In this article we look at some of the key elements needed to effectively manage the corporate restructuring process. We define corporate restructuring and the role of organizational restructuring as part of the larger picture. We will look at what drives the decision-making process for restructuring and what you can do in terms of communications to protect the return on investment that the restructuring plan has set as it’s goal.
What is Corporate Restructuring?
Corporate restructuring is the process of reorganizing your financial and organizational resources in response to internal or external pressures or change. Organizational restructuring involves changes to jobs: what they do, how many there are, where they are located and how they work. More often than not, layoffs are part of the plan, with some part of the workforce exiting the organization. As a result, the organizational structure changes to meet the overall goal of the new business model.
Reasons to Restructure Your Company
The purpose of all corporate restructuring is cost cutting, and any operational efficiencies are driven with that overall goal in mind. Restructuring should be guided by a financial business case. How, and how well, that business case is built makes all the difference in the project’s long-term success. Unfortunately, it often takes years to see the real ROI on a change management and people transition project, so it’s important to pay attention to estimating assumptions and test the cost model under different scenarios first. The key message here: buyer beware. For example, the market is littered with well-intended IT outsourcing projects that never achieved their intended cost savings. Why? Often these projects miss the mark because the project sponsors failed to account for business growth and new systems development. The incremental support requirements were not estimated in the development effort and eroded the cost savings – typically in less than 3 years.
Looking at Drivers and Impact
At Red Clover, we look at the drivers for a restructuring along two axes: Internal / External Drivers and the Intended Impact on Revenue / Expenses.
Which Employee Roles Should I Eliminate?
Deciding which employee roles to eliminate requires careful consideration. When we’re working with a client on a restructuring project, we start with a review of the business goals and use them to guide the rest of the conversation and analysis work.
Start with the overall business objective. What are you trying to accomplish? What is the impact on business operations? Is the goal to shift work to another location to take advantage of labor arbitrage opportunities? Are some employee roles simply not needed any longer? Or are you changing the way work gets done and the job roles are changing as well? Is there an opportunity to retrain some employees for the new roles?
Here are some key questions to ask yourself as you decide which employee roles will be impacted.
What are the overall business goals for the restructuring? Look at the table we defined above to define – and get agreement on – the overall drivers and impact for the project. Use this to guide your decision making and communication planning. The communication plan should address Why, How, and What, in that order.
What organizational changes will be made to achieve those goals? There is typically more than one option for organizational changes to meet a specific business need. Evaluate the alternatives carefully. Consider both the internal strengths and weaknesses of an approach as well as external opportunities and threats in the marketplace. Be sure to consider the organization’s values and culture as well as business needs. People transition is highly disruptive, even in the best of circumstances. Do not underestimate the negative impact of implementing an organizational transformation that runs against the established culture norms and ways of working.
What is the gap between the current and future organization? The organizational fit-gap analysis looks at the difference between the current organization and it’s incumbents and compares it to the structure, design, and job roles of the future one. The result is a restructuring plan. This list of which positions are eliminated and the employees who are directly impacted by that change.
And finally, how will you close that gap? The organizational restructuring plan is not the final step in the planning process. The implementation plan is. This includes the legal review and preparation, notification planning for impacted employees and, importantly, the decision making process and criteria by which employees will be selected to be part of the retained organization. There are legal aspects to this, but there are also values-based conversations that need to take place to ensure communications are planned and executed correctly. While there are some principles that apply to all organizations, the definition of ‘correct’ communications changes from one company to another. Know your people. Give them what they need to understand what’s happening and why.
How to Make Restructuring Work
Communication planning is the key to getting a restructuring program to work. Program sponsors that work with communication experts on a plan that includes both internal and external communications and includes key messaging, frequency and channels all are important. Moreover, explaining to stakeholders, including employees, shareholders, board members, customers, and suppliers WHY the program is taking place is the first step in setting the context for the change. The goal of the communication plan is to create urgency, explain goals and priorities, provide background, and set goals and metrics for success.
Every organizational restructuring has a financial business case that evaluates the cost of the people transition against the return on investment or savings that results from the change. When we work with clients on restructuring projects, we typically look for a 12-18 month payback period. Anything beyond that may not be worth the disruption to the business and the retained organization. In the design stage of the project, identify 3-5 KPIs that will be used to measure the success of the project. The cost of the restructuring (severance payments, 3rd party costs, etc) measured against the ongoing savings should be one. We also recommend measuring employee turnover or employee engagement using a tool like Gallup Q12. Beyond that, select your KPIs based on the business goals you set at the beginning of the project. Keep them simple, communicate them openly, and be prepared to adjust your planning if you miss the mark. There’s always room for incremental change and improvement.
How Red Clover Can Help
We specialize in organizational change management and restructuring, with a specific focus on business segments and companies with fewer than 500 employees. Our leading consultants have managed teams, run businesses or had P&L responsibility prior to joining the firm. We engage with our clients differently: we work hand in glove with your leadership team to drive organizational and individual change along with the structured people transition activities that come with it. A unique blend of analytical and behavioral skills that combines HR, Marketing, and Sales to bring best in class results. Make no mistake, these projects are still hard. But we’re in it with you. Contact us to learn more.