Beware Reorganisation – But if You Must, Here’s a Checklist

Why do managers like to reorganise? They sometimes seem to be addicted to the process. This article doesn’t pretend to cure the addiction, but it might just help managers be more aware of the symptoms and thereby seek preventive advice.

This is what happens when reorganisation strikes.

* There is period of chaos. Staff are disillusioned and many key employees in the third and fourth tier management ranks leave (normally in the first six months);
* The bedding-in-process starts to kick-in somewhere between months seven and 12; finalising the redundancies takes longer than expected and few employees return as higher paid contractors;
* Costs go through the roof, especially consultancy fees. Management needs help with the following:
1. Logo redesign (if rebranding). The going rate is about $100k-$500k;
2. New signage and stationery (if rebranding) approximately $300k;
3. Culture change advice $50-$100k;
4. Alignment of procedures $20-$50k;
5. Recruiting for new positions assistance $30-$200k (everyone must be allowed to apply);
* Bedding in an IT system that can cope with the new structure – say $200-$800k;
* Unwinding property leases which can take up to 24-36 months.

About two years after the reorganisation is announced productivity returns to normal. The organisation has for this duration effectively been going backwards. The 24- to 36-month period advantages will kick-in if the reorganisation has been successful. It is useful to remember, however, that only one out of every seven takeovers or mergers actually works. I suspect that whilst reorganisations may have higher success rate than this, it is still probably less than 50 percent.

Our public sector in particular is enamoured with reorganisation. Politicians, ministers and their supporters seem to equate restructuring government departments with efficiency, improved service and, of course, advanced political aspirations.

As Frances Urquart of the television programme, House of Cards, might say; “some of you may think that restructuring department frees the newly formed teams to deliver, others may think that the confusion, miscommunication that often goes with reorganisation undermines people’s confidence in what they do and in their team, giving rise to period of stagnation. You may think that, but I cannot possibly comment.”

Let’s analyse the typical reasons for reorganisation.

“We are reorganising to improve efficiency”

Merging two units/teams together or splitting teams up and reforming into new teams certainly creates climate change. The question is whether it leads to efficiency. In order to become more efficient there must be behavioural and procedural change. Staff need to change work habits to introduce logical efficiencies.

One energy sector company has made considerable progress with continuous improvement programmes. Senior managers are heavily involved in the change management and this is now part of the culture. They have workshops to identify areas where change needs to occur and people at the meetings agree to embrace change. They have completed number of successful projects.

A finance company has had several business re-engineering successes. They have made significant efficiency inroads by using preferred suppliers and eliminating paperwork or passing it over to the suppliers. Continuous improvement is now part of their culture. There is an ongoing requirement for employees to keep up in their specialisations and bonuses are paid for passing tertiary qualifications.

The interesting point about these two stories is that they arose from business re-engineering as opposed to business re-organisation. Any efficiencies reorganisations achieve are simply the result of re-engineering the processes. Perhaps it would have been better to have performed re-engineering exercise in the first place.

It is invariably mistake to assume that large savings are delivered when merging corporate service functions, such as merging two accounting functions. In many cases the costs of changing systems outweigh the duplicated labour costs.

“We are reorganising to improve service”

A reorganised government department is always more complex than the planning indicated. Day-to-day routines are disrupted with meetings to discuss the new organisation, staff spend time applying for new positions, they search the papers and employment agencies for options. Need I go on? Service does not improve, not in the first two years anyway.

Improved service requires behavioural change. Staff must buy into becoming more customer orientated and measuring their performance in balanced way. Read the quotes on the wall in any Tony’s Tyre Service customer waiting room to understand that staff live and breathe service.

“Every job is self portrait of those who did it, autograph your work with quality.”

“Quality only happens when you care enough to do your best.”

If you have had the pleasure of being served at Tony’s Tyre Service, you will know the type of service ethic I am talking about. positive behavioural change does not often occur with reorganisation. In fact, quite the reverse occurs in the first two years. If you are looking for better service consider implementing service programme rather than reorganisation.

“Reorganising is good political decision”

I did not study political science, and so there may be some greater benefit that simply escapes me. There might, for politician, be short-term gain from media focus on efficiency stories. However, as the minister moves on management finds that six, nine, 12 months down the track things are not quite what they seem to be.

I suspect that merger of two government agencies has the same chance of success as private sector takeover or merger. Peat Marwick estimated that there was one in seven chance of arising synergy benefits surpassing the costs.

Give me the facts I hear you cry. Well, here’s look at some successful organisations, such as the last 10 companies to have the Deloitte/Management magazine Top 200 Company of the Year Award.

2001 Sky City
2000 The Warehouse
1999 Baycorp Holdings
1998 FERNZ Corporation
1997 Fletcher Challenge Energy
1996 Waste Management
1995 Air New Zealand
1994 New Zealand Post
1993 FERNZ Corporation
1992 PDL Holdings
1991 Telecom

Few of these companies have restructured themselves to death. The exception perhaps is Telecom which last won back in 1991.

Page 97 is checklist that public sector entities, councils, departmental heads and ministers should evaluate before they sign on to reorganisation or merger of two entities.

Alternatives strategies

Appoint CEO who is successful change agent. Recall the early days of George Hickton’s appointment to Income Support. Through the combination of new blood and inspirational leadership Income Support was revolutionised.

An inspirational CEO will create more value than any reorganisation. I wonder if inspirational leaders ever fall back on reorganisation to solve problem.

Move buildings. BP was large clumsy multinational when new CEO realised that the best way to change was to sell Britannic house, large and spacious head office, and acquire head office one third the size. He called in his senior managers and said: “Fit in that building and the staff which cannot make it will be made redundant.” It transpired that there was whole level of management whose working day was based around attending meetings. The meetings ended and the management efficiency improved.

Rotate offices. Arthur Andersen’s Manchester office adopted another solution. Each year the senior management team (ie, the partners) were instructed to move offices. The approach energised the partners and allowed them to get on top of the paper war. The partners agreed that the hassle was positive experience.

Improve the leadership from within. reorganisation may be an attempt to get round problem of inadequate

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