YOUR organisations at some stage in the future will need to go through some form of reorganisation, transformation or restructuring. Restructuring assignments are complex and many of them fail to create the value the stakeholders would be anticipating. Having witnessed many such projects, I would like to share some of my observations.
My first observation is companies are incorrectly diagnosing the problem. Before you restructure, you need to be able to correctly diagnose the issues that are impacting your business. Depending on how severe your company problems are, you may need to employ diagnostic analytic such as a productivity analysis and head count analysis. A productivity study helps you establish the true reasons why the company is struggling. It tells you which inputs are eating into your profitability from a volume, price and value analysis. The temptation for most restructuring projects is to focus on financial analysis. This gives a narrow view of what is impacting the performance of your business. If you are pressed for time you may just want to do a head count analysis using regression techniques to check the number of employees required in each role considering the volume and quality of outputs produced.
Observation number two is failure to convince key stakeholders that change is necessary. Political fights, driven by self-interest, emerge at this stage and if not managed, the restructuring exercise will fail. With corruption and poor corporate governance, the useless members of your Board, executives and others, seize this opportunity to prove their political might. If those leading the restructuring exercise are united, they must identify individuals who are very enthusiastic, but secretly undermining your efforts mainly through deliberate miscommunication and passive resistance. Be ruthless with such individuals as a lesson for those who might want to follow the same route.
The third observation is failure to move with urgency to stop the business from bleeding. We notice that most executives announce the start of a restructuring programme, but their actions on the ground do not show urgency and the need to save the business. Once you are done with your analysis or even before you complete your analysis, you need to stop the company from bleeding. Plug all the loopholes urgently where you are losing revenue and customers in all departments. Do this ruthlessly without fear or favour. Once the bleeding has been stopped, it will likely conserve cash to allow you to move to the deeper aspects of restructuring.
Observation number four is that most restructuring projects fail to recognise the impact that culture has on current and future business performance. Regardless of the depth of your financial engineering and other changes you implement, as long as you do not work on the cultural aspect of the business, whatever positive changes you may bring will be short-lived. You must do the right culture diagnosis. Remember that organisational culture, like the “climate,” is very difficult to change as it has enduring characteristics. The changes we see where people claim they have changed the culture is the “weather” of the organisation; it changes from day to day and that cannot be used to anchor a transformation and restructuring programme.
Observation number five is failure to change the leadership. Most executives you find in struggling organisations are the authors of the company’s misery. You will not be able to achieve any meaningful change if you leave them there. This is even a bigger challenge where such executives have been in their posts for a long period. While the average CEO tenure in developed countries is 5 years, in Zimbabwe it’s over 15 years. How do you expect an individual who has presided over failure for that long to then lead your turnaround strategy? To be effective with a turnaround where the leadership has been there for a long time you need to take out the CEO and in some instances the entire executive team.
Observation number six is that some restructuring exercises fail to design an appropriate organisational structure to support the new business strategy. Where it’s done, sometimes it’s done in a haphazard way resulting in no impact or negative impact on the business.
Increase the span of control and remove all one on one reporting in your structure as a starting point. Do away with fancy titles meant to promote people’s egos at the expense of the business. Big and fancy titles create expectations that will be difficult to manage going into the future. If you find that your executives are obsessed with the big and fancy titles at the expense of value creation, you have the wrong team.
Observation number seven is the failure to review and redesign the business model. Struggling companies are saddled with old business models that served them well in the past but are no longer relevant for the new breed of customers of today. Without this review you are unlikely to realise the full value of your restructuring efforts.
Observation number eight is the obsession with headcount reduction. Headcount reduction alone without changing fundamentally how you conduct your business will not yield anything. Yes, you will have temporary cost relief. However, overall, you are increasing job insecurity and stress even amongst critical employees that were not going to be affected by the restructuring process. These critical employees will leave before you are even half way with your restructuring, creating new and even more demanding challenges.
Observation number nine is a disjointed Board with no common vision. Restructuring exercises are a fertile ground for Board fights. These fights sometimes spread to those impacted by the changes. This results in total political chaos driven by individual self-interest. You will not succeed when your Board is not united towards a common vision. Individual members will spend more time trying to prove who has more power at the expense of the important business matters. This is the biggest obstacle and the hardest to resolve.
Struggling organisations need a comprehensive rescue plan that addresses the underlying root causes instead of dealing with symptoms. In designing the rescue plan avoid the temptation to implement insufficient interventions and implementing them too late. The key variable that you must never ignore is frequent and honest communication with all key stakeholders.
I appreciate you reading this article. My views are meant to stimulate debate on issues affecting businesses and I welcome contributions against or in support of these views.
Memory Nguwi is the Managing Consultant of Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. Phone 481946-48/481950/2900276/2900966 or cell number 077 2356 361 or email: firstname.lastname@example.org or visit our website at www.ipcconsultants.com
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