Monday, November 25, 2013

Internal costs of a reorg

All companies need to re-organize internally, it is a logical part of growing and changing; I am a strong believer that life IS change, and what we can't prevent we must embrace. Change is the world's only constant; its opposite isn't stability... rather immobility, or death.

That being now out of the way, every change come with a price tag, and we have to carefully evaluate if the cost is something we want to pay now, if it is better postponed, and how it should be prepared for, communicated and managed.

Universities offer degrees in Organizational development, even as MOOC (click here for a recent one on Coursera). Jobs titles such as "Organizational Development Manager" are listed on job boards, with attractive salary brackets published on, Glassdoor and elsewhere; a quick-and-dirty google search will bring up more than a million documents, definitions and guidelines from important universities and HR authoritative sources as well as from private bloggers or white papers produced by large organizations. All suggest careful planning, process redesign, stakeholder engagement, and finally, a big focus on facing the clear communication challenges. Appropriate communication in this case will not only make or break the re-organization project, but potentially make or break the company itself, accelerating brain drain and effectively blocking initiative and ideas.

These offerings show a trend, attempting to meet the need to be always more productive and effective by restructuring, hoping that a change of format will provide a much-needed flexibility; often, it is a welcome change to all.

Some companies seem to do re-organizations a lot more often than could be expected, periodically and cyclically, and appear to be continually at some point of the process. A new re-org is restarted before the prior wave has been concluded, much less stabilized. Change isn't anymore the exception, but has become the norm. 

In a recent discussion with a friend, we have come to try to account for the hidden costs of such practice. 

Some costs are clear. Moving costs related to international employees, hiring costs to add to the workforce, training to provide information and to align skill sets, severance costs in case of headcount reduction requirements. 

There are a lot of hidden costs though, invisible, unaccounted on the charts, unreported by analytics, ignored by decision-makers pressured to forge ahead in accordance with agreed policies.

Any organization "senses" change coming up. Classic precursory signs include management disengagement, lack of communication or increased travel patterns; in today's social environment, we can also notice sudden LinkedIn activities, publishing of professional blogs and other social media activities. When the finely tuned sensors of a team indicate an upcoming re-organization - usually well before the official announcement - behaviors immediately change. Behaviors in turn generate activities, activities generate output, output generate revenue - or lack thereof. 

An employee expecting a re-org in in a reactive mode - not anymore proactive. He (or she) will not be a vector of change, but simply react to that, vanifying all efforts. In addition, while by all means fulfilling her mundane tasks, he will perceive his objectives as having become shifting at best, unclear or irrelevant at worst. As a consequence, instead of focusing on what are the company's goals, he will focus on what gives him visibility, either vertically internally, or externally. In other words, his output will become less relevant, in extreme cases generating a loss of productivity for several months. In fact, his focus will most likely be in finding an alternative job somewhere else... that is truly where proactivity will go. 

Then, after an announcement of restructuring is done, the decisions must be made, and employees re-assigned. This phase on its own implies a loss of productivity of two to three months. 

Let me now crunch some number. The manager of a team of 10 employees expecting a non-announced change can generate the waste of 6 months of salary for each employee. If we look at knowledge workers, with an average salary of 60k/year per employee, we are looking 300k out of pocket simply by human resources mismanagement, without accounting employees' morale, disengagement, talent leaks, severance, moving, hiring costs.

The simple suggestions to avoid such a wasted expenditure are simple:
  • re-organize only after having determined what change is wanted and expected
  • ensure communication is fully honest and transparent and is seen in that way
  • leave abundant settling time before re-engaging in transformative activities
Should a restructuring be the consequence of change - and how frequently is it the expression of a need for change that has not occurred, or hasn't been achieved?

As we move from the industrial economy to a networked one, it is time we accept change as inevitable, and fulfill it with responsibility and transparency. An adaptive company is a winning company; re-organizing has to be a vehicle of change; we need to help employees to see where they fit in the plan, see the value placed on their skills, and ensure a continued success with engagement and passion.