Nothing is ever for certain when running a business. Life can be unexpected and a well-thought out course of action might change or have to adapt to new challenges over time. When a business is struggling to make its bottom line or hit key performance indicators, it may want to look at a reorganization.
In fact, some of the biggest companies in the Fortune 500 have gone through a reorganization at least once, if not several, times.
Company reorgs don’t have to be as scary as they sound, and not every company that reorganizes is going through bankruptcy. A successful reorg can make the business healthier and more efficient, as well as signal positive signs to investors or shareholders.
Navigating a reorganization in a company is a daunting task and takes a significant amount of planning. Learn the basics of company reorganization, what to look out for and how to best communicate changes.
What is company reorganization?
Company reorganization refers to an overhaul of that business’s daily operations, ownership, reporting structure or financial model.
There are two types of major reorganizations that can happen in a company.
Structural organization refers to any changes in leadership and direct reports in a company’s org chart. This kind of overhaul can also include a change to a company’s identity. Things like the company’s name, mission statement, growth strategy, daily operations and key performance indicators (KPIs) all fall under structural reorgs.
Changes to the financial organization of a company include the selling of assets, refinancing debt at lower interest rates or filing for bankruptcy. A court-supervised reorganization is the focus of Chapter 11 bankruptcy and falls under this category as well. Under Chapter 11, aims to restore a company’s profitability and assurances it can pay back debts are high priority.
Why do companies reorganize?
Generally speaking, a company will reorganize when it's in trouble. Either its old operations or reporting structures aren’t meeting KPIs or other business targets, or its financial plan is in hot water and the business needs to find new ways to stay afloat.
Here are some of the most common reasons companies choose to reorganize:
- Mergers and acquisitions
- A key manager or employee has left
- New strategy or new product launch
- The organization has grown or is scaling or downsizing
- Corporate buyouts
It’s important to also consider the costs of reorganization. A McKinsey survey of 1,800 executives identified the most frequent push backs that come from a reorganization. Here’s what they found:
- Employees actively resist change
- Insufficient resources (not enough people, time or money spent allocated to the effort)
- Employees are distracted from daily activities, and individual productivity decreases
- Leaders actively resist change
- The org chart changes, but the way people work still stays the same
- Employees leave because of reorg
- Unforseen disruptions (such as changes to IT systems or language barriers across distributed workforces) slow down implementation
How to form a company reorganization strategy
Thousands of companies have implemented a reorganization before, but it is easy to do some type of lasting damage while executing.
More than 80% of reorgs fail to deliver the value they were aiming for and 10% cause real damage to the company, according to Harvard Business Review. In a more recent study by Forbes, 52% of 1,042 respondents reported that their reorganizations were either “unsuccessful” or produced “mixed” results.
There is research to be hopeful about, however. According to Harvard Business Review, two-thirds of all company reorganizations deliver at least some performance improvement.
No matter the reason for a company reorg, there are five foolproof steps to follow when considering how your business could look like in the future.
1. Map out your business strategy.
Think of a reorg just as you would any other type of business initiative. If it's helpful to frame a new business strategy as you would a marketing push or product launch, follow a similar workflow.
2. Weigh the strengths and weaknesses of the current structure.
Start by identifying what’s working and what’s not working before switching over to a new plan.
Leaders who plow forward without taking the time to consider what is already working are at risk of jeopardizing parts of the business that are running smoothly as is.
Weigh what the costs will be to switch over to a new plan. This doesn’t just include the financial costs and time spent planning out a reorg. Think of the toll a reorg will take on your employees and the human cost of change and disruption in your business.
3. Design a new org structure that will support the new business strategy.
Review the different types of org structures and go through the advantages and disadvantages of both. While studying up, take a look at why job titles can be important and how they can be used differently.
4. Prepare a communication plan.
Communicating the new organizational changes to the rest of the team and externally is a vital part of successfully implementing a reorg. Start by coming up with a plan to communicate the changes to everyone involved or affected. Then come up with a plan to announce the changes company-wide.
5. Launch the reorganization.
Once everything has been thought out, it's now time to execute. Remember that especially with changes to management and people’s roles it can be difficult for employees to adjust. Make sure to give ample time and space to discuss the reorganization on every level.
How do companies communicate reorganization?
After finalizing a new organizational structure, communicating it to the rest of the team is crucial to maintain transparency and build trust between the company and employees.
There are several ways company leaders can be transparent and communicate big org changes effectively including:
- An internal memo
- Can be done through email, Slack or any other medium a business uses to communicate with all members of the company.
- An all hands meeting or town hall (virtual or in-person)
- Press releases, social media announcements or wires on The Org.
Luckily, the digital nature of the workplace makes it easy to effectively reach each and every employee at a company, no matter the size.
Addressing employees in person and allowing space for questions is the surest way to be transparent with employees throughout the organizational process. Restructuring can be tricky, and it's important to make sure all team members feel included and informed on the process. It’s even more important to make space for questions or direct challenges to the proposed changes.
The Org is a powerful and helpful tool when it comes to communicating across an entire company. Our wires feature serves as an internal press release that will notify all employees of important decisions, but is also public facing to let customers and investors know. Posting about reorganization changes will boost transparency and trust throughout your company, and will help by attracting better talent and with employee retention in the long run.