The Company Reorganization Process
Last updated January 31, 2021.
As businesses enter new life cycles, they often need restructuring or reorganizing for a number of reasons. In general, companies restructure in response to market conditions, falling profits, economic forces and trends, changes in ownership, changes in strategy, or to boost cash flow. While there are many potential reasons behind a restructure, almost all of them focus on reducing costs, eliminating inefficiency, and maximizing future growth and strength.
No matter how big or small you are, what industry you’re in, or what product you sell, there will come a time when a restructure is something that you have to handle. Successfully doing this, however, is a complex and exhaustive undertaking that isn’t to be taken lightly or to be approached with a hamfisted approach.
What is Company Reorganization?
Company reorganization (or restructuring) is a corporate management term that, in general, refers to a situation where a company either:
- Changes its core org structure, which can involve reallocating resources, creating and dismantling departments and business units, and shifting reporting relationships.
- Changes its financial structure by selling assets, refinancing debt, or merging with another company.
When a company reorganizes, it’s usually a sign that consistent problems and shortcomings have been identified across the entire business or several departments.
Due to the sheer effort involved, corporate reorganizations are relatively infrequent. That being said, it’s not unheard of for companies to undergo several reorganizations in a short period of time. It all depends on the company itself.
6 Tips for a Successful Reorganization
A reorganization or restructure must be handled with sensitivity and foresight. It’s important to remember that you’ll be changing the face of the organization, its processes, your employees, and more, and therefore the key to success lays in strategy. Below, we’ve outlined some strategies that you can use to help yourself navigate the restructuring process.
- Map out the Destination: Where Are You Going and Who is Coming With You?
- Identify the Existing Roles and Responsibilities of Business Units
- Know Your Competitors
- Consider Outsourcing Potential
- Evaluate Your Existing Structure
- Establish a New Structure to Support Strategic Goals
1. Map out the Destination: Where Are You Going and Who is Coming With You?
Start by taking stock of where your company is now and compare this to where it needs to be to see an improvement in organizational performance. Do any departments or business units need to be reorganized or dismantled? Do you need any new ones? Will you incorporate outsourcing or telecommuting for growth down the road?
Instead of going all the way back to square one, you can begin by using your org chart to help plan and answer these questions (don’t have one? You really should!) Duplicate it and begin creating provisional and “what if” org structures to help you try out different structures with different approaches.
Before the company leadership undergoes any major changes, they need to communicate the vision of where the business is heading and anticipate delays in employees adapting to the new changes being presented. This step is critical in retaining key talent and preventing damage to morale.
Offering transparency to staff throughout the process allows trust to form in the process, which is key to the success of the restructure. Distributing an org chart—even during the planning stage—will help ease your employees into the transition, help you gauge critical feedback, and ensure that they have a thorough understanding of their new role in the organization.
2. Identify the Existing Roles and Responsibilities of Business Units
In order to optimize organizational performance, its existing framework, business units, and tasks performed by each employee need to be carefully analyzed.
This will require knowing what functions employees are carrying out in their roles in detail before the restructure can be planned effectively. This helps prevent any unnecessary loss of value during the reorganization process. Use your org chart to make sure that you aren’t leaving any skills gaps wide open in your new organizational design.
Organizations also need to be flexible and careful to not overload employees with too much additional workload during the transition if staffing headcount goes down and there is a lack of clarity for who is accountable for what. Restructuring a company can improve efficiency, keep technology up to date, or implement strategic or governance changes made by, or mandated to, company owners.
3. Know Your Competitors
The continual search for new organizational forms is driven by basic changes in the nature of competition and the economy. It’s therefore important to differentiate and leverage your strengths and weaknesses against your main competitors when approaching a reorganization.
If your industry is moving fast or faces disruption, adapting to the conditions of the market will be critical to winning market share. When there are external forces and headwinds at work, businesses have no choice but to realign, restructure and reorganize to become more competitive or to retain their position in the market.
4. Consider Outsourcing Potential
The nature of work has changed dramatically in recent years, with more people freelancing or working on a contractor basis than ever before. If you’re approaching a restructure, perhaps it’s time to consider whether your organization could benefit from the use of freelance and contract workers, or from the launching of a virtual business unit within it.
Though this may challenge an existing traditional organizational design, it may afford efficiencies in terms of staff flexibility, reduced operational costs, and a better overall company culture.
Could you outsource a business function or set up a temporary business unit to achieve an organizational goal? This transition will require a new management framework more centered around results and telecommuting resources.
5. Evaluate Your Existing Structure
When you’ve experimented with different structures and have a strategy in mind, it’s time to critically evaluate your existing structure and identify where it’s failing to meet your company’s goals. You should also take note of where it’s working well so that you can incorporate these elements into your new structure.
Just as important as the evaluation process is finding out what other people think, too. Don’t just base your restructure off of the thoughts of yourself and fellow leaders. Take into consideration the people who will be affected by restructuring plans by gauging their feedback and finding out what’s working for them, what isn’t, and what could be reflected in your new structure to make their roles easier. Your employees are best equipped to provide you with this information and other valuable insights that will help make the reorganization a success.
6. Establish a New Structure to Support Strategic Goals
After taking stock of where you are, where you want to go, and who and what is coming with you, it is time to design your new org structure. Most companies usually organize around function, business lines, customer segments, technology platforms, geography, or a matrixed combination of these. Accountability parameters need to be defined for both vertical and horizontal authorities.
While there is no exact formula for success, retaining your key talent and communicating the why of the changes throughout the company with transparency, will build trust and support for the process internally. A restructure will take time to roll out and adopt, but if done correctly, can result in improved decision making from an empowered organization and enhanced organizational performance. Organimi can help map out your restructuring plan & update employees on new organizational structures.
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