Restructuring mistakes to avoid

Wednesday, 01 August 2012


    Pia Lee details three classic errors organisations and their directors make when embarking on a restructure.

    As news of corporate restructures at Fairfax Media and News Limited fills their own newspaper columns, both are making headlines for the wrong reasons.

    Both companies shook the media industry with almost simultaneous announcements of major restructures to address fundamental challenges within their media operations. Few were surprised they needed to do this; most were very surprised at the depth of the self-inflicted wounds.

    Organisations must restructure to meet the challenges and exploit the opportunities presented by an ever-changing environment. However, most organisations make three mistakes along the way.

    The first classic error is that they adjust organisational structure only occasionally and in large steps rather than incrementally to meet changing needs.

    It has been said that "success is the enemy of best practice" and when organisations are doing well it is easy for them to take their eyes off the ball. But when success seems a distant memory, organisations are eventually forced to undergo a "root and branch" reappraisal of their operations.

    By the time this change is enacted, the organisation’s performance has been under par for a longer period and is then worsened by the drama of a major restructure.

    The second classic error is that restructures are too often "cuts" rather than well-considered retoolings for a new era of success.

    Toyota’s retrenchment of 262 workers, Alcoa’s dilemma at its smelter and Perpetual’s restructure, with 300 jobs cut and the sale of business divisions, put pressure on their directors to ensure their organisations were suited to current market conditions.

    Company directors sometimes take the view that only less is more, but that perspective can just create further damage.

    Retrenchments can be a costly business – way beyond the significant financial "hit" of redundancy payments, as they can damage the trust in organisations.

    Simply reducing head count by 10 or 15 per cent to reduce the payroll is short-sighted. People have an emotional investment in an organisation through their work, and treating people as numbers on a payroll, instead of as individuals contributing to the success of the company, can be debilitating.

    Directors also have to keep in mind that a heavy hand in retrenchments will entail a heavy loss of company knowledge and history. It will take years to train newcomers, and even old hands, to fill that void.

    Where organisations and their directors often fail is in the communication of the "why". If the "why" is simply cost cutting to benefit shareholders, rather than the organisation as a whole, it’s simply not good enough.

    The third and final classic error is that organisations often manage their restructures in ways that alienate their people and leave clients and spectators suspicious.

    This is the toughest part of directors’ jobs. They are responsible for looking people in the eye and letting them go. Does an email or online video send the right message?

    This is a crucial time to communicate the key values of the organisation, and the way these messages are communicated must align with that.

    The engagement of the "people who are left" is crucial – what are the actions of the directors saying to them about the values of the organisation?

    The leadership team’s responsibility splits in two -- the individual and the organisation. They have to find the right balance.

    By acknowledging people have a huge emotional investment in an organisation, and by understanding and addressing that investment, directors will probably cop less of a backlash, and people will understand more clearly why decisions are being made.

    Rather than seeing a restructure solely as turmoil, it might be more useful to see it as an opportunity to adapt traditional businesses for the future and to reinforce the company’s purpose and values as it sets itself on a new path.

    Directors can avoid much of the pain in restructuring if they move early enough to "do the right thing" and then organise themselves to "do things right". To do that, businesses must bring their employees with them. That takes genuine leadership in a difficult environment.

    Pia Lee MAICD is CEO of LIW global leadership consultancy.

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