The Risks of Organizational Restructuring

Jennifer L'Estrange
November 8, 2022

I led my first restructuring project 20 years ago. There have been many other, larger, more significant projects since, but it was my first as an HR leader and the one I remember well.

Following the creation of a new shared service center, I spent approximately 18 months traveling back and forth between the two sites and my home office location every week, working with line managers and employees to move jobs from one location to another, change job roles and organizational structures to finally integrate two relatively different employee populations into one coherent and cohesive organization. We also decided to close one of the locations. 

When we had the final site closure meeting and I came home after the last trip, I sat down on my couch and cried. I ugly cried. I cried from mental, physical, and emotional exhaustion. Total and complete exhaustion. This is the side of organizational restructuring that no one talks about. Don’t get me wrong, this isn’t about how managing a restructuring impacted me – or any leader – because it’s not about us. It’s about the emotional cost to the organization and its individuals and how that affects our ability to assess risk and achieve the project’s goals. 

With restructuring work, we often say “The best job you can ever do is only ever good enough.”   I still believe that, but I also know we have to go into it with our eyes and our hearts open. So, if you think organizational restructuring is in the cards for 2023,  here’s what you really need to know. 

1. Decline in Employee Morale 

As soon as we announced we were creating a new integrated organization, there were a lot of questions, with many we couldn’t answer yet. Morale and productivity dropped almost immediately as people spent hours speculating on what change was coming next. Would there be job cuts? Would jobs change? Leaders were frustrated because they didn’t have a lot of answers and the few they did have, they couldn’t share. Moreover, there was important work to be done to support business operations and we couldn’t afford to have half the team spending their day sitting in a conference room talking about what might happen. 

And yet, this happens in every single change project. There is always a dip in productivity and morale almost as soon as the project is announced. It comes from the employees’ sense of loss of control and they are no longer sure that their role today will be the same tomorrow – if they even have a place in the company at all. In a sense, it marks the beginning of the grieving process. We are losing the work environment as we know it and what we’re getting in exchange is largely unknown. The “curve” that we reference in change management is actually based on the work of Elisabeth Kübler-Ross on death and dying. Much like losing a loved one, the loss of a job role or a major organizational change in a place where we spend over a third of our waking hours feels like grief. Surprise is quickly followed by denial and frustration, and we stop focusing on the work and start thinking about how to fight it or avoid it altogether. 

When we work on organizational restructuring projects that involve major job redesign or layoffs, we estimate a 40% drop in overall employee productivity for the duration of the project. If business continuity is critical during the transition process, we recommend backfilled resources for additional support and potential knowledge transfer work. Even if you don’t have the financial resources for a backfilled organization, it’s important to include productivity loss and its impact on your timelines in your financial business case.

2. Confusion From Employees on New Vision

Our overall vision for this project was to focus operations on two physical locations rather than three. It was partially a cost-saving measure, but mostly it was about the efficiency gains of keeping the teams together in one of two locations. It was difficult to communicate this to the impacted organization because the net result was while we were terminating employees in one location, we continued to recruit in the two other locations. It was a hard pill to swallow for some, including leaders. We did offer relocation opportunities to those who were willing to move to one of the two other locations, but for those who could not relocate, they were exiting the organization, and we were losing good people.

Confusion, or outright disagreement, with the new vision and business case for restructuring is relatively common. We find our first goal is achieving alignment on purpose and messaging among the members of the leadership team and engaging them in the communication process with employees. We don’t sugarcoat bad news, but rather, are candid on what we’re doing for the business and why. Telling people the truth is especially important in restructuring and it is how we show respect. Once people understand what’s happening and why, it’s easier for them to work in alignment with the new vision or, if they fundamentally disagree with the decision, accelerate their departure from the organization.

3. Loss of Focus 

Throughout the project, our leadership team was a little chaotic and team members weren’t always sure where to go for clear guidance. We had lost our focus. Part of the organization was still trying to work ‘business as usual’ while others were trying to figure out what the new organization should look like. Meetings were somewhat incoherent and while everyone was operating with (mostly) good intentions, it started to affect service levels and our project timelines. 

Loss of focus happens in most restructuring projects at one point or another. In fact, it happens in any project that will have a downstream impact on job roles. Change projects confuse the hell out of everyone impacted, including customers. It impacts productivity and quality of service.  The only way to solve it is to work through it. Communication plans help, but we also recommend stepping up the frequency of performance development conversations during this period. Use them as an opportunity to check in with team members to see how they’re feeling and to ensure they know what they’re supposed to be doing during this period of disruption. Employees can in turn communicate more effectively with customers if the change is also impacting service levels.

4. Lack of Communication

Throughout the project, we struggled constantly with communication issues. It wasn’t because we weren’t communicating, it was because we never seemed to be communicating enough. Since we had clear business continuity objectives during the implementation of the project, employee engagement and ongoing productivity were important. We communicated regularly, across different channels in parallel with focused communications to each audience. There was intranet, email, phone, in-person, group meetings, town halls, and one-on-one meetings. And it still wasn’t enough. 

Restructuring projects are disruptive by definition. As leaders, we have to accept disruption, and the temporary efficiency loss it creates, in order to create something better. It’s something that allows the business to grow and scale. As a preeminent leadership coach of our generation, Marshall Goldsmith wrote “What Got You Here Won’t Get You There” to help successful people understand what they need to stop doing to be even more successful. It’s true for businesses as well. There’s a reason why we reorganize operations and the organizations that perform the work, we grow through change. So, understanding what we need to change and why we need to change it is critical for the success of the project and the business. Once it’s clear in our minds as leaders, we must communicate it in a way that the rest of the organization, including those directly impacted, understand.

There are two deliverables that help with this specifically – 

1) a good, old-fashioned project plan with task dependencies and milestones 

2) a structured communication plan that includes internal and external stakeholders, accounts for business continuity requirements that articulate project goals

5. Return on Investment May Be Impacted 

When we started this restructuring project, we had a business case. It was largely financially driven and was focused on operational efficiency – basically getting the right people into the right seats and more clarity on what each team was doing. For the individuals, it meant updated job roles, better processes, and updated technology. It also meant closing down one physical location and dividing up the work between the two remaining sites. We communicated ‘early and often’ and did some really creative work with learning and development for the impacted population. All of this helped protect the return on investment we had set as the goal. Ultimately the project was successful, but perhaps some of the emotional cost could have been reduced. It was a lengthy project and the time took a toll on the leadership team and the organization as a whole. 

Now, a couple of decades later, I’ve learned that the cost doesn’t have to be quite that high. As a consulting partner to leadership teams, we are able to take some of this burden off their shoulders with structured processes for the project execution and communications plans for leaders and employees. Our team of experienced people leaders integrates into the client organization as a regular resource supporting the change. In addition to taking the lead on the change management activities, we serve as an advisor and coach for the leadership team during the project and as an ongoing resource for post-implementation support. Contact us to learn more.

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