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Dear Workforce Why Do So Many Companies Restructure

Cost and competitive strengths are often cited, but new generations of leaders may not be immediately recognized within an organization.
November 21, 2001
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Related Topics: Downsizing, Reengineering, Strategic Planning, Dear Workforce
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Q

Dear Workforce:

Why do companies restructure, and what problems do they typically face duringthe process?

-- Pondering change, human resources, manufacturing, Triolet, France.

A Dear Pondering in France:

Companies restructure for many reasons, including:

  • Cutting costs
  • Improving competitive advantage
  • Sharpening strategic focus on key accounts, core products, and new technology
  • To better leverage talent.

Problems typically faced

  • "The more you change, the more you stay the same." Sources ofcost inefficiencies and strategic misalignment are often rooted in the cultureand habits of both leaders and followers. Their line of attack may carry theseeds of the same weaknesses they seek to correct. Social systems are complexand self-correcting, like thermostats set on one temperature. The culture (andoften inadvertently its individual members) resist change rather effectively.Sometimes the most important changes are the ones least contemplated, such asseeking a new CEO, a new chairman, even a new board of directors.

  • The goal of cutting costs is often driven by an immediate, even urgentneed for change, particularly in public companies concerned with their EarningsPer Share, share price, and vulnerability to takeover. Unfortunately, thisimmediate problem may be the outcome of long-term trends in the industry thathave changed the rules of the game, leaving a once-viable business modelfloundering. Typically, once-successful organizations do not scrap theirbusiness model at the first sign of trouble, nor should they. However, it is notuncommon to see organizations rely too heavily on old tactics that, rather thancorrecting the problem, actually aggravate it. This path of action and reactionsets the company on a viscous downward cycle. By the time the truth is accepted -- that the old solutions no longer work -- the changes required may be morethan can be absorbed.

  • Companies in the U.S. in particular are quick to cut costs, especially byreducing their workforce. While this ruthless nimbleness may allow the companyto limit its short-term losses, it rarely creates competitive advantage in andof itself. Many sage consultants observe that you don't save yourself to growth.Typically, the most successful changes require more than mere cost reduction.The best companies combine strategic refocus with organizational realignment inroles, processes and structure, thereby rationalizing a targeted reduction inforce. This is like trying to ski faster downhill while resetting yourwristwatch and calling the ski patrol on your cell phone. Not many leadershipteams can pull it off.

  • Organizations are often not well informed about their own talent. Thetalent they need most during restructure is often invisible to senior leaders.These people are found in the middle levels; they are found in outside fieldsthat may not be considered; they show a different profile of style and talentthan what the senior leaders are used to appreciating; and they come fromdifferent angles and experiences than those that shaped the last generation. Ittakes a bold leadership team to reorganize a company around the young Turks, oddbirds, and raw potential they actually need to call on to lead new change.

SOURCE: David J. Armstrong, senior consultant, Personnel DecisionsInternational Corporation (PDI), Organizational Solutions Group, Minneapolis,Minnesota, June 22, 2001.

LEARN MORE: See "Should I Reassign Instead ofFiring?" for advice before making changes.

The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.

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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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