Why Reorganize?

I have heard a number of reasons why a business needed to reorganize, but in reality I can think of only two reasons that are a business should go through a reorganization. Reorganizations are inevitably messy, become somewhat political in nature and distract the entire organization from its primary goals; providing value to the customers and in return of that, providing value to the business owners. There may be several other different names for the reasons to reorganize, but for me they return to these two basic reasons; you reorganize your business to better match your customers’ business model, or you reorganize to cut costs and try to improve profitability.

Sun Tzu in his book The Art of War stated that war is not to be undertaken lightly as it will cost the state that goes to war its resources, its people and the time and attention that it could place on other more beneficial and constructive projects. The same could very easily be said about reorganizing a business.
Reorganizations cost businesses resources and money in their creation and execution. They cost businesses people, both those that are directly affected by the changes as well as those who decide to leave based on the incremental uncertainty that has been injected into the business. Reorganizations also cost the business the opportunities that are missed both in the market and within the business while the organization’s focus is on the creation of a new internal structure.

Businesses live and die by providing value to their customers. Over time customers and their needs can change. Just as records gave way to CDs, which in turn have given way to MP3s, and “mailing a check” has given way to on-line e-commerce (to use a few consumer products for illustration), businesses have had to adapt to the changes customers have demanded. In the past I have written about business “momentum” as the inertia that has a tendency to keep a business moving in the same direction and doing the same things until a force acts on it to change things. A reorganization would be such a force.

The net result here is that if your customers have changed the way they do business, the types of products they demand, or any other fundamental structures associated with their needs, you will have to modify your business structures to match them in order to be efficient and provide your customers with the maximum value that you can.

The other primary reason to reorganize is to cut costs. Refocusing resources away from outdated or unprofitable markets and products, taking advantage of new streamlining operational techniques, or reacting to fundamental changes in the market or economy are examples of reasons for a cost cutting reorganization.

When a business decides to engage in a cost cutting reorganization, the focus needs to be two-fold. What work is going to be stopped or removed from the organization, and what functions are going to be retained or enhanced? When you are cost cutting you are removing expense – and people – from the organization. Some of the work that those people were doing can and will be absorbed by others within the organization, but a significant portion of it will not. The key will be to clearly define the work and roles that are no longer providing the required value to the business and to focus on them.

In either type of reorganization change will be met with some resistance. Those whose roles may be changing will have some aversion to having to learn new roles. Those whose roles and work are no longer seen as providing the desired value to the company will resist being defined in those terms. The longer this situation exists the more disjointed the organization risks becoming.

The key to the reorganizations success will lay both in the final perception of the changes by reorganized group, and the speed at which the changes were affected. If fundamental changes in both the management structure and just as importantly the number of managers – remember, if cost cutting requires less work it also requires fewer managers to manage the work – have been enacted then the team can and will recognize the value of the reorganization. If the changes are enacted in a very timely manner where the opportunity for the business to be distracted from the primary focus of providing value to the customer is minimized, the reorganization will also be much less disruptive and accordingly far more successful.


Whenever a business enters the fourth quarter of the year, everyone’s attention inevitably turns to the topic that they had already been anticipating for the previous three quarters of the year – the possibility of, potential for, or pending business reorganization.

If it has been a good year there is always the possibility of a reorganization in order to move resources from underperforming business units to growing businesses to take advantage of the market conditions. If it has been a fair year for the business there is always the potential for a reorganization in the hopes of kick-starting the business for the next year. If it has been a year of underperformance, or worse another year of underperformance, chances are that a reorganization is not only a probability, it is probably pending.

Reorganizations are interesting events in a business. Leaders have a tendency to try and keep the structural changes a secret until they can be fully announced. This tends to be a futile effort on several levels. On the first level, when people are involved, as they must be for a reorganization, information regarding the potential changes is going to get out. When a number of people are involved, or are providing input, someone will talk. If people become aware of pending changes before the full structure is in place, it can cause them to behave in ways detrimental to the current organizational structure in anticipation of the future structure.

On the other hand if the number of people involved in the reorganization is held to a minimum, and the information is tightly controlled, the reorganizational changes can be withheld from the business. While this may sound like the preferable situation, in reality the lack of knowledge can cause the organization several issues as well. Instead of focusing on the business and opportunities at hand, the team will have a tendency to become more internally focused on exactly how the reorganization will manifest itself. It can also cause team members to feel somewhat alienated by the fact that they were not involved or consulted regarding potential changes affecting their careers.

The best statement that I have heard to describe this situation is: If during a reorganization you present your employees with a blank page regarding information on where they will work and what they will do, you will not like the story that they will write, and neither will they.

A fine line must be walked when reorganizing. Enough team involvement to get commitment and assure an intelligent and logical structure is put in place to position the business for future growth. Not so many people involved that the situation becomes unwieldy and proprietary information is too readily available and becomes distracting to the business. Some information needs to be provided to the team in order to minimize the internal speculation and distraction to the organization, but not so much information about future organizations that it begins to affect current business structures and behaviors.

The key to maintaining organizational focus during and through a reorganization is going to be the length of time that the reorganization takes to complete. In general, the shorter the amount of time involved the better. Like removing a Band-Aid that needs to be changed, doing it quickly minimizes the discomfort.  There will be less time for information to prematurely filter out into the organization and less time for the distraction of the team associated with speculation on the new business structures.

Some organizations have tried to break down the reorganizing process into shorter or smaller steps and announce each step as a way to minimize the distraction to the business. The example would be to reorganize one business group (vertically) or one management level (horizontally) and then announce the results in an effort to keep information flowing and minimize business distraction and disruption during an extended reorganization process. Again, time will be of the essence here. Until the final reorganization announcement has been made, and noted as the final announcement, the business team’s focus cannot be fully on the customer and conducting business with them. Speculation on the wisdom of the last step and the potential future structures and moves associated with the next step will continue until the reorganization process is over.

Reorganizations are rarely an enjoyable experience for anyone. Those that are doing the reorganizing are making difficult decisions that will affect the careers of the people on the team and the success of the organization in the future, while trying to make sure that current performance objectives are met. Those that are being reorganized are concerned about their careers while at the same time continuing to try and perform their current jobs. The less time that these incremental stresses are applied to either group, the better it will be for the business. If the decision is made to reorganize, the optimal approach is to generate a reorganization plan and execute it as rapidly as possible.

That is easy enough to say, but in reality experience has shown that it is difficult to do.

What’s Right?

Anytime you have a business or office environment, people will congregate to talk. It’s part of the social aspect of working in the office. These are euphemistically known as “water cooler” conversations (although I really suspect that it has been decades since there was actually a real live water cooler in an office). People will talk about many things, but if they are in the office at least some part of the conversation will usually be about the company that employs them. I have worked in several different companies and this is a fairly consistent topic for discussion, at least in my experience.

What I have also found is that these conversations normally migrate to, and revolve around the issues, challenges and problems that the business is facing. Company stock prices, competitors’ products and capabilities, pending or potential staff reductions, executive bi-play and office politics are all favorite topics for discussion. I think we have all been there, and probably even participated.

In short, most of these conversations are at best group reinforcement sessions for all that can be perceived as wrong (rightly or wrongly) about the business, and at worst become a functionally demoralizing aspect of the work day environment. Sometimes it appears that these meetings can become an opportunity for company bashing where the objective is to see who can relate the worst example of bad corporate behavior or malfeasance. It has been seen it in the boom times of the past and it seems to have taken on an even greater propensity in the difficult times of today.

This “what’s wrong” discussion concept got me to thinking, which is always a dangerous proposition for me. Why do we always tend to focus on the negative? Doing so has to have a negative effect on both ourselves and those we share the negativity with at the office. Surely something has been going right, and probably has been going right for some time, to enable the companies and business units we work for to survive and grow for the periods of time that they have been around. I decided some time ago that I would put this idea to the test at one of these negative conversations that I was party to. I asked:

“Okay, I have heard your view on what is wrong with the company, but can you tell me what’s right with the company?

People looked at me as if I had just come from another planet.

Instead of playing along with the rehashing of all the latest down side issues and topics that seem to be present in every organization, I had challenged people to at least try and define what was good about the place we all worked.

I was immediately challenged in return to see if I could actually start the list of what’s right. I think this was done as a delay tactic so that everybody else’s brain could do a cold restart in this new direction for the conversation. I started off with the most basic good thing about working for the company that I could come up with:

“My paycheck cleared and was deposited in my account at the bank.”

I assumed that everyone else’s paycheck had achieved the same status. This is a tough item to argue about. We all got paid. Something had in fact gone right enough that we got, and continue to get paid. I also assumed that everybody would like to continue to get paid. The focus now should be what else we need to do right going forward to assure that we continue to get paid. It was an interesting change to the standard conversation at that point. It also seemed to work. Several other right topics ensued. There were some good things out there if people just thought about them.

I am not a Pollyanna in that we must only look on the brighter side of things. If we do not acknowledge what is wrong we will never focus on it, and there will be no improvement. What I am saying that we do have a tendency to not just focus on, but to dwell on what is wrong almost to the point of discouragement. This means that occasionally we need to take a step back and look at what has been done right.

I don’t think it needs to be done all the time. A certain amount of venting with friends and peers is good to provide a healthy work environment. There have also been instances in these negative conversations that have germinated some of the teams’ better ideas and plans on how to improve the business as a result of hearing from others what they think is wrong with the business. However, I really do think that on occasion it is a good idea for the group to have the water cooler conversation taken in a different direction and talk about what’s right with the business.

The Color of Information

What did we do before we had color printers? I can remember when color printers first started to make their appearances in the office. They were big. They were expensive. They were only supposed to be used for specific documents. They were aggressively guarded by the administrative assistants that had responsibility for them and they couldn’t be used without special permission. That is obviously no longer the case. Color printer sizes and prices have come down to the point where the old black and white only printers are now a thing of the past. Color is so ubiquitous on both our screens and our printing that we appear to have become fully dependent on color to convey our information. While I do utilize color in my documents and presentations, I can’t help but feel that many managers may have now become so dependent on the color code of information that they may no longer feel the requirement to understand the actual underlying values of the information.

It seems that what was once provided to management as data is now provided as colors. Instead of quantifying a performance issue, we are now providing a “traffic light” condition sound bite. It is now condition “red” for issues and adverse situations, condition “yellow” for potential problems, and situations where there are no imminent threats – condition “green”. I understand the need to distill down information to make it more manageable, but I don’t think you can properly run a business based on the colors of a traffic light. I am concerned that we are now into the same thirteen second sound bite mentality for managing our businesses as we are in when we watch the 5:00 news on television.

This “just give me the high points” three-color approach to management has a tendency to indicate to the team that the desire of management is not to get too deeply engaged in the issues of the business. It appears that management is becoming interested only in the performance of the business, not in how the business is running. If the team feels that management doesn’t want to be too deeply engaged in the business, it will not be long before that sentiment is reflected throughout the team as well.

Some of my first experiences in management were working for an executive who was extremely knowledgeable about the businesses that he had responsibility for. As such, he demanded that his management team know at least as much, if not more about the business than he did, if they were to be value add to both the business and management chain. As such these businesses were relatively well run and profitable. An in depth understanding of the issues, data, finances and how the business worked was required in order to maintain the high level of performance of the business.

With a “three-color” approach to management, leaders are communicating that they in fact do not want to know as much about the business as the management team and all that they are really interested in is “stop”, “go” and “caution” status of the business. Where in the past it was required that the management team have a greater in depth knowledge of the business than the knowledgeable leadership team to provide value add to the business, the three-color management approach now calls into question the value add of an unknowledgeable leadership to the business.

It is a long leap from the proliferation of color printers and presentations to indicting business leadership for seemingly removing themselves from the detail associated with the running a business and its management process. I have stated in the past that metrics, be it tabulated data or color codes, only point you in the direction of the issues and more importantly point you in the direction of the potential solutions. Three-color metrics would seem to only point you at the issue without the value add of any direction toward a potential solution. As an example, with all the other inputs that are required to drive a car, a successful trip anywhere would be doubtful if traffic lights were your only source of information.

I guess I am still of the old school that good business leadership requires a leader that is well versed and knowledgeable about the business they are leading. A good leader needs to understand not only the performance of the business, but how the business works. To extend the traffic light – automobile analogy a little further, a leader may not need to know how the car works in order to drive it, but a leader will definitely need to know how it works if they are ever going to be called on to fix it.


As we enter the fourth quarter and approach the end of a year, greater attention will be focused on the business performance financials. We see this type of focus at the end of every quarter to a certain extent, but at the end of the year it peaks. Sales commissions and staff performance bonuses are paid based on annual numbers. Personnel ratings and reviews are conducted based on annual numbers. Business forecasts are to be completed in preparation for the next year during this time period as well. Predictability of business performance is now at a premium. It is also the time when businesses most try to avoid surprises.


Surprises are those unexpected events that materially affect both the performance and the measurement of the performance of the business. Surprises can be viewed as both positively impacting and negatively impacting to the company. However when surprises are viewed against the three basic limitations that all businesses must deal with, Resources, Money and Time, we see that at the end of the year, time is in very short supply when it comes to dealing with surprises. That means that incremental money and / or resources will be expended on surprises, both good and bad ones.


Good surprises usually come in the form of unexpected sales and revenue opportunities. A large un-forecasted order can come in. A product shipment scheduled for next year can be pulled forward into this year. Good surprises are normally associated with opportunities to increase the top line and via the financial flow through, increase the bottom line as well. However, even good surprises normally come with an additional cost. A large unexpected order will stress both the supply chain and production capabilities for delivery. Overtime and expedite costs may be required to meet the year end time frames. In short, because there is now limited time, it will take incremental resources and money to deal with even good surprises. No business leader wants to deal with problems, but if they are going to have problems, these are the types of problems that every business leader wants to deal with.


Bad surprises on the other hand are normally associated with issues that unexpectedly reduce sales or revenue, or alternatively increase business costs or expenses, and again via financial flows reduce the bottom line business performance. Expected orders being cancelled or not materializing would be the primary example of a top line bad surprise. A reduction in sales will turn into a reduction in revenue, and all other things being equal, a reduction in predicted earnings.


Top line bad surprises normally come about as a result of an overly optimistic sales team, or a sales team that is under engaged with the customer. Either way, it was not clearly known that the customer was not going to be buying, when everyone was predicting that they were. When the business is counting on the sale, the sales team needs to be fully engaged with the customer, as well as possibly a little conservative in their forecasting. It is far better to present the good surprise of an unexpected sale and the problems it presents than the bad surprise of the loss of a sale that was counted on to make the yearend forecast.


 Other types of bad surprises can affect both the top and bottom lines. Component shortages can cause unexpected production limitations precluding shipment and revenue recognition, changes to government regulations can add unexpected costs to products and unexpected legal or labor provisions can eat directly into margins to name just a few, are just a few examples of bad surprises.


The point here is that these surprises are issues that can and should have been readily identified as potential risks to the business. If they are risks, then the need a risk mitigation strategy if they occur. If they are not identified, then the business team needs to understand why they were missed and take corrective actions, as well as examine the business for any other unidentified potential risks. If they were identified and mitigation was neglected, then the business team must address this management failure appropriately as well in order to avoid future similar situations. Again in either event, it is the business leaders’ responsibility to identify and either avoid or mitigate these types of bad surprises.


Predictability of business performance is a key to the business’ success. As the end of the business year approaches it takes on a heightened importance. Good surprises can help bolster the numbers coming into the close of the year, but even good surprises usually come with the requirement of increased resources and financial costs since there is usually limited time to deal with them. Bad surprises on the other hand can cause problems with the business’ financial performance that there is not sufficient time for the business to recover from before the year ends. Bad surprises are normally the result of human error where either sales’ over optimism or management’s lack of attention to fundamental business practice has contributed to the business failure. In either instance the “surprise” needed to be identified well in advance of the event occurring so that the business could more accurately predict how it was going to perform.