Posts Tagged “Reorganization”

In the midst of a major transformation initiative, senior managers are frequently surprised by what employees say in response to open-ended survey questions. As a result, we are big fans of making sure senior management hears these comments. We are also big fans of ensuring senior management acts visibly and appropriately in response to what they hear.

A while back, our company was retained by a client in the midst of a reorganization. The 7,000 employee business was moving from a single corporate entity to a divisional structure along product lines. It had been widely stated that the moves would not cut headcount except for a few senior-level positions. The economy was healthy and this company was meeting its objectives when this was underway.

We ran a survey to assess the situation, and here are a few of the comments we received:

• Give the big picture. As people become aware of this, then you can start drilling down into levels of detail.
• It appears we are doing a lot of explaining without a lot of information being revealed. Rumors, speculation and anxiety grows while we wait. I would have done more “behind the scenes” work and made the changes less visible to the organization until we were ready to make the change.
• I would like to see more “personal” meetings with senior levels. Although the communications are effective, they speak to a broad audience. I would like to see members of the executive team go to each site and personally speak to smaller groups of people to explain the rationale and changes.
• The communications have improved from senior management. There should be a weekly bulletins.
• Be open and honest. The rumor mill is rampant about 20% head count reductions. The change was not communicated this way in the beginning. There is even less communication now than ever. Associates want to know the dates when they will find out about their destiny. The vision about accelerated growth has disappeared. There is next-to-no communication about process changes unless you are directly involved.
• Keep up the good work.
• Set an exact timetable. We keep hearing conflicting dates.
• My manager has done an abysmal job of explaining this to our group, has shown no compassion and seems disinterested in our concerns. The process is too slow and is killing our culture. We hear very little from the executives and they don’t do any “walking around.”
• Will these moves really change the company and break down silos? Or is really a financial restructuring that will enable us to sell off parts of the company?

What are the takeaways:

1. Rumors fill vacuums.
2. Leaders can’t over-communicate. Be visible. Some people want more detail and some want less. There is no way to make everybody happy.
3. Have a plan and communicate your plan. Set expectations and then meet them.

I’ll post more soon.

Transformational change results in lower productivity. People are worrying about jobs, who is getting which job, how they will work in the new job, and a gazillion other things. Every level in the organization is wondering, “What’s in it for me?”  The wondering and worrying translates into lost productivity – and large opportunity costs. What value would employees create if they weren’t worrying about the big change?

It would probably take a doctoral study to analyze the numbers comprehensively, but some directional assumptions point toward a scary story. The spreadsheet below takes some average numbers for revenue and costs per employee, and estimates the value created by each employee.

The logic continues that if the average employee’s productivity falls 10% during the change, the company has foregone $2,070 in value. Because the employee contributed 10% less, less value was created. People aren’t creating new products, selling to new customers, analyzing trends for opportunities, negotiating better prices, etc… They are too busy wondering and worrying.

Carrying the logic all the way out, if the change program lasts 12 months and the company has 1,000 employees, the company has an opportunity cost of nearly $25M. 

$25M is a big number, and one would naturally ask, what can be done to reduce it?

The two options are “faster” and “better.” Faster says: get the 12 month project done in 11 months. Better says: get the project done in a manner whereby productivity is preserved. (This productivity preservation requires change management approaches.) Based on the assumptions I used, “better” is clearly – well… better.

A couple comments in closing:

• To repeat – these numbers aren’t an analysis. These numbers are directional estimate based on some reasonable assumptions. Using the mildest of assumptions, however, shows that productivity losses extrapolate into some large foregone value.
• If you would like to try your own numbers, you may download an Excel version of the Change Initiative Cost Estimation Worksheet.
• The figures regarding revenue and costs per employee in the spreadsheet come from PriceWaterhouseCoopers – Saratoga’s 2007 / 2008 US Human Capital Effectiveness Report.

Best practice says business process and organization design are linked. This reorganization team’s charter was to focus on organization design and filling jobs. Senior management viewed business process as something that would “figure itself out pretty quickly.” Because business process and organization design weren’t linked, the organization was designed without understanding how it would work.

As the new organization was rolled out, business process did not “figure itself out.” Here is an example: Mary used to perform roles A and B. After the reorganization, she performed roles A and B, plus an additional role, C – but only for business unit #1. She had no idea who to give A and B work to for business units #2 and #3 – and this work fell apart for those units. Mary also was struggling with the new work in role C. She could not get help from her new boss because her new boss was relocating from the home city of unit #2 to the city of unit #1. To make matters worse, the person who used to perform role C was let go in the reorganization. Mary’s productivity was in a perfect storm, and her storm was just one of hundreds.

The team’s recommendation: “We strenuously recommend respecting the critical link between business process and organization design throughout the change effort.”

During the course of the reorganization, the president, HR head and Finance head conducted a number of “alignment” sessions with the organization’s top two levels. These sessions were meant to explain the rationale for the change and define the roles of those executives in moving the reorganization forward. Nonetheless, mixed messages were common when those executives spoke to their functions. Just as bad, employees told us repeatedly that senior managers were absent or silent during the most stressful periods of change.

Obvious shortcomings in the vision were, no doubt, a primary driver of the mixed messages. Unfortunately, poor leadership, political maneuvering and an unwillingness to confront unproductive behaviors created far more turmoil in the workforce than was necessary.

In the end, the team knew they had few options in addressing unhelpful behaviors from such senior executives. All the same tactics (those alignment sessions) would need to be employed, with one important addition. At the project’s initiation, the team would measure senior executive support by surveying their functions. Scores would be publicly provided to senior management “in the spirit of transparency.” Of course, transparency was only part of the rationale. Creating a sense of competition and peer pressure would become the safety net to ensure appropriate performance.

Recently, we worked on a reorganization of a business with several thousand employees. The company was splitting itself into smaller organizational units. Our team didn’t set the business strategy or the change plan. But we were the arms and legs to help the project team get the work done.

At the end of the project, the team documented their learnings and some will be shared over the next couple posts. We share them for a simple reason – it is highly likely that other reorganization teams will face similar challenges. The challenges themselves aren’t “secrets;” what created the challenges, where the challenges occurred and how they were addressed are. In any case, here are some real live challenges to plan for as you work on a reorganization.

#1 – Crystallize the Vision and Case for Change

While there were several important themes supporting the reorganization (like “accountability” and “customer focus”), these themes didn’t effectively crystallize into a clear and compelling picture of the envisioned future. Because the vision wasn’t clear, the team struggled throughout the project with several issues:

• Decision making became more complex since there were no clear “stakes in the ground” on which to base priorities. Everything was an ad hoc decision. Nothing was principle based.
• The team was left in a reactive and responsive mode vs. being proactive with a clearly defined strategic goal.
• The team was unable to effectively communicate an appropriate understanding of management’s vision of the future. (The team wasn’t quite sure themselves). When the team did communicate, there were conflicting messages:
  • “This is not a cost-driven exercise,” and “Design an organization that reflects some level of reduction,” or,
  • “Business process management and execution is critical to our long-term success,” and “We can design our processes after we set the organization;” or,
  • “Do it right,” vs. “Do it fast.”

The team’s #1 lesson: “When considering large-scale change, nothing should be more important than crafting an iron-clad and understandable case for change and an engaging vision for the outcome of the change. This includes creating specific examples of how employees would experience the change as enhancing their work lives. Use focus groups to test the vision for how understandable and engaging it is.”

A recent comment on this blog regarding resistance to change led me to try to prove an intuition about the subject. (Meyers Briggs’ intuitives can look like geniuses frequently, but can also look like idiots when those intuitions are wrong!)

According to SHRM’s 2007 study on Change Management, about 70% of major organizational changes encounter employee resistance. The comment stated that typical levels of employee resistance run around 15%. Is there a way to reconcile the two? In short yes. They aren’t mutually exclusive. 70% of reorganizations can encounter resistance – but the resistance can come from only a small number of people.

A 2005 benchmarking study of 411 companies by Prosci identified where resistance to change was most commonly cited. Middle management won the prize by a long shot.

Their study provides common sense insight on why managers resist change:

1. Loss of power and control
2. Overloaded with current responsibilities
3. Lacked awareness of the need for change
4. Lacked the required skills
5. Fear, uncertainty and doubt

The managers’ reasons are far different from the reasons why front line employees resist change:

1. Not aware of the business need for change
2. Layoffs were announced or feared
3. Unsure if they had necessary skills for success
4. Comfort with the current state
5. Believed they were being asked to do more with less, or more for the same pay

Thinking back over the many initiatives I have been involved with, the front-line employee concerns were more easily handled. Provide information in a professional and compassionate way as it is available and you will earn trust, respect and engagement in the change process. The middle manager, however, has always been more difficult to address. Frequently their concerns are well-founded. They are going to lose power or they are going to become more overloaded.

As you work with them to gain their participation in the change, however, it is best to remember the leverage they represent. Getting one middle manager on your side means a whole lot of their people will follow him or her. It is a whole lot harder to convince the employees of a middle manager to not follow their leader’s resistance than it is to get the leader on your side.

I found a recent Business Week article about what happens after the corporate layoffs to be a good example of why Dilbert continues to be such a popular comic.

The article discussed, in a rather glib tone, how interior designers are persuading executives “to do something—anything—with the space where employees used to be” after their downsizing efforts.

Now, I’m all for ensuring the remaining employees stay engaged and recognize the need for extra special care during this time. Heck, I’ve been there. And I’m all for recycling – whether it be paper, plastic bottles or office furniture. But seriously…recommending the newly empty space should be used for quiet rooms, massage chairs and plasma TVs seems a little insensitive. Would employees left behind really find it appropriate that their colleague of 15 years has been replaced by the new plasma screen in the hallway?

Perhaps it depends on what stage of coping the remaining employees might be in at the time these initiatives begin. Anyone familiar with the Kubler-Ross grief cycle understands there are seven stages a person goes through during any type of traumatic change, whether it be the loss of a loved one or the loss of a job. The stages are shock, denial, anger, bargaining, depression, testing and acceptance.

More power to the interior designers who can improve our work environments through creative uses of space, lighting and furniture. But timing is everything. Making these types of changes while employees are in the shock, anger, denial or bargaining stages would most definitely cause negative consequences.

But perhaps it might make sense if done during the accepting stage, especially if the employees are given a voice and participatory role in the reconfiguration of their workspace. This ownership would involve them in shaping a new future, and not in Dilbertizing their situation.

In 2007, the Society of Human Resources published a study on Change Management during major organizational changes. At the risk of over-generalizing, just about everybody is reorganizing, but less than half of the organizations are doing so with a clearly defined approach. Approximately…

• 89% of large employers (500+ employees) had planned or implemented major organizational changes in the 24 months prior to the survey.
• 40% of organizations used change management consultant services during the change.
• Nearly two-thirds reported no particular model was followed during the change.

The survey also shows how the obstacles and challenges being confronted in major organizational changes.

It is no surprise there is resistance to major organizational changes. It also is no surprise that communication breakdown occurs. Sometimes breakdowns occur because the change being implemented has not been thought through. Sometimes communication breakdown is due to a failure of execution. As I watched one executive say to her team, “In times like these, you can never communicate enough, and it would appear that I failed to follow my own principles of leadership.”

Other challenges appear in different ways, but they all come from a common mistake: a tendency to under-resource initiatives. Whether it is people, time or money, the team charged with bringing about the change does not realize what it takes to execute a major organizational change.

We have faced the same challenges in our work. In our experience, there are two strategies that best address these issues:

• Measurement – Measure the number and types of communication. Measure attitudes. Measure attendance at lunch and learns. Measure everything, show how the measurements trend, and report on those measurements. The best way to get senior management involvement or additional resources is to show the measures that back your case.
• Leverage – The laws of physics are clear. With right sized lever, huge movements can be made easily. What are the levers for you to push and pull in your organization? Putting the COO on a speaking tour with employees? Publicly and broadly communicating status of progress by individual groups? You would be amazed to see the performance created when VPs agree to post the performance of their group relative to other groups.