8 Signs That It’s Time To Restructure Your Organization
Organization Redesign: To do or not to do (and when)?
This question does not always have an obvious answer. Organization redesign, by definition can be quite disruptive, even when handled as smoothly as possible, and even with the best of intentions. There is always a risk that the new structure will bring with it some unanticipated challenges. A good process and a great consultant can help you minimize those and the greater risk is often in continuing to operate in a structure that has outlived it’s useful life. As fast as change hits us in today’s market, it pays to create an ambidextrous culture (nimble and adaptable) to allow the organization to actively respond to rapid change. Here are some of the events that should have you cashing in on that ambidexterity and calling for a redesign:
- Your competitive landscape changes. When your customers significantly change the way they deal with you, you probably need to rethink the way you are organized. For example, when Coca-Cola’s biggest customers in the U.S. all started purchasing on a national level and demanded a single point of contact for bottles, cans and fountain soda, it no longer made sense to have independent bottlers selling to national accounts in every community and fountain drinks sold by Coca-Cola. This caused a merger of the biggest U.S. bottler, Coca-Cola Enterprises with Coca-Cola North America, primarily aimed at creating an experience that makes the company easier to do business with.
- You start up a new company or division or merge with another company. Obviously, a new business needs a structure. When AutoZone went into the commercial auto parts business, they recognized that they could not serve their commercial customers in a retail environment. Hence, that business remained independent and was structured differently; although significant work was done to leverage the retail network to get parts where they were needed. When Bank of America bought Meryl Lynch, it made sense to minimize overhead and find ways of merging corporate functions.
- A new leader takes over. We never advise a new leader to restructure just for the sake of putting their stamp on things, although this is the norm at some companies. That said, often a new leader is brought in to turn things around and will find ways to improve efficiency or better align the organization. When a new president took over one business I was working in, he assessed the need and determined we needed a team to launch six-sigma, build a business strategy and focus on learning. The business was reorganized to accommodate these needs.
- The external environment changes. This could result from regulations changing, new technology, customer preferences or a variety of other reasons and is largely why we recommend having a conversation about changing ‘business drivers’ at least twice a year. Increasing fuel prices have driven many airlines to restructure routes into a hub or consolidate flights all together. Availability of telecommuting technology has enabled teams to be more virtual, diverse and has allowed for more rapid response to local issues and the ability to leverage remote talent more effectively for many companies. A new health conscious campaign against sugary soft drinks has driven Coca-Cola to seek out additional products in the sports and health drink category. When regulations that prevented mergers of banks in different states was lifted, Nations Bank moved forward to purchase Bank of America.
- The business is planning to grow significantly. In this case, it is often necessary to increase the talent in the organization and create room for people who can handle a broader or deeper scope. This is also a critical time to measure how adaptable the organization is and put in plans to grow within an expandable structure. A client approached me a few months ago about leading a restructuring effort when they found out there was a good chance of winning a very large international contract that required a huge ramp-up and knowledge they didn’t currently have.
- The business strategy changes. If the business is redirecting its focus or planning to sell new products or operate in different markets, it is likely time to restructure. One former client restructured its marketing and sales organizations when the company decided to focus on selling more holistic solutions and move away from product-based selling. Their product based P&L structure no longer made sense when what they really needed was collaboration across product lines to build solution packages.
- The internal organization you interface with changes. Often, organizations need to redesign just to continue to do business efficiently internally. When Bank of America’s card business restructured, the learning, finance and HR organizations that supported it had to restructure to ensure appropriate support and a single point of contact for each executive.
- Performance is below expectations. There are arguably lots of reasons for poor performance, but it does create an opportunity to assess the organization and determine if an ineffective structure is contributing to the problem.
What signs did your organization see when you knew it was time for restructuring?