It seems that almost every day the Australian Financial Review is reporting on a major Company reorganisation with each newly appointed CEO routinely restructuring the organisation on the way in and then again after a few years.
In Australia this problem is exacerbated with the average CEO tenure now below 5 years and 30% of CEO’s in the top 200 fail to last 3 years. As a result you can see how some organisations restructure every year.
The conflicting structural thesis to centralise for cost control or decentralise for speed of decision making, to be customer centric or product centric, manage with a disruptive business environment or manage efficiently within a stable environment or my favourite “to break down silos” are often used to justify a major change. Unfortunately most (two thirds based on Bain & Co study) fail to deliver any meaningful result.
Should the Board be concerned about this trend? They most certainly should be very, very concerned. The damage caused can be very difficult to repair and include:
- Protracted distraction of employees as they jockey for position. They are not focused on the customer, market and competitor.
- Breaking and reforming of operational bonds within the organisation means it can take up to 18 months to settle down into a fully functioning operational rhythm.
- Weak handover protocols mean that important controls are broken and corporate knowledge is permanently lost. This can manifest itself in significant audit items being raised.
- Learning energy is spent patching the organisation back together rather than the higher value work of improving service, product etc.
- Scarce financial capital is consumed for no return.
- Employee engagement crashes with focus on self-preservation and self-interest. This can become a long term problem rather than a transitional one (as it is often reported).
If a restructure happens once no big deal (as long as it is a true solution to a well understood problem) but if it happens often organisations are unlikely to get better they just get different.
Boards and their executive team are better served by focusing their energy on:
- CEO and Executive talent development to reduce disruption of leadership changeover
- Coherent and ongoing strategy development and execution rather than lurching from one position to anonther.
- Clarity of team and individual purpose to achieve better alignment
- Building and maintaining a deep learning, collaborative and performance culture so each employee is able to deal with whatever is thrown at them.
- Sufficient flexibility in the performance management framework to support the “best decision in the moment” rather than a fixed set of objectives.
- Internal protocols that are fit for the conditions.
- Replacing people when needed rather than “restructuring them out” retaining a stable organisation structure.
- Create effective metrics and board reporting to ensure the 7 items above being actively achieved.
In summary, organisation restructuring is a lever that should be used sparingly as the damage it causes often exceeds the problem purported to be solved. Focus on the conditions within the organisation are more likely to yield performance results.
