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Book extract: ReOrg—How To Get It Right

LiveMint logoLiveMint 18-06-2017 Livemint

Most executives will lead or be a part of a reorganization effort (a reorg) at some point in their careers. And with good reason—reorgs are one of the best ways for companies to unlock latent value, especially in a changing business environment, write Stephen Heidari-Robinson and Suzanne Heywood, former leaders in consulting firm McKinsey’s Organization Practice, in their new book ReOrg—How To Get It Right. The book is a practical guide for successfully planning and implementing a reorg.

“... we have seen the debilitating consequences of bad reorganization processes that led either to poor designs or poor implementation,” they say. “Badly run reorgs cause massive human stress and cost shareholders value.”

In a section of the book, the authors talk about what makes a reorg successful. Edited excerpts:

Your organization is perfectly designed to give you the business results that you have today. If you want to improve those business results, chances are you need to change an aspect of your organization: the structure (how you align people to deliver objectives); the processes (how you go about doing this); or the people themselves (by redeploying them against different objectives, bringing in new talent, or reducing the number of activities). Perhaps you need to do all three. If you are not clear on the business results you want to change, you will not know where to change the organization, and you had better not start until you do.

Interestingly, the reasons why a leader launches a reorg have a significant bearing on its results. The reasons why companies launch reorgs will change over time: we see many more cost-cutting reorgs in down cycles and more growth-driven reorgs in up cycles. A survey we ran in McKinsey Quarterly in 2010 gives us a breakdown from the 2010s: facilitating growth (27%), cutting costs (12%), moving to a best-practice model (12%), bringing change into an organization that is too static (10%), reducing complexity (8%), fulfilling a new leader’s desire to make changes (7%), responding to a crisis (6%), integrating a previous acquisition (6%), and facilitating a merger (6%), among others (6%). The survey suggests reorgs focused on delivering growth, and those to address complexity, are the most successful in the time frame planned. Those least likely to succeed are reorgs intended to fulfil a leader’s desire to make changes, to shake up an organization deemed too static, and to facilitate a merger.

Delivery Is as Important as Design

Responses to McKinsey’s 2014 survey suggest that the success of a reorganization depends even more on how it is delivered than on why it is done. It also suggests that more reorgs go off the rails during detailed design and implementation than they do in the design of the original concept. Executives continue to declare victory after the concept design and take their foot off the pedal as they move into the more challenging phase of trying to get their people to work differently and deliver more value—the whole point of the thing. It is probably not surprising that executives find it hard to estimate the time it will take to reorganize. Only 37% meet the timelines they set themselves; 43% underestimate the time it ultimately takes; and 20% overestimate the time needed.

The challenge of lengthy implementations is that they cause issues to be dropped and time to drag, prolonging the disruption to people and negative impact on business results and delaying the business improvements you wanted in the first place. The data shows that accelerated reorgs are much more likely to be successful. This contrasts with received wisdom that because reorgs are difficult, you should do them slowly to avoid upsetting anyone. But when you pause to think, the data makes sense. If you only get the results once the reorg is implemented, if staff will be distracted and upset during the reorg, and if business results will suffer as a result . . . well then, accelerated delivery of the reorg should be a no-brainer.

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