Strategies for successful organisational restructures

In a business environment where the only certainty is change, continual adaptation and reinvention is a prerequisite.

With elections, on both sides of the pond this year, and with escalating conflict in the Middle East – exacerbating the disruption to supply chains and subsequent inflationary ramifications already manifest from the war in Ukraine – uncertainty is here to stay. While our clients remain confident about riding out the perfect storm some business commentators are predicting, no-one is downplaying the macro-economic headwinds being forecast.

In its latest Red Flag report, insolvency specialists Begbies Traynor have identified more than 47,000 UK companies it deemed on the brink of collapse at the end of 2023. Against a backdrop of high costs, flatlining growth, and an insolvency rate that is at its highest since the financial crisis of 2008, senior leaders must keep all options on the table. Papering over the cracks through cheap borrowing is no longer one of them. However, whether looking to cut costs, dispose of a loss-making department, secure additional funding, or for a merger or acquisition, a restructure is.

M&S and Microsoft are two large corporates to have undergone successful restructures in recent years and, as I write, investment firm ABRDN is about to embark on theirs. But here’s the rub: in a bid to increase profits by removing £150million a year in functional and support-service costs, after a ‘root and branch review’, the implementation will take over a year and cost £150million.

So, be warned. Restructures are not always straightforward. They require meticulous planning, crucial, if difficult, decisions, clear communication, empathetic leadership, and financial investment. Whether prompted by underperformance or to accommodate growth, restructuring is necessarily a multifaceted process. The aim? To align the internal structure of the business with your external operating environment and strategic ambitions.

Done well, it can be transformative. Done badly, it can be counterproductive. Whilst current stats are hard to come by, a report from 2016 stated that 80% of restructures were ineffective because they were not clearly thought through, while 10% were deemed directly harmful. So, what are the key considerations?

It is a myth to think that all restructures are indicative of a failing company. Organisational redesign and restructuring can be vital in managing success, too. One of our recent projects was with a client who had grown rapidly, since startup, but their structure hadn’t kept pace:

Read the case study

 

Strategy is key

For many, a restructure is little more than a knee-jerk response to underperformance. We are not talking about merely realigning reporting structures or merging departments, but a holistic transformation. As such, a clear strategic direction must be in place to align every one of its facets towards the same vision. A well-defined strategy not only communicates a sense of purpose to all stakeholders but also empowers teams to make informed decisions.

The strategy will form the blueprint for change. It will be foundational to ensuring every decision and realignment contributes meaningfully to the overarching vision. This strategic blueprint will not only inform the operational, procedural, governance and financial aspects of the restructure but also serves as a rallying point around which to gather your people – after all, your vision needs to capture their hearts and minds for any change to be fully realised. Clarity on strategic goals becomes the linchpin that holds diverse departments and individuals together and drives them on towards a common purpose.

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 Identifying your strengths and weaknesses

Harvard Business Review likens this part of the process to surgery. A surgeon wouldn’t consider operating until full testing had been carried out and a diagnosis confirmed. And if the removal of a tumour is required, they would be meticulous in not removing any healthy tissue along with the bad. It sounds obvious, but you would be surprised how many restructures are undertaken without a thorough examination. Without analysis of organisational strengths and weaknesses you make uninformed decisions, risk a misguided focus and the wasting of valuable resources.

You will likely have a familiar arsenal of tried and tested business analysis tools – SWOT, PESTLE, Porter’s Five Forces… What is important is that your analysis is current, and clearly focused on the most relevant factors that will influence success.

When considering your strengths, what core competencies set your company apart (unique skills, technologies, what are the processes that you excel at)? Within your talent pool, where do the skills and expertise lie that drive innovation and productivity? In terms of your market positioning, are there specific niches or segments where your brand thrives? Where do the possibilities for strategic investment and expansion lie?

Equally, you need to answer key questions about your business weaknesses. Where are the operational bottlenecks that hinder productivity? Are there technological gaps in your infrastructure? Are there emerging challenges in the market that your business isn’t prepared for? Just how engaged is your workforce right now?

Bear in mind that identifying strengths and weaknesses is not just a preliminary step; it is an ongoing process that informs decision-making throughout the restructuring journey. It allows for a more accurate evaluation of what success looks like, providing comparative data for the analysis of that success against clear, measurable goals. We always advise engaging with all key stakeholders in this process, not just senior leaders.

So how do we measure success? When beginning a restructuring process, we always work with clients to ensure that any metrics of success are tied directly to the purpose driving the change. Only then are we set up to answer the foundational question: Have the restructuring efforts aligned with the company’s strategic goals?

Financial health is important, of course, but should not be assessed in isolation unless your restructure was purely finance-driven. Highly meaningful metrics may include elements of operational efficiency, employee satisfaction and productivity, market impact or stakeholder confidence. Again, this is necessarily an organisation-wide endeavour that requires meaningful engagement.

 Assurance through communication

Because they involve people, and change, an organisational restructure is never as simple as the plan on paper. No doubt about it, whether it is a change in job role, responsibilities, even location, restructures are unsettling. This is why there needs to be an open, honest communication and engagement process from the outset.

Highlight: In the absence of a clear, coherent, persuasive story, people will create their own narrative, giving rise to unhelpful misinformation.

It is not enough for the board to have confidence in the strategy; there must be a clear, effective communication plan that not only communicates the “what” but also the “why”. For teams to embrace change they must go past a basic understanding of what’s happening to really appreciate why the changes are needed and the benefits they will bring, both to the business and the team. Consulting meaningfully with everyone during the process encourages ownership, engagement and motivation.

 Be prepared for difficult conversations

As an aside, senior leaders must be prepared for difficult conversations. It is never easy knowing that you are going to be impacting the life of someone that works for you – nor should it be. As any good coach will tell you, the first thing we can do to help ourselves is to lose that expectation. It is useful to think about the message that you want the individual to take from the conversation – what do they ultimately need to know? Be clear with your messaging. As Brené Brown says: ‘Clear is kind. Unclear is unkind.’ There is always a risk attached to the things that we say. However, there is also risk present when we choose not to say something or deliberately avoid an issue. Consider on which side of this fence you want to sit. How can you help create clarity?

 Consider your options

As said, organisational restructures are multi-faceted. Considerations include:

• Hierarchy, which focuses on the responsibilities and authorities held at various levels and by certain roles. Hierarchies can be flattened by reducing the number of management layers to increase efficiency and streamline decision-making. Centralisation or decentralisation adjusts the degree of decision-making authority held at different levels of the business.
• Functions largely focuses on departmental reorganisation and considers options for outsourcing. The composition or alignment of departments may be adjusted, or certain functions may be outsourced, either for efficiencies of time or cost, or where expertise is not available internally. (Geography should also be a consideration in improving operational efficiencies or leveraging cost-savings.)
• Processes focus on optimising efficiency and effectiveness by rethinking and redesigning core business operations. Automation and technology can streamline workflows and increase productivity.
• Product or service portfolios review is a focus on diversification or specialisation (entering new markets or a refocus on core competencies) to explore the breadth of products or services offered through product/service expansion or contraction.
• Financial carries a myriad of options, from capital or tax-efficient structure adjustments to asset sales. While some may only have a visible impact in the boardroom, others, like cost-cutting measures, can significantly impact the wider team.
• Role redefinition and redeployment seeks to clarify and modify job responsibilities to better align with strategic objectives. Where appropriate, employees may move to different roles to leverage their skills more effectively. Where there is more talent than roles available, deployment may not go far enough and redundancy decisions may be necessary.

People restructuring

Which brings us on to people. No matter what your choice of restructure, it is your people who will be impacted most. For change to be successfully implemented, it means engaging meaningfully with them all, including those who will be losing their jobs. It is vital your people are treated respectfully and consulted appropriately throughout.

As HR experts, people are our primary focus. As such, we will be producing a follow-up piece exploring the people implications of a restructure in more depth. In short, it is imperative to:

• Align people strategy to business strategy
• Identify and streamline overlapping roles
• Retain knowledge by implementing knowledge-transfer programmes
• Engage everyone in the process
• Always embody the company’s values
• Support resilience and adaptability

This last point is crucial for successful implementation. In a restructure, it is natural for everyone to focus on those who may be losing their jobs. However, it is equally important to ensure those staying are motivated and engaged. In the short term, it may feel like two steps forward one step back, especially if the restructure is motivated by the need to cut costs, but it is imperative to invest in comprehensive communication strategies, targeted training, and change management initiatives to ensure your people are engaged and motivated in the new world. Whether it is supporting people in new roles or helping build relationships in new teams, leaders must be proactive in facilitating a smooth transition.

In brief

Restructures, with their inherent challenges, are a natural part of an organisation’s evolution. By approaching changes with a well-defined business strategy, clear communication, and a commitment to your people, you can not only steer the process successfully but also emerge with a more resilient and agile organisation. It is an opportunity for growth and improvement, both for the business and your people. Whatever the motivation, done well, an organisational restructure can be transformational.

To discover what the design and delivery of an organisational restructure looks like in practice:

Read our case study

 

References

White et. Al. (2023) 6 Key Levers of a Successful Organizational Transformation. Available at 6 Key Levers of a Successful Organizational Transformation (hbr.org)

Kate Hardcastle, Mergers & Acquisitions: HR is integral to success: https://www.seymourjohn.com/articles/mergers-%26-acquisitions%3a-hr-is-integral-to-success/a35

Guggenberger, R. (2020) The Importance and Challenges of Employee Alignment. Available at The Importance And Challenges Of Employee Alignment (forbes.com)

Deloitte (2023) Corporate Restructuring Strategies in Postpandemic Recovery. Available at Corporate Restructuring Strategies Post-COVID | Deloitte US

• Transformation
• Strategic HR
• Organisational Restructure