Trends in ‘Reorgs’ and What You Can Learn From Them

Hierarchy concept

By Rebecca Bennett

Microsoft, Charter Communications, Readers Digest Association Inc, ION Media Networks Inc, and Citadel Broadcasting Corp, are a few of the major national media companies that went through a reorganization in the past decade. The most recent companies to belly up to the chopping block are The Chicago Tribune and 21st Century Fox. Fox is looking to reduce staff overhead by $250 million in 2016 in order to lean up as well as possibly bring in younger fresh talent to bring innovation back into the company.

Reorganizations are risky. There are several reasons companies take such a risk and go through reorganizations, such as:

  • Bankruptcy
  • Shifting market focus
  • Mergers
  • High overhead
  • High turnover
  • Cultural shift

Over the past decade, and more so in the past few years, trends have emerged that should be taken note of. Use this list as a reference to take proactive measures to guide your company in the right direction before they guide you out the door.

Let the Employees Lay the Bricks.

Many companies and team leaders have realized that coming up with great ideas in a vacuum from 10,000 ft high view is not a good way to come up with strategy. Remember the scientific method you learned in middle school? Previously companies would skip step 4: Conduct an experiment and go straight from “making a hypothesis” to “drawing conclusions” based on current data. Companies are now starting to adopt the full method when coming up with a winning strategy, realizing that piloting a strategy gives better data to make decisions off of than data based on what some other company did.

Companies are now involving the real people who will be involved in the end to 1) help develop the strategy and 2) run a pilot test. They keep reworking different variations of the test, adding each layer of the idea, one by one, to see the effects, assess, and then modify until the new strategy is fully formed. Take for example, building a new university campus, “You can either put all the paths down in advance, or you can have people walk and show you where the paths should be, and then lay the concrete.” Let your strategy grow organically.

Create a Customer-centric View.

Companies, like IBM and Nokia, are now offering full solutions to customers instead of stand-alone products. Take for example, AT&T’s bundling packages with a discount incentive. By offering bundles, you give the customer a one stop shop for purchasing and getting support that can address more than one need at a cheaper price, thus adding more value. This trend has required leadership to be able to interact with multiple product and customer business units as opposed to just their own. This new collaboration has allowed products to integrate in new innovative ways that is driving business. One of the challenges though that companies are facing is getting all of the products to work together.

Organize by Product Line, not Geography.

There is “a tendency to put power and responsibility into whatever part of the world has the leading edge in a particular activity” states Jay Galbraith, an organization design expert and former Wharton University faculty member. Not any one location will be the leader in all products, therefore it makes sense to ungroup products and put them where they will perform best. As a result, there has been an increase in having multiple headquarters. For example, Citigroup’s foreign exchange business is headquartered and managed out of London, the world’s largest foreign exchange market. It’s private banking however, is jointly-headquartered in Zurich and New York City. Other examples of companies that have gone this route are Ford Motor and Procter & Gamble. Most have ended up with some sort of hybrid model.

Global Customer over Local Customer.

Country managers are incentivized to serve their local customers at the expense of global customers. With the rise of the global customer, account management requires greater cross-border coordination than was necessary in the past. As a result, there has been a power shift from local/country business units to individuals heading up global divisions in order to implement newer global strategies.

Opt for Targeted, not Sweeping, Change.

When a company is in trouble the easy way and fastest way to further themselves from the problem is a reorg. However, just because there is a problem within the system doesn’t mean the system itself is the problem. What management experts are realizing is that taking a targeted approach and fixing a problem within a system is often times a better and less risky approach than a full-on re-org sweep. Issues residing in processes tend to get seen as part of the structure, when that’s not necessarily the case. “Structure – including reporting relationships, employee roles and responsibilities, authority over resources, etc. – is just one dimension of an organization,” says Nathaniel Foote, a consultant at the Center for Organizational Fitness. He continues to say that “within the existing structure, you can change people’s incentives, offer retraining, adopt new information systems and work-flow processes, strengthen people’s networks and so forth. It doesn’t involve reorganizing, but instead involves working to improve performance.”

John Paul MacDuffie, co-director of Wharton University’s Center for Management Policy, Strategy and Organization brings to light that “the compelling concreteness of an org chart can be deceiving while a processes approach tends to be less rigid and may provide an opportunity for learning and adapting as you go along.” Investigating what potential processes might look like by implementing on a small scale has become a predecessor or replacement to a full structural reorg because they can expose what kind of structural change may be needed. In many instances it is revealed that only targeted changes are needed. By using this approach first the additional advantage companies gain is that the necessary formal relationships are already in place to fully execute.

A notable example MacDuffie gives was a multinational durable goods company headquartered in Japan that was getting pressure from managers to open a North American headquarters. The Japanese headquarters resisted, opting instead to begin establishing the necessary relationships in order to put some horizontal processes in place rather than a major reorganization. This allowed problem areas to clearly emerge, but only as small problems still since they didn’t scale large. In other words, the company made some targeted changes rather than a big sweeping structural one.”

 

Centralize R&D.

R&D involves a lot of capital and hard to come by technical expertise. Because of this many companies are opting to consolidate and centralize their R&D departments to a greater degree. This has especially worked well for the innovation-driven industries such as technology, communications and automotive. It has allowed them to better capture economies of scale and ensure that technology is consistent across the company. But what about the global brands that have popular local brands, such as Nestle, where localization would seem to work better? In this case, these companies are opting for more of a hybrid model. The model of isolating resources of any one department had been rudely disrupted since Sept 11, 2001 with the controversy on how our governmental departments operate.

Reorgs today have become more employee, global customer, and product driven, that opt for targeted changes, and centralizing where it makes sense. A lot of these changes have resulted from globalization of world economies, technological advances, and having to scale for these changes. In order to stay relevant and competitive organizations have to be dynamic. People’s roles are always going to shift, which is ok, but be sure you are shifting with the change and not against it.

Note these trends and see if they make sense for your company. Take the ideas out of the vacuum, test them on a small scale, and modify them accordingly. If they work get behind them and be the driver of change rather than the hold-up.

SOURCES

Leadership: Another Reorganization? What to Expect, What to Avoid. 2003. http://knowledge.wharton.upenn.edu/article/another-reorganization-what-to-expect-what-to-avoid/

Kirkland and Ellis. Industry-Related Restructuring Experience.

http://www.kirkland.com/sitecontent.cfm?contentID=218&section=5&subitemid=830&itemid=768

Littleton, Cynthia. 21st Century Fox Looks to Cut $250 Million in Film, TV Staff. Variety.com. http://variety.com/2016/biz/news/fox-buyouts-250-million-staff-cuts-1201693822/

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