Step One - Construct the Reorg's P&L
A reorganization is a business initiative like any other. You should therefore start by defining the benefits, costs and time to deliver. Remember that the costs are not just the costs of staff and consultants involved in the reorg, but also the human disruption it can wreak on your business (more than half of companies see productivity drop during a reorg). It may seem like common sense to weigh costs and benefits, but according to McKinsey research, only 15% of executives set detailed business targets for their reorgs, while 17% are launched at the whim of the relevant executive – an approach that is typically unsuccessful.
Step Two - Understand Current Weaknesses and Strengths
No surgeon would start operating on a patient before administering tests and coming to a diagnosis. So it should be with reorgs. Unfortunately, this step is often skipped, which means that the changes will at best have no impact and, at worst, damage the organization. Diagnosis takes more than a few interviews with leaders who already agree with the direction you are taking. You need both interviews and electronic surveys to capture a wide range of input and understand the differences – between corporate center and frontline, and by different grades and geographies. You also need to understand the different business outcomes across your organization. For example, if you have more than one sales team, which is most successful and why?
Step Three - Choose from Multiple Options
In this step, you decide on the design of your new organization. You can either change the entire model of the organization (for example, from geography-based to product-based). This works well if your current organization is completely broken and/ or you are facing a fundamental market shift. Or you can change only those elements of the current organization that are broken: for example, improving the capital planning process, removing a whole layer of middle management, or upgrading your frontline leaders. Take this route when there are some specific issues or if the focus is on cost cutting. In either case, you must cover all organizational elements (processes, people and structure), not just reporting lines and boxes and remember to engage other leaders, not go around them.
Step Four - Get the Plumbing and Wiring Right
After Step 3, most executives take their foot of the pedal, trusting to their teams to get the details of the new organization and the transition plan right. Yet we’ve repeatedly found, and a 2014 McKinsey study confirmed, that Step 4 –is the hardest part of a reorg to get right. The secret of this step is to know all the detailed organizational elements that need to change, and to plan those changes in the right sequence. For example, you need to define new job descriptions, before you can staff people into those jobs, and you need to staff them into the jobs before you start location moves (potentially across countries). In the book, we provide the list of things you need to cover.
Step Five - Launch, Course Correct and Learn
No matter the amount of thought and preparation you put into a reorg, it’s unrealistic to expect it to work perfectly from the beginning. As Nancy McKinstry, the CEO of Wolters Kluwer, told us “You have to live with and digest it, and rapidly course correct when you find issues.” This does not mean that you need to do a 180-degree flip flop in the design as soon as you encounter a problem. But you do need to encourage everyone to spot and point out the teething problems of the new organization, openly debate solutions, and then implement the appropriate fixes as soon as possible, in line with the logic of your original plans.