Reorganization without tears
A corporate
reorganization doesn’t have to create chaos. But many do when there is no clear
plan for communicating with employees and other stakeholders early, often, and
over an extended period.
Most executives and their employees dread
corporate reorganizations, as we can personally attest. During our combined 35
years of advising companies on organizational matters, we’ve had to duck a
punch, watch as a manager snapped our computer screen during an argument, and
seen individuals burst into tears.
There are many causes
of the fear, paranoia, uncertainty, and distraction that seemingly accompany
any major reorganization (or “reorg,” a common shorthand for them in many
companies). In our experience, though, one of the biggest and most fundamental
mistakes companies make is failing to engage people, or at least forgetting to
do so early enough in the process. In this article—based on the new book ReOrg: How to Get It Right (Harvard
Business Review Press, November 2016), which outlines a step-by-step approach
to reorganizations—we concentrate on the lessons we have learned about that
evergreen but still frequently mishandled and misunderstood topic:
communication.
Employees come first
In our view, it makes
sense to think simultaneously about engagement with employees and other
stakeholders—unions, customers, suppliers, regulators, and the board—but employees invariably require the most attention. Leaders of reorgs typically fall
into one of two traps when communicating with their employees. We’ll call the
first one “wait and see” and the second “ivory-tower idealism.”
In the first trap, the
leader of the reorg thinks everything should be kept secret until the last
moment, when he or she has all the answers. The leader makes the reorg team and
senior leadership swear to secrecy and is then surprised when news leaks to the
wider organization. (In our experience, it always does.) Rumors increase amid
comments such as, “They were asking what my team does,” “I had to fill in an
activity-analysis form,” and “I hear that 20 percent of jobs are going to go.”
Eventually, after the reorg team produces a high-level org chart, the leader
announces the new structure and says that some job losses will be necessary,
but insists that the changes will help deliver fantastic results.
Employees, hearing
this, only hear that their boss’s boss’s boss is going to change and that some
of them are going to lose their jobs. Nothing their leader has said counters
the negative impressions they formed at the water cooler.
Ivory-tower idealism is
little better. In this version, the leader can barely contain his or her
excitement because of the chance to address all the frustrations of the past
and achieve all objectives in a single stroke. He or she decides to start the
process with a webcast to all staff, telling them about the exciting business
opportunities ahead, followed by a series of walk-arounds in major plants and
offices. The leader puts a personal blog on the company intranet. Human nature
being what it is, however, no one believes what they hear: they still assume
the reorg is about job losses and, to them, the leader’s enthusiasm feels
discordant, even uncaring. A charismatic boss can all too easily become
shipwrecked on a shore of cynicism.
So, how to handle this
challenge? Through communication that is frequent, clear, and engaging because
it involves people in the org-design process itself.
Frequency
First, you need to
communicate often, much more than you might think is natural. Iain Conn, the
chief executive of Centrica and former chief executive of BP’s downstream
segment, who has led three major reorgs, told us how important constant
communication is: “You need to treat people with real respect and dignity,
telling them what is happening and when. The biggest mistake is to communicate
once and think you are done. You should keep communicating, even things people
have heard already, so they know that you mean it. You should never forget that
you should be communicating to both employees whose jobs may be at risk and the
vast number of employees who will stay with your company and make it
successful.”
Clarity
Second, you need to be
clear on what staff want to know. Why is this happening? What will happen when?
What does it mean for me, my job, and my working environment? What do you
expect me to do differently?
Research shows that
employees anxious about their jobs have significantly worse physical and mental
health than do those in secure work: one study, published in 2012, of
unemployed workers in South Michigan reported almost half experiencing minor to
major depression. Leaders can minimize that anxiety by stating in plain
language what they know now, what will come later, and when it will come. They
can also reassure people by reminding them of what will not change—for
example, the company’s core values, the organization’s focus on customer
centricity, or simply the existence of this or that department. The task will
be infinitely simplified if it is possible to communicate why the company is
reorganizing and what the overall plan is. In essence, communications should
move from informing people at the beginning to exciting them when—and only
when—they know what their new jobs are going to be. That understanding usually
comes after the first big strategic announcement, which deals with the concept
of the reorg (and as such tends to excite managers much more than the rest of
the staff).
Broadcast communication
through digital channels as well as two-way communication through town-hall
meetings are important tools. Each communication is an opportunity to
articulate the one big thought of the reorg (a move from print to digital, for
example, or an effort to make local managers accountable for their profits and
losses) and the three to five biggest organizational changes needed to make
this happen.
Engagement
Staff need time to
discuss what a reorg means for their own part of the business. So, in addition
to the usual approach of developing question-and-answer briefings and cascading
information down the organization through managers, direct communications are
essential. Anyone with a question about the reorganization, at any stage—but
especially when the new organization is being rolled out—should be clear whom
to contact on the reorg team or in the individual’s own part of the business.
It can also be helpful to capture feedback or concerns that staff do not want
to raise aloud: for example, by setting up a confidential email address or
through regular net-based surveys. It’s important to track whether those
digital tools are working, of course. During one reorg, three months into the
process it was discovered that emails intended for the whole organization had
only been sent to senior leaders’ email boxes, where the messages remained. The
digital dialogue leaders had hoped to stimulate was stopped in its tracks.
Engagement gets more
demanding when the context of the reorg is an expanding business. Elon Musk,
CEO of Tesla and SpaceX, told us, “As companies grow, one of the biggest
challenges is how to maintain cohesion. At the beginning, as companies get
bigger, they get more effective through specialization of labor. But when they
reach around 1,000 employees and above, you start to see reductions in
productivity per person as communication breaks down. If you have a junior
person in one department who needs to speak to another department to get
something done, he or she should be able to contact the relevant person
directly, rather than go through his manager, director, then vice president,
then down again, until six bounces later they get to the right person. I am an
advocate of ‘least path’ communication, not ‘chain of command’ communication.”
Design
Some companies extend
engagement to involve a cross-section of staff at an early stage of the reorg
design. For example, Lawrence Gosden, the wastewater director of Thames Water,
the United Kingdom’s largest water utility, covering London and much of the
southeast of England, engaged 60 members of staff from a cross-section of the
company, including the front line, in shaping the organizational design: “We
put them in a room with a lot of diagnostic material on the external challenges
and some great facilitation, with the idea of stretching thinking on how we
should solve the challenges of the future. We then asked this group to come up
with a vision for what the new organization needed to do—including savings. The
team came up with a simple vision focused on customer service. We then took the
material that had been developed and shared it with all 4,000 members of staff
in a way that they could explore what it meant to them as well. This generated
an extraordinary level of ownership in the vision and the plan we needed to
deliver. Despite the fact that a large number of people were losing their jobs,
most people in the organization got to understand why the change was happening
and got behind it.”
Such openness from the
beginning is a risk and won’t work in every reorg. However, relying on a small
team of smart folks to design the details is even more hazardous. When the new
organization launches, it will be the employees who determine whether it will
deliver value by working (or not working) in new ways and with a different boss
(or a different boss’s boss’s boss).
Don’t ignore other stakeholders
Given the costs of not
having a communications plan for employees, most executives eventually create
one, albeit often too late in the day. Fewer leaders, however, devote
significant time to other stakeholders. While staff typically demand the most
attention, depending on the business context, as many as four other groups will
likely need attention:
·
Unions and workforce
councils. In the European Union, legislation
requires companies to communicate with representatives of the workforce at an
early stage. Ironically, this may make life harder for workers outside the
European Union who could end up bearing the brunt of higher savings. In
addition, unions in Asia are often important and can be linked to governments,
parties, and other power blocs. In general, unions often have clear views of
what needs to be changed and can be even tougher than senior management on
hollowing out middle layers (though their focus is often on employees who are
not their members). In some cases we know, union representatives have become
formal members of a reorg team.
·
Customers and suppliers. One danger of a reorg is too much navel-gazing. If
the business is customer driven or relies heavily on the supply chain, the new
organization must work better for these stakeholders than the old one. So, when
you think through how the organization will work in the future, make sure you
also consider how it will affect customers and suppliers. Don’t add additional
steps or expect them to navigate the complexity of your new organization by
having to speak to several people. When salespeople are friendly with their B2B
customers—something most companies would encourage—it’s hard to keep the reorg
a secret.
·
Regulators and other arms
of government. The concern of this group will be
typically around health, quality, and safety, though potential job losses and
their impact on local economies will also weigh heavily with politicians and
civil servants. They will want reassurance at a senior level about what to
expect. An example from the Asian arm of an international business shows what
not to do. In a meeting with a senior government official, just after the
company’s reorg, the country manager of the company was asked for an update on
the company’s performance in the official’s country, a discussion that the pair
had had many times before. “Oh, no,” the country manager responded, “that isn’t
my responsibility anymore. You need to speak to our new operations excellence
team in the United States.” Regulators and government officials—like
customers—don’t want to have to negotiate the complexities of a company’s
internal organization, so it is best to make life easy for them by
communicating early in the process.
·
Board of directors. If the reorg is company-wide or likely to have a
major impact on company performance, it will be of interest to the board. And
reorgs always lead to some short-term penalties. The board should therefore
understand what is happening and why, and be aware of the time frame, the
benefits, and the risks along the way. At the very least, the CEO or other
leader in charge should brief board members individually and collectively on
the progress of each step, though some will go further.
Lord John Browne,
executive chairman of L1 Energy and former CEO of BP, who has also served on
the boards of Goldman Sachs and the UK civil service, has this advice for
executives: “The board have to be involved in the design. You should advise
them that the path may be rough but that they should ignore the bumps in the
road. The board needs to understand the design and what you are forecasting the
outcome will be. You need to set out simple milestones and report back on them
on whether you are delivering against these.”
Under nearly any circumstance,
reorganizations consume a great deal of time and energy, including emotional
energy. When proper communication plans are in place, though, leaders can at
least reduce unnecessary anxiety and unproductive wheel-spinning. Planning
should start long before employees get word of the changes, include
constituents well outside the boundaries of the company, and extend far beyond
the announcement of the concept design to boost the odds that the reorg will
stick.
By Rose Beauchamp, Stephen Heidari-Robinson,
and Suzanne Heywood
http://www.mckinsey.com/business-functions/organization/our-insights/reorganization-without-tears?cid=other-eml-alt-mkq-mck-oth-1610
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