Making sense of reorgs

Many technology industry executives are surprisingly inept when it comes to planning and executing reorganizations effectively.

One of the most evident signs of dysfunctional executive management is reorg-du-jour (reorganization of the day, for those who didn't take French in high school). Nothing is more disruptive or counterproductive to the effectiveness of an organization than frequent reorganizations.

Not to pick on Yahoo, but the frequency, if not the execution, of its notorious reorgs has almost certainly contributed to its talent exodus and loss of productivity at a time when it can scarcely afford it.

That said, reorganizations go hand-in-hand with changes in corporate and product objectives and strategy that are often implemented to meet an ever-changing competitive landscape. To that extent, they can be critical to business success, if done correctly.

When do reorganizations make sense and when are they frivolous and disruptive? How can they be executed to minimize productivity disruption and worker frustration? Here's an insider's perspective on organizational change in two parts. First we deal with "how," then we deal with "when" and "why."

How to reorganize effectively

1. Reorganize as infrequently as possible and make it count when you do (surprisingly, many executives just don't get this)
2. Develop a complete reorganization plan and timeline; execute it crisply and in a timely manner
3. Give appropriate level executives some advance notice and train them in what to communicate to their people (see 6 below) at the appropriate time
4. Timing is everything--too little notice to key managers and they'll feel cut out of the loop, too much notice and news will leak into the organization
5. In the case of public companies, material information must be communicated to all shareholders simultaneously, so the staging of an external release followed by internal communication must occur as rapidly as possible to minimize disruption
6. Have a complete communication plan for managers and employees, including the strategic or operating reason for the move and the new organizational structure
7. The goal is to have all employee questions adequately answered--in person--by appropriate levels of management at the time of the announcement

When and why does it make sense to reorganize?

Restructuring. Reorganizations driven by the need to improve operating results or efficiencies are generally called restructuring.

More often than not, restructuring is triggered by the need to lower operating expenses to achieve profitability, usually because the company's business no longer supports a legacy operating model. This type of restructuring usually takes the form of centralizing, shutting down, or spinning off various operating functions, product lines, or administrative functions.

Conversely, companies sometimes restructure due to significant growth or expansion. This can take the form of decentralizing, creating, or acquiring various product lines, operating functions, or administrative functions.

Mergers and acquisitions. M&A typically results in restructuring. The more "equal" the merging companies, the greater the impact, nominally to take advantage of operating synergies or efficiencies. That's just a fact of life. On the flip side, the dozen or more acquisitions a big company like Cisco Systems makes on an annual basis have virtually no effect on the rest of the organization. Imagine the effect of a tiny stream dumping into an ocean. Nada.

Corporate or product strategy. A material change in product strategy usually triggers a reorganization. Some examples include adding or consolidating distinct product lines, or addressing entirely new geographic markets, market segments, or sales channels.

A change in corporate objectives or strategies typically results in a reorganization to better align the company to achieve a new or different set of metrics.

Competitive landscape. The competitive landscape for technology companies is constantly changing at a rapid pace. Companies must periodically reassess their product-line's value proposition and competitive positioning to meet this challenge. These reassessments can certainly result in organizational change, although these should be more incremental and less drastic than the examples discussed above.

Last word

For executives: To be effective, reorganizations must be undertaken with the utmost consideration and respect for managers and employees. Timing is everything, planning is critical, and the devil's in the details.

For employees: Under the right conditions, reorganizations are necessary and critical to any company's continued growth and success. That said, if your company suffers from frivolous and disruptive reorg-du-jour, you might consider a change of venue.