Reorg: How to Get It Right

Transcript

Rachel Salaman: Welcome to this edition of Expert Interview from Mind Tools, with me, Rachel Salaman.

There are few words that fill professionals with more dread than "reorganization." It conjures up images of lay-offs, expanded job descriptions, and general chaos, albeit temporary. And if you're the person tasked with leading the change, the dread is all the more profound. That's why a lot of companies choose to outsource all or part of the reorganization process to consultants.

Two such consultants, with 25 years of reorganizations under their collective belt, are Suzanne Heywood and Stephen Heidari-Robinson, authors of a new book titled, "Reorg: How to Get it Right," which aims to equip executives to lead reorganizations without external help. They both worked for McKinsey & Company, and Stephen joins me on the line now from Surrey in the UK.

Hello, Stephen.

Stephen Heidari-Robinson: Hi there, Rachel. Pleasure to be here.

Rachel Salaman: Thanks very much for joining us. Now, in your book you say that only one in six reorganizations deliver the value they're supposed to in the time expected. That's based on a McKinsey survey. Why do such a high proportion fall short? What are the most common reasons?

Stephen Heidari-Robinson: I think there are a few reasons for this. I think the first reason is people don't sit down to think, "What value am I trying to capture here?" If it's a reorganization to enable growth, you should define what that growth is, how much of it the new reorganization is going to enable you to capture, and are there other, less upsetting ways to get that growth. Because you do have to weigh up against that some costs that come along with a reorganization - the cost of disruption to people, plus their time, etc.

The second reason why they tend to fail is that leaders tend to focus a lot on what the new organization looks like. And, again, that's quite understandable - leaders like to have more people reporting to them, they like to argue about how many people are reporting to them, what kind of roles they're doing. Also people in the organization like it to be clear who's going to be deciding on their pen rations. So that's an understandable reason, but what's really more important, we think, is how the organization works. So it's not just about the Why Diagram, it's about how the processes of the new organization will work, what kind of people you need, how many of them, what kind of capabilities they need, and how they should behave. And this whole area of how the reorganization works often gets missed out entirely or dealt with very late in the day.

I think the final reason is that, having decided what this grand new Why Diagram will look like, leaders tend to declare victory too early. And in fact, you know, once you've decided what your new organization model might be, there's a whole bunch of work to get right in terms of rewiring IT systems, appointing people into roles, kind of working out how the processes all work in detail. And if you don't get that right then what can happen is someone's boss's, boss's, boss's boss changes, but they don't do anything differently on the day after the reorganization than they did the day before, and so it's sort of a big, colossal waste of time.

There are some interesting challenges that particular sectors have. So, for example, in financial services it tends to be leaders who rebel against the new organization rather than employees. In IT services, it's a failure to emphasize this process element. But, largely speaking, those are the three common reasons.

Rachel Salaman: So how do reorgs tend to involve mid-level managers, and how should they respond, as far as it's possible to generalize?

Stephen Heidari-Robinson: Well, I think there are a few ways that it could involve them. If it's a relatively small reorganization - if it's a small function or a particular business unit and not the whole company - it could be that a middle manager ends up running the show, is tasked to deliver this reorganization. If it's a very large reorganization, you know, maybe it gets run by more senior people at the beginning when they're kind of deciding on this concept but, when it comes to detailing out the reorganization and how it works, mid-level managers might be appointed to detail that out for a particular geography or business unit or function.

I think one bad response is that people treat the reorganization as some sort of huge additional pain on top of the day job and don't really take it seriously and, to some extent, fight against it. And this can be exacerbated by the fact that, if your boss gives you a role running a bit of a reorganization or all of one, expects you to do your day job at the same time, this is a very difficult thing to do.

So I think my first piece of advice is, a company that's decided to reorganize, try and understand the business reasons for it, because, unless you know that, it's hard to have any firm grounding of what you should be doing and what you're not doing. And embrace the fact that there is going to be a change, and try and shape it for the best rather than just resisting things and trying to make the change incremental. That usually leads to a solution that's quite similar to today but with some added complexity, i.e. worse.

If you can try and shape it to actually be better and bring your knowledge of how the business works with this problem, you can do a lot of good for the company and you can do a lot of good for yourself, as someone who's going to end up, presumably, in that bit of the organization that might be reorganized. Assume that this is a normal business process that you're asked to do, like launching a new product or a new form of R&D or some other change in the organization, and just approach it as a business problem. Don't be bamboozled by all of these kinds of complicated HR words. You know, try and understand, where's the value? What could go wrong? What should I do first? What's really going to deliver this value? What really needs to change? What's getting in the way? And what's actually working really well today and I want to keep it? Because otherwise I could break something that currently is a big positive.

So I think if you approach it with that sort of common sense, businesslike mindset that you deploy to anything else in your work and don't assume it's a mysterious process, no matter what anyone tells you, actually you won't go that far wrong.

Rachel Salaman: Well, we're going to talk about your five-step process in a moment but, before we do that, it's worth talking about communication. Because in the book you say that leaders and managers need to communicate with employees throughout the process, much more than they might originally think was necessary. So can you just talk about that?

Stephen Heidari-Robinson: Too often, I mean in business in general not just in reorgs, but particularly in reorgs, a group of people sit down and think, "We're going to reorganize the company. What do we need employees to know?" And so the communication is all about broadcasting. If you approach communications from the opposite point of view - you know, what might my employees really need to hear right now - you start to understand why you need to communicate with them.

Often, the first point you announce that there's going to be a reorganization, you'll get all of this fear about, "What's it going to mean to me? Will I lose my job? Will my job change a lot? Am I going to enjoy it or not?" So if people are thinking about those questions, they're not really listening to you about the great way in which this is going to change the return on investment in your company, or push you against competitors, or any of these others things that's important for you. So if it is important to say why we're doing a reorganization - and first of all you need to know why, it can't just be a leader's whim - be clear on why you're doing it and keep telling people so they believe you. If it is to enable revenue growth then say that lots of times, because otherwise people will assume it's about losing jobs. If it is some jobs are going to be at risk, be honest about that. If you don't know how many are going to be at risk, just say, "It could be in this area. You will know by a certain date in time."

I think that brings me to the second point about communication, which is don't try to excite people at the beginning. As you said at the beginning of this interview, most people, they feel full of dread when they hear the word "reorg," so at the beginning just be clear on what's going to happen and when. "So you don't need to worry right now. Your voice will be heard in the reorganization. This is how we're going to get your input into what happens. By specific dates we'll have a good diagnosis of what's going on, and by a future date we're going to decide what it means for the company, and by a certain date you'll know what it means for you." So it manages that uncertainty.

One of the pieces of research that we found through writing the book is that folk don't like change but they like uncertainty even less. So, at the beginning, you're being clear on what's going to happen and when. And it's only when people know what their role is going to be in the organization, or indeed if it's a crisis and unfortunately people are going to lose their jobs, whether or not they have a role or not, after that point you can start to engage people and really get them excited about what the new organization's going to do and realign your company.

It's driving a change of behavior rather than just a change in what the org chart looks like is what this thing is about, but, if you try and do that too early, it just leads to cynicism. People are thinking, "Well, why is this senior leader excited when, for me, I'm worried about what this means for my livelihood and what it means for my family?" You will come across as either disconnected or unfeeling.

Rachel Salaman: Now, you say in the book that it's important to have some way of enabling employees to feed back their thoughts, and some system in place to respond once that engagement starts happening. What do you suggest for this?

Stephen Heidari-Robinson: I think there are different stages of when it's helpful for employees to feed back. There's a state where you're trying to work out what's going wrong with the current organization, and in that stage it's important that you get some real facts on the table and see who agrees with who, where the differences are. So don't just speak to the leaders. Do go out and ask widely in the organization. But you have to have a way of sorting that input as well.

So one of the things that we find very helpful is to use a tool like Survey Monkey. You list, say, 40 things that could be going well or badly, and have a wide group of people rate them, "This is a big problem," "This is actually a current strength," and you compare how those views differ across the organization. Maybe people in the regions feel that headquarters is a waste of time and people in headquarters feel that people in the regions don't listen to them, ever. So you understand where the commonality is, where everyone agrees, and where there's some differences that you need to dig further, who's right, and also try and apply that back to business results.

So, again, it's important to get opinions, but there may be something that irritates a lot of people and you could spend a lot of your time fixing it but it doesn't make any difference in terms of the value of the company. So maybe you should fix it to increase motivation but don't spend all your time focused on that area.

So that's at the beginning of the reorganization. Then, when you're designing how this thing works and what it looks like, and you're getting into real levels of detail, really no one can have the view of how the organization works at all stages and in all parts who's sitting in the C-suites. You really do need to be talking to people who are actually doing business today. And one thing you find is that leaders, maybe they were doing those kinds of jobs 10-20 years ago and so they rely a lot on their intuition for what the experience is like for them, but of course the world has changed a lot. So getting that input from, if you're reorganizing sales, from the sales guys, you know, what's going to be helpful, what's not, how can you make something work.

And then, when you've actually launched the reorganization as well, of course everything can look beautiful on PowerPoint but life can be a bit more complicated. So there will be some things that, even if you digest every word that we've written in the book and follow all of our advice, there'll be some things that just don't work out in practice. And you need to be attuned to what the organization is telling you to make some course corrections in that phase as well.

So it's very important that you get feedback throughout the process, but the type of feedback that you want varies at different points over time.

Rachel Salaman: Now, what about other stakeholders? We've talked a lot about employees, but people like customers, suppliers, shareholders, regulators even. And what are your tips for considering and communicating with those groups?

Stephen Heidari-Robinson: Again, I would start from the point of view of what matters to them. So, if you are going to throw the whole company up in the air and reorganize everything, there is some risk inherent in that and maybe it's a good idea to tell the board about it. You need to tell the board that the road's going to be a bit rocky. Some of it will be difficult. Some people may leave because they don't like the new solution. And the board need to understand what may happen and they need to understand the value of doing all of this at the end and why it's worth it, and you need to update them throughout the process.

On the other hand, if you're redesigning a small part of a function within HR, you know, to get a bit of cost savings and efficiency, obviously that may not be something a board needs to know about.

Similarly for customers, if one of the reasons for reorganizing is to serve customers better then it can be a very good idea to get some feedback from trusted customers, from surveys again, as to what the reorganization needs to do in order to make life better for them. Otherwise there's a danger that it becomes navel gazing and very internally focused.

On the other hand, going out and telling everyone, "Hey, you used to be geographic and now you're functional, and this is a sort of complex way in which you deal with operations efficiency now," then a customer may just say, "Look, I don't care. I just want the product." So you need to sort of balance this. If the input genuinely will make life better for them, great. If what you want to do is deliver a seamless service and that shouldn't change then, yeah, don't spend too much time telling them all about you. It's not necessarily what they want to hear.

Rachel Salaman: Well, let's talk about your five-step process now, starting with step one, which is "construct the reorg's profit and loss." So what do you mean by that?

Stephen Heidari-Robinson: So the essence of this is just bring an ordinary business mindset to this problem. You know, don't be taken in by people who say, "Hey, if you reorganize like Google, everything will work well for you." It won't. You have to reorganize for what works well for you and you need to understand where the value is in it for you.

So, at the beginning, you should be very clear that, if this thing is about delivering more revenues or a greater efficiency in a certain process, what level of improvement will that bring and what values does it bring to you as a company, and what's the reason why you can only get it for a reorg? First advice to someone considering a reorg should be, "Don't do it. It's very disruptive," unless you explore all the other options and it turns out that there really is a reason why you need to go through this challenging process.

So having decided what the value of this is, and it could be revenues, it could be reduced costs, you then need to understand the costs and risks of doing this. So there is some obvious cost. So, if you pull people out of their line, there's the value of their time that you're not utilizing for business purposes. If you hire a consultant, you can cost that. But the most important one is actually the disruption to your business, and in the survey that we ran we saw that this can be in the order of, say, 5 percent reduction of sales or in operations efficiency or any other metric that might be important to you. So you need to be aware of that, and assume that that will be a problem and weigh it up against the benefits. Do the outcomes justify the costs of doing this?

And thinking about it as a P&L also brings in the dimension of time, because it should be obvious that, if value will result from doing the reorg and disruption will result for all of the time that you're doing it, then you should do it as quickly as possible. So this sort of P&L mindset encourages you to think in that way, whereas I think a lot of received wisdom says, "Hey, treat this as an evolutionary process. It will upset people less and maybe people won't even notice the changes." Of course, all that does is mean that the value that's supposed to come from this gets deferred in time and this uncertainty that upsets people and causes performance to dip continues for a longer period.

So that's what we really mean by a reorg P&L.

Rachel Salaman: Now, you mentioned earlier that when you start communicating the reorg to employees can be a particularly delicate process. At what point is it best to start that communication? Is it at this point or is it later on in the process?

Stephen Heidari-Robinson: It may be that you can spend a couple of weeks having a few trusted advisors decide if you should do a reorg or not, doing a little bit of this P&L work, but one thing that we always see - we've never not seen it - is that most companies think they can keep this thing secret and they never can. If people see it, the team sat outside a CEO's office, someone's pulled out, a middle manager's pulled out of the line to work on this, someone will talk about it. And if you don't manage the way it's discussed, pretty soon, around the water coolers of the company, people are talking about the reorg. They're guessing how many people are going to lose their jobs.

So I would say, as soon as you know that you are going to do a reorg, you should announce that this is something that you're looking at. There's a team that's looking into it in a few months or in a few weeks, depending on how big it is, they'll report back whether or not this is something going forward. Because otherwise, you're not managing the conversation, you're just reacting to people's opinions.

So I would say that very definitely this is the phase to start the first communications with employees. Typically we see people leave it a lot later and then they experience the problems of that.

Rachel Salaman: The second step in the reorg process in your book is to understand the business's current weaknesses and strengths. So how should a leader or a project manager go about doing that?

Stephen Heidari-Robinson: Again, I think you can link it back to business results. So if you have an organization that has a sales force, you can look at which country the sales force is doing well or badly in, or which regions if you're a smaller company. If you are reorganizing a bit of HR or finance, you can look at how many people you need to do a certain level of activity or a level of satisfaction of the people being served.

It is important at this stage to remember that lowest isn't always best, you know, the lowest number of people isn't always the right answer. It's the right number of people to deliver the business outcome you want.

So that's one way to think about the issues and that will help you understand that, okay, people are worrying a lot about this process, but actually, in terms of your peers and in terms of performance, it's actually going pretty well. Or this thing over there, that no one's talking about but actually performance is appalling, is an area where we have to shift people's attention a little bit more.

The second thing is to, again, use surveys of employees, as I've talked about before.

But this point of looking at strengths as well as weaknesses is really, really important. The truth is that a lot of people skip this stage all together but, even if they do do it, they tend to look at weaknesses only. And unless your organization is completely broken, which chances are it isn't unless you're in a real crisis, there are a number of things that you're doing well, and of course your organization is perfectly set up to deliver the results you have today. So if some of those results are okay, or even very good, you will identify those areas as well and make sure you don't break them.

So these are the important things to think about at this stage. Maybe to give a concrete example, there's one organization that we know and they shifted from more of a market approach, where many different markets are all doing the same things, to more of a global functional approach. And of course that solved a huge amount of weaknesses that they had but it also eliminated a number of the strengths, which were about local responsiveness, agility, ownership of a P&L at a low stage in the organization, not having it all just come up to the CEO, who's the only person who sees how all this comes together.

So you need to be very clear about what you're fixing and what you really want to keep.

Rachel Salaman: And step three is "develop a new company structure," which is clearly a central step in more ways than one, and you say that companies often make the mistake of doing that step first. What are some other pitfalls when it gets to this point in the process?

Stephen Heidari-Robinson: You're absolutely right. They can jump straight to an answer because they've heard that some best practice or copying a competitor is the right way to do things. Of course, you wouldn't do that with your strategy so you shouldn't do that with your organization.

Beyond that mistake, I think I would say that this step is not just about structure - the structure, I think, about the org chart and what people's roles are in it - it is also about thinking through the processes of the organization and it is thinking through not just the number of the people you need but the way that you actually want them to work differently. So people do often start, "Hey, let's start with the CEO, or whichever function that we're reorganizing, start with the boss and then decide what the people underneath are doing." And eventually this process takes ages and you run out of steam before you get to the people doing the real work. You should think about it top-down and bottom-up as well. If we're a company delivering capital projects, how are the people involved in the decision making and the activities of that actually doing the work? And what needs to change and how can this reorganization help that? And that could be a change in reporting lines if it's not clear who's responsible for what, or it could be a change to the process if a process isn't working, or it could be a change to the people.

Again, to give an example, one company that only focused on the structure and changed it around and it made a lot of sense to them. They then realized that, across all their core processes, they'd created all kinds of overlaps in accountability, number of interfaces and handovers had multiplied based on what they had before (and it's always in these handovers and the gaps between different units where you get problems), they weren't even sure that they had the right people to run the structure.

So, unless you think of all of these three things together, you can come up with a paper solution that doesn't really work in reality.

Rachel Salaman: The next step, step four, is "design and plan implementation," and this is perhaps the most difficult and complex step, you say in your book. Why is it so tricky?

Stephen Heidari-Robinson: I think it's the first step where you can't get by on simply intuition. So, if you think through the value of the reorganization and what it can entail to the costs, you may get your estimates out slightly but just going through the thinking process will help you decide if it's a good idea or not. Similarly with understanding what's going well or badly, again that's something that you can do. At this stage, you really need to know all of the stuff that you need to get done and you need to know the right sequence for doing it.

So, to give a very specific example, if we shift from one way of organizing to another, we need to recut the P&L so that new leaders of different bits of the organization know what they're accountable for and will get a reporting of those numbers. So you need to do that very early in this stage. Then you need to understand, does that imply any changes to the systems, to IT systems or how we would generate this reporting? And if it does, you need to plan in time in this phase to do the testing so that, when you go live, you don't find that the organization's broken and you don't get any numbers. And then, of course, you need to implement all of that, all before day one of the new organization, otherwise you get what companies often find, which is you have a new fast car - which is your new organization - and it's got no steering wheel, and people are just trying to work out what on earth is going on by all kinds of ad hoc spreadsheets, and six months down the line you're able to really understand what your performance metrics were.

It can also be the case with how you staff people. Again, what you find is that you haven't done all of these things properly and, rather than having a very logical, fair way of allocating people into roles, you end up with typically one leader and a few middle managers who sit in a room with HR and just start allocating people left and right, not really knowing who they are because you've run out of time.

So this is what makes this stage quite tricky. At the root, the skills you need are just simple project management skills but it's understanding the work you need to get done, and in the book we do try and lay out here all the different elements of work that you need to do. If I was going to hire in a consultant myself, though, I'd hire them in at this stage and not some of the earlier ones. But, unfortunately, usually they design the high-level concept of the building and then leave you to deal with all of this phase, which is actually tougher.

Rachel Salaman: And then finally step five, which is "launch, learn and course correct." Could you just pull out the key principles of each of those three elements?

Stephen Heidari-Robinson: So "launch" is a bit like what it sounds like - you launch the new organization - but it's not quite as simple as that. I mean, again, as a yardstick, it's kind of best to change everything at the same time if you can, because if you change something now and then there's other changes to come, especially if there were some job losses, people will see what's happened to one bit of the organization and then is it them next? And they start to worry and dust off their CVs. Or, if you want to move people around the organization, as we're advocating, unless you're changing things at the same time you can't move them from one bit to another, you know, some person's already doing their old job. So it's worth thinking through that.

Now, having said that, it may be, due to regulatory reasons, that in 20 percent of the company you have to go slower in bits of countries that have stronger regulations maybe, or maybe one bit of the company is currently growing, is still very small, and, whilst in principle you want everyone to reorganize to them, it doesn't make sense because you'd have to split one job into three and there aren't three people to do it. So, again, it's a yardstick, but to the extent possible try and have a kind of big bang approach rather than an evolutionary approach, because it just spreads out the Chinese water torture.

"Course correct" is, as I was saying before, not everything will work out perfectly, and here the requirements for leaders, whether or not they're senior leaders running the whole reorganization or one middle management running a bit of it, is to attune their ears to spot the difference between people who just don't like the new way of doing things and people who are genuinely giving you feedback, that this thing that we all thought sounded good on paper just doesn't work in reality. What you don't want to do is have a 180° flip-flop, but nor do you want to be so rigid that you just insist that everything works fine. The reality is that you're always going to have some teething problems.

And then the final thing is, one thing that we do see is that people reorganize more these days, whether or not it's in governments - you had Brexit and you had Donald Trump, and you have to change all your institutions - or it's in companies - in automotive, the shift to electric cars implies a different way of doing things; in other businesses, the shift to Big Data implies that you have to change a lot of the ways you think through things; advertising, retail, you name it. And we're going through accelerated change right now and, as a result of that, I think we can expect to see more reorgs in the future.

So if you've just done one and it went really well, or even if it went really badly, it's a good idea at the end to just sit down, as you would with a tactical project at the end, and have a wash-up and say, "OK, what went well? What went badly? Why did it go well? Why did it go badly? Who was involved in delivering this reorganization, so next time one comes round we know who knows how to do this?"

Now one of the problems is, because a lot of them go badly at the moment, and if you're a middle manager maybe you only get involved in one at that stage in your career, and even if you're a senior executive it could only be two or maybe max four, so you don't see that many of them and most of them go badly. So next time one comes around, you run for the hills and all those lessons that you went through, someone else has to painfully go through them as well. Even if you're not going to do it yourself, I think you owe it to your colleagues who are going to follow in your footsteps to record how you can do it better in the future. So you can find out how other people do this by reading books like ours, but you can also ask around in your company and say, "How has this gone before? What did you try? What worked? What didn't?"

Rachel Salaman: And you've mentioned already that companies have to resist going back to business as usual. What tips can you share to help ensure that the changes do actually stick?

Stephen Heidari-Robinson: I think the biggest tip is, it's a bit of a problem if you didn't do this now you find yourself at the end of a reorganization, but it's never too late to understand what business value it was supposed to deliver. Now, if you follow our advice, you do that at the beginning. And then when you come to relaunching the organization, you have to remember that, "This thing was done to increase organic revenues through better sales, and so are we converting this opportunity through to sales? How do we track that at a faster tempo? Do we need to launch a business transformation on the back of the reorganization which embodies what we wanted to do and signals to people why we did this thing in the first place?" So that's really, really important.

As you alluded to, if you had a really bad experience and it's dragged out for ages, it wasn't well planned and the organization gets half born and then you have to do a bunch of things later, you can have the temptation to say, "Oh let's just go back to business as usual. Let's try and get things back on the road," but then you haven't got any value from actually doing this. So I think that's really the most important thing to have in your mind.

Rachel Salaman: Great. So do you have any final words of advice for leaders or managers who are about to embark on a reorganization, or who are wondering whether they need to?

Stephen Heidari-Robinson: I sound like a broken record, but it goes back to this idea of, "Is there value in doing this? Yes or no?" You have to be able to answer that question. You owe it to your employees. Whichever way you do this, again you may be the first person who says, "Our reorg, unlike everybody else's, will not cause any disruption, there aren't going to be job losses, it's all going to be fine." You know, I've done reorganizations in the Middle East where it wasn't even allowed that we could have job losses. But then there are other things that you can lose - you can lose your status, you can lose your enjoyment of the job.

You know, whichever way you do this, it's going to be disruptive to people. So if you just launch this thing because you think, "Hey, we haven't done much around here for a while" or, "I'm a new leader, let me show everyone how tough I am by moving around the deckchairs," that's not good enough. You really need to understand what the business rationale really is and does it stack up to go through this disruption in order to get it.

I think the second piece of advice I'd also give is not every reorg needs to be an intergalactic change everything around. In fact, probably only about 20-30 percent of the organization will ever actually change. So if you try to change everything, you start at the top, you just end up running out of steam part way down. So try and change the bits that really you need to change and leave the rest alone.

If we're all going to be reorganizing more and being more agile in doing that, then it can't be the organization flip-flops from one axis of organizing to another every couple of years. It can be that we just improve the way that different bits of the organization work.

Rachel Salaman: Stephen Heidari-Robinson, thanks very much for joining us today.

Stephen Heidari-Robinson: You're very welcome, I've enjoyed it. I hope it's useful for any of your listeners.

Rachel Salaman: The name of Stephen's book again is "Reorg: How to Get it Right," and it's co-written with Suzanne Heywood.