Organisation restructure not working out?
Get your people selection process right for a better chance of success
As the CEO of a film production company, the SAG-AFTRA strikes have had a significant impact on the business. It’s a story for another time, but with over six of our feature film projects being placed on hold, it allowed me to take a pause and think about the structure of our organisation and if we have this right to deliver on our strategy. These external market changes forced us to review our decisions on the digital division and bring forward the growth targets and changes for this division. With the strikes changing everything overnight for us, we also had to be nimble enough to turn on a dime and rethink our strategy. For us that meant moving quickly into inorganic growth. The appropriate strategy for us is the preparation for exponential growth in the digital effects.
The movements in the broader market are signalling an increase in corporate restructuring, more than what we’ve been seeing to date. Financial research data from AlphaSense in the 12 months to August 2023 is reporting a triple the number of mentions of reorganisation, reassignment or leading indicators signalling a restructure in the earnings calls of listed companies. That’s quite a significant shift that will lead to some internal destabilisation for many for some time, and those that are adaptable to the changes required will be able to weather the storm.
Deciding to restructure is never easy and the delivery is even harder, but when it’s done well, the results are transformative. The challenge is that statistically 70-75% of organisation restructures fail. There are over 800 Harvard Business Review articles on this very problem. The list of academic articles written about this dilemma is longer than I am tall, yet the problem repeats and organisations go through the cycle of re-alignment and re-organisations to either meet their strategic or financial requirements. I am not going to solve this problem in this article, but I do want to get you thinking about one of the core reasons why organization restructures fail. People. How not keeping or letting go of the right people can rapidly derail even the best reorganization strategy.
Why? The focus may be on reorganising the management, finances and operations to harvest better efficiencies and alignment for productivity. Or it can sometimes be used to arrest the operational costs of the organisation by reducing the headcount inside the organisation. Regardless of the strategy or reason for the restructuring, the critical component will always be your people. Get that right and you have a better chance of long-term success for your reorganization.
Inevitably the decision always comes back to headcount, which can be where the people’s problems propagate. Whether you are downsizing, growing or redirecting there will always be people changes in the organisation. Even in times of growth, this can still mean reviewing the people that you have in your organisation to assess if you need to change your focus and remove roles or divisions to create the space, budget and headcount capacity to bring on the right people to support the future strategic goals.
It’s all about the right people with the right skills
A successful restructure is predicated on keeping the people with the right skills and cultural alignment to drive the organisation towards successfully meeting its strategic targets. Herein lies the problem. How do you know you are keeping the right people? Are you reassigning people to the right roles or laying off the correct people? The short answer is you don’t. You’ll never get it 100% right. But you can get it better. The focus must be on making sure you have the right people on the bus at the end of the restructure.
Whether you have an internal strategy team that has determined the way forward or you are utilising the services of a consultancy to support the strategy development and walk you through the process, it can feel like an impossible task to determine who should stay and who should go. There is never a good or easy way to do this, and most organisations spend weeks to months pouring intense effort into creating the final list of people that will be exited or moved into the organisation. Many problems are developed in this process of developing lists, trading and bargaining to come to a final position that satisfies the executive leadership team. Like Terry Gilliam famously said, “A camel is a horse designed by a committee”. Lean into the strategy and desired outcome to maintain focus on your end result to ensure your design for a horse does not end up being a camel with your team debating whether that camel has one hump or two.
To get a greater understanding of the problem, I’ll break down the steps that are often worked through to create the final list, and why dilution of the list inherently shifts the intended strategic goal, to one that is safe, sanitised and quite often politically charged.
As a C-suite leadership team, a decision is made on the financial target to be achieved through restructuring, which should be supported by a defined criteria on what is required. This criteria needs to shape the who to enable the how in your restructuring plans. Let’s be clear here, HR is not in control of who will be staying or leaving the organisation through these processes. HR support the facilitation of the process and provides advice, but the core people to make these decisions are the leaders of the affected divisions/areas.
Let’s walk through the steps that you’re going to go through to decide who stays and who goes:
1. Firstly, you’re going to have someone put together a spreadsheet of roles, salaries and possibly productivity performance metrics of all the areas under review. Inevitably this will be saved in some obscure, obnoxiously code-named folder like Project Phoenix (or something even worse). Take the opportunity to robustly examine the strategy or agreed criteria against this list to provide a set of filters to determine an initial list for review. If you can take your time because I cannot stress enough that it is a myopic strategy to purely review this list based on salary alone. I have seen this done too many times and the results are almost always a disaster. In times of strong growth or highly competitive labour markets, salaries can become inordinately high for many people in the organisation. I have seen many leaders take this as an opportunity to remove the higher-salaried people from the divisions to cut costs quickly. Often this situation is exacerbated by the so-called promotion of other people in the division who are then reassigned to a role with higher title, greater responsibilities and often little to no increase in salary. This is itself is an article for another day, but I would like you to think about the long-term cost of doing this. Firstly, choosing to let someone go based on their salary doesn’t take into consideration why you were willing to pay a higher price to them in the first place. If their skills, experience, knowledge and leadership capability drive an uplift in the performance of their relevant team or division. Making quick wins in operational costs to hit the bottom line targets fast, can have dire consequences in the long run. Deciding who to keep based on price can cost you time and problems if you only stick with the lower-paid employees. The opportunity cost of what you’re giving up can be significant. The long-term cost can be higher than the savings you have baked into the restructure strategy, which can erode the purpose of going through it in the first place. The right experience, depth of knowledge and leadership skills can be priceless to your organisation. Don’t be too quick to put your highly paid people on the chopping block, and replace them through the promotion of more inexperienced staff at a significantly lower salary. The maths looks good but the cost to the business can be extraordinary in terms of the time taken to get back to operating speed and the corporate knowledge that leaves with these people. It is an article for another day, but I am asking you to consider the people and not their cost at this stage to ensure that your driver is keeping the people who can deliver the strategy.
2. The next step is to obtain input and guidance from your senior leadership team or Division Leaders. Have your team provide an additional layer of context and knowledge for how the proposed changes can be delivered through the selection of who they believe are the right people. Your people must stay on mission here and understand their role is to focus on delivering the right team of people for the agreed future strategy. If your leadership team doesn’t believe they have the right people in the business, give them the process, tools and support to make the necessary changes. Discourage leaders from sidelining people or shifting them into roles that make them miserable in the hopes they will actively seek a job elsewhere. Not only are the optics of this terrible, it has the potential to destroy your culture. Culture, motivation and the general mojo of your organisation will naturally slump during these times of change and uncertainty. Don’t make it worse by treating people poorly. There is kindness in being completely transparent, and clear about the strategy going forward and providing a respectful exit for people that will not be required.
3. A critical step is bringing your managers and/or team leaders into the conversation at the right time. Use this as an opportunity to engage in a robust discussion about making sure they have all the right people on the bus. If I can get you to instil one thing one thought into the collective consciousness of your managers is that change happens by design. They are in a position to shape the design of the change by ensuring the right people are coming on the journey. Not their friends, nor the people who are there because they do whatever they need. The people who meet the skills, culture and development profile required. It can and will be hard for your leaders to say goodbye to awesome people who don’t fit this profile, so make sure you have the right support in place for your leaders too. My team at Formation are family and it’s painful to let people go when we’ve moved through organizational changes. Your leaders may feel similar emotions and grief. Whilst this is tough – guide and support them to ensure the right decisions are made and their process isn’t clouded by these emotions.
4. A great HR team will take the list that has been through the above three steps and scrub it of identified people. The purpose here is to obtain an understanding of any person on this list who has a current claim/complaint with the organization whilst also providing an analysis of diversity groups to understand if the process has been discriminatory towards any groups within the organization. Make sure you get your HR team to follow on run a statistical analysis over your list to draw out any areas that need to be addressed. This is done to avoid any complaints or litigious action that could be seen as retaliation for losing their role. I recommend that no list is scrubbed until this is understood. Use this information to make informed, smart decisions. Just because a person turns up in this HR analysis doesn’t mean they can’t be let go, it simply means to do your due diligence before making any final decisions. Don’t be driven by fear.
5. The final step is to take all of the information provided to use all the information to determine the final list. Take all of the information, understand the risks and synthesise it to create the list you need to optimise the organizational changes.
All this is straightforward and common sense, right? The problem is we lean into our leaders to drive the outcomes we require to meet the financial and strategic goals, yet we often fail to remember they will do that with some additional lenses and a different perspective. It’s important to work with your leaders to not only communicate your vision for change but understand their perspective. Understanding this will enable you to provide the guardrails for them to work within.
Change doesn’t happen by accident, it happens by design
There’s nothing new about getting the right team of people and focusing on the right skills, traits and level of adaptability to create a great team - management 1-0-1 right? The point here is leaders can often struggle to get rid of the people who are not the right fit. The discipline and rigour required in these people’s decisions are often what is lacking. So where can and does it all go wrong? Here are my top three reasons where it goes wrong when determining the right people for the roles and strategy in the restructure:
(1) When fear, power relationships and politics keep the wrong people in the business – or worse get rid of the people you really should be keeping? Either way, this can be a recipe for disaster. When working through these challenges you need to ask yourself and your leaders “If you knew what you know today, would you still hire that person when you interviewed them?”. You need to force yourself and your leaders to critically assess these people through an objective process. If they answer no to this question, then there is no reason to keep this person.
(2) Not understanding that it’s good to get rid of the brilliant jerks. This is a concept taught to me early in my career. I watched brilliant jerks destroy teams, divisions and cultures inside organizations. These are the high-skill, low-attitude and often even lower emotional intelligence people. I am sure you know the types of people that I am talking about. They undermine the culture of the organization, but because they are brilliant at their jobs people fear doing anything about them. I challenge you to remove the brilliant jerks from your organization. The cost to your organisation is too high to keep them. When you make space by removing them you will be surprised and delighted by the internal uplift and the opportunities to find a better fit.
(3) Leaders looking to keep their trusty lieutenants, which can create a potentially weak general model problem in the organisation. Sure, I get it. Your leaders need people around whom they trust. The difference is the organization requires people with the ability to appropriately challenge and drive robust discussions for the best outcome for the organization. You’re restructuring for a reason and this is not the time to let personal relationships (good or bad) cloud your judgement as a leader. This is about having people with the capability to adapt, change and possibly lead through the requirements to meet the future vision of the organisation.
Restructuring an organization is an enormous piece of work, and one not to be underestimated. This is only one small element of that process. There is a huge amount of work and strategy required to get it right, and this article is designed to get you thinking about how to select the right people to meet your vision. Knowing who to keep and who to let go is tough to get right. Using these steps to help you map out a process will help you achieve a better outcome in the long run. Always tell yourself that change doesn’t happen by accident it happens by design. Do you have your people design right to match your strategy? Keeping this front of mind will focus the team on making the right decisions.
Fortunately, it is a different process for us at Formation Pictures as we are not letting anyone go, but it is still an integral step to go through a similar process to ensure that everyone in the business today is the right person. Inorganic growth can be equally as disruptive, and I take a similar approach to understand if we have the right people in the organisation. It’s too easy to buy a brilliant jerk by mistake in these situations, but that’s an article for another time.
I hope this gives you something to think about as you build your organisation intelligence quotient.
Yours
