What is a Company Restructure?
Every company will experience the need to make changes and restructure its existing systems, processes, and teams during the journey from inception to maturity. It’s a natural and inevitable part of the company lifecycle.
While there are many different definitions, company restructure broadly refers to any situation where an organization makes significant changes to its financial or operational structure for the purpose of making it more suited to meeting present needs.
Why Does a Company Restructure Itself?
Changes in the world of business can be some of the most testing times for even the biggest and most stable of companies. This is why adaptability is today one of the most crucial of corporate attributes. To survive, you’ve got to be able to quickly adapt and change course when the situation requires it, such as in response to major disruption (e.g., the COVID-19 pandemic) or during times of economic instability.
Restructuring isn’t just something that’s forced in response to negative events, however; organizations regularly go under voluntary, planned restructures driven by a need for change in the organizational structure or business model due to growth, change in financial situation, an upcoming acquisition, or a need to concentrate on key products or services.
Signs That a Company May Need a Restructure
Knowing when the time is right to approach and attempt an organizational restructure is important. Organizations that are able to identify the right time will face the fewest problems and are more likely to continue along their growth trajectory after the fact. Here are some signs to watch for:
- Staff Turnover is High
- Old Systems and Processes Have Stopped Working
- Morale is Low
- Your Competition Has Changed
- Teams Aren’t Collaborating
Employees are your most valuable assets. The longer they stay and work with your company, the more valuable they become. And given that employee turnover can cost organizations more than 200 percent of the lost employee’s salary, it’s in your best interests to put great effort into retaining your core talent.
If your business has turned into a revolving door where team members are coming and going with the tide, that’s an obvious sign that there’s a big problem somewhere and that something needs to change. If it goes untreated, employee frustration and dissatisfaction will spread throughout the organization like a domino effect.
The systems and processes that worked when your organization was a small start-up with a handful of employees are unlikely to continue working as intended when you have grown and have a few hundred employees.
As your company grows, it’s normal to change or improve existing systems, tools, and processes so that they can cope with the increased workload. A great example of this is the org chart. While building your org chart in MS Word (or not utilizing an org chart at all!) may have been sufficient when you only had 10 employees, the situation is a lot different when this number grows to 100 and more complex working and reporting relationships have grown.
Lots of things can negatively affect morale, however, some of the more dire causes include poor management, operational inefficiencies that cause problems for customer- and client-facing employees, and people being in roles that have failed to be changed or adapted to the organization as it has grown and its focus has shifted.
Similarly, if you’ve got teams that are overworked, this is a sign that you need to make some changes to your business and consider an organizational restructure. Doing so will help relieve some of the burden from your existing employees by hiring new ones and providing structural and strategic support through redefined roles, new departments, and the integration of new and updated technologies and processes.
If your business is still operating in the same way as it was five, ten years ago, with the same structure and processes at its core, you’re probably behind the majority of your competitors. Even if you’re doing better than them now, they’ll soon start closing in, at which point you’ll be at a disadvantage and forced to play an unnecessary game of catch up.
To stay relevant and ahead of your growing competition in a modern and dynamic market, it’s important to regularly take stock of your business and its strategy.
Even if your competition hasn’t changed, the industry will have. Industries change over time. Technologies improve. The economy shifts. These changes snowball over time and increase your operating costs, and that’s why the most successful organizations pay close attention to what’s happening in their industry and the wider world and react as is necessary.
The most efficient of organizations carefully structure their operations to align teams and promote collaboration between them. An optimized structure also helps to streamline these operations and create an environment where innovation and growth come naturally.
As your organization grows, however, relationships that once existed between certain teams may no longer be as effective, and collaboration between them will slow down and eventually come to a halt as their individual goals diverge and they rely on each other less and less.
How Does Restructuring Benefit a Company?
Just like there are many reasons for restructuring a company, there are many benefits that come with one. Some of the more general benefits include:
Lower Operational Costs
If a business downsizes during a restructure, its operational costs are likely to decrease. If staff are laid off, for example, then payroll expenses will fall. Even if these laid off roles are outsourced, costs will still be reduced because outsourced operations are usually cheaper than in-house employees because the business doesn’t have to cover things like pension contributions, holiday pay, and staff benefits and healthcare schemes.
Streamlined Decision Making
Restructuring an organization usually places a big focus on management. When a business eliminates layers of excess management during the restructuring process, this can lead to improvements in communication and more streamlined decision-making. This is because reorganizing and simplifying management reorders the organizational hierarchy and removes barriers to communication and productivity.
Better Operational Efficiency
An organizational restructure typically leads to the introduction and integration of new technologies and tools, and these can make a huge difference in terms of overall operational efficiency. For example, introducing a new org chart tool could make it easier to onboard your new employees and give them the best first impression as they embark on their new role.
What are the Drawbacks of a Company Restructure?
There are some drawbacks to restructuring that can be experienced by organizations, including:
Potential Loss of Productivity
Although an organizational restructure can promote productivity in some places, it may take from it in others. If a business downsizes during a restructuring effort, for example, skilled workers may be lost, and this may lead to a loss of productivity even if these roles are outsourced to freelancers and contractors.
Employees that remain in the organization after downsizing may feel nervous and unsettled about the security of their own jobs. This is because, despite restructures usually being good for an organization on balance, there is a negative stigma associated with downsizing. This can lead to lower morale and could cause some employees to begin looking for new roles with your competitors.
Cost of Restructuring
Although an organizational restructure can reduce long-term costs, the process itself can be very expensive.
When an organization restructures itself, there may be costs such as redundancy pay, legal fees, new tools and technologies, and hiring new staff that need to be covered. And if an organization is merging with another, there’s the obvious cost of having to come up with the money to buy it. If the restructuring doesn’t work out in the long-term, these costs could be fatal.
Does Restructuring Always Mean Layoffs?
Restructuring is a procedure where businesses change their strategy or direction, and this can translate to layoffs. In many cases, unfortunately, it does: organizational restructures lead to downsizing and thus the business may dismiss employees, completely eliminate certain departments, or close some of their physical locations to save money.
Organizations that are downsizing may also opt to outsource certain elements of their operations to save money. In other cases, a restructure may see people reassigned internally or the tasks and duties of departments changed to improve performance or streamline processes.
A restructure doesn’t always mean that staff are laid off, though. It very much depends on the nature of a restructure, what has caused it, and what the long-term goals are.
Finding the Right Structure for Your Organization
Change is never easy but, in the world of business, it’s an inevitability and is something you’ve got to embrace.
Eventually, you’ll have to restructure your own organization, and it’s safe to say that this won’t be an easy task. No matter what approach you take, a restructure is something that’ll cause short-term disruption and change the face of your operations. That’s why it’s important to recognize early on when a restructure is needed and decide what needs to change.
When the time does come to restructure, there’s no exact formula for success. There are a lot of moving parts and it’s an undertaking that will require meticulous planning, transparent communication, and a good understanding of what’s going on in your industry and the wider commercial world.
Using Organimi, however, you can map out your restructuring plan to visualize how all the pieces will fit together and make changes on the fly. Doing this will increase the chance of your restructure being a success, allowing your organization to benefit from reduced costs, increased efficiency, and engaged employees.
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