

- engaging employees at all levels and in all parts of the change, ie from the start (this will help calm any survival response; while communication is important, actions 'speak louder' than words;

- communications need to be transparent and honest (about all aspects of the restructuring such as decision-making, timing and process to be followed, ie
"...Don't leave people guessing or let the rumour mill distort reality..."
John Kotter et al, 2021

More often than not, front-line employees have the best understanding of the challenges and their solutions)

- demonstrating empathy (management needs to understand and have compassion for what staff are experiencing through the restructuring; encourage 2-way conversations that allow staff to ask questions)

- developing trust (management being consistent in their words and actions is a good starting point; select a wide, diverse range group of people to lead the change who have credibility in the organisation, ie
"...a diverse team from all departments, levels, and geographic regions. The best groups include staff who are highly trusted, well-informed, influential and who believe that positive outcomes are truly possible..."
John Kotter et al, 2021

Management needs to develop an authentic profile of
    - caring
    - being trustworthy
    - having integrity
    - wanting to minimise disruption in people's lives
    - being willing to help people who have new demands placed on them, being reorganised or laid-off, etc)

- reinforcing and sustaining the momentum (generally management underestimate how destructive a restructuring can be; need to develop alignment at all levels)
"...a central goal throughout the restructuring is to avoid inadvertently sending a firm into an overwrought survival response, but instead to build credibility and momentum, to complete the restructuring faster rather than slower, and to pivot quickly in a post-reconstructing, thrive-orientated growth phase..."
John Kotter et al, 2021

Creating and celebrating short-term wins is a way to maintain momentum (for more detail, see elsewhere in the Knowledge Base)

NB You
"...are always working within a context of people and organisations that lean towards stability, survival, threat avoidance, not change, opportunity, and a drive for continuous excellence......final phase usually requires focusing an effort on institutionalising beneficial changes......guided by analytics and feelings, not just analytics alone, with a focus on value and opportunity, not just short-term cost problems, and with many people driving change, not just a select few at or near the top of the hierarchy..."
John Kotter et al, 2021

This includes continually reviewing training, processes, organisational structures, ways of working, renumeration and incentive plans, culture (norms and values), etc

Summary