EVOLVE OR REVOLVE?
Why it’s critical to consider what’s better
BY Jayashantha Jayawardhana
The business landscape and market conditions are constantly shifting and evolving – sometimes at a dizzying pace. As a business leader, you may have to restructure your organisation in response to powerful changes that can shake an industry and transform the enterprise in the medium to long terms.
Does your business need a wholly new structure or will simply tweaking it suffice? Would the benefits of a reorganisation outweigh the cost? Can it be completed before conditions change again? And how deep should the changes go?
Depending on its scale, scope and timeframe, reorganisation can involve restructuring or reconfiguration. Writing in the Harvard Business Review (HBR), Stéphane Girod and Samina Karim elucidate on designing the reorganisation that works for you.
Restructuring entails changing the structural archetype around which resources and activities are grouped and coordinated. Corporates commonly organise around function, business line, customer segment, technology platform, geography or a matrixed combination of these.
However, reconfiguration involves adding, splitting, transferring, combining or dissolving business units without modifying the entity’s underlying structure. Both processes have a common goal for the bottom line.
The authors observe: “Companies need to periodically shake up their structures to reduce organisational cholesterol – that is the inertia, sticky routines and fiefdoms that progressively undermine growth. Or they must change strategic direction in the face of major industry transformation.”
“And in an era of transitory competitive advantage, they must also continually adapt to market changes with smaller scale reconfigurations,” they add.
So how can business leaders execute each type of reorganisation more effectively?
Based on an analysis of the antecedents, processes and performance outcomes of hundreds of restructurings and reconfigurations, Girod and Karim have constructed a four part framework.
CIRCUMSTANCES Whether your business structure needs to be modified or overhauled depends on two factors – viz. level of dynamism or turbulence of the industry and urgency for strategic reorientation.
In fast-moving industries, reconfiguration involves quicker smaller-scale changes that better position organisations to act on fleeting opportunities. Restructuring is too slow and cumbersome in such environments. When your business is confronting major industry disruption, piecemeal reconfiguration will not suffice and restructuring becomes essential.
PACE YOURSELF Restructuring is a serious and complex process, and even the more modest of such processes takes three to four years for any positive impact on profits to be seen. Try too many business structures too soon and confusion reigns, while engagement, innovation and performance falter.
When it comes to reconfiguration, you have to strike a balance without opting for too many or too few of them. Too few will fail to deliver the desired change or results while too many will cause change fatigue and concomitant woes.
In some cases, multiple reconfigurations can snowball into an unintended restructuring. Businesses such as Texaco, Digital Equipment Corporation and McDonnell Douglas have reconfigured themselves out of existence.
Girod and Karim laud The Dow Chemical Company for consummately pulling off restructuring and reconfiguration from way back in 1985.
DIFFERENTIATE How you group activities and allocate resources must play to the strengths of the business, and serve to differentiate your organisation from its rivals. Structural change works best when you reinforce your outfit’s unique points of differentiation rather than ape the strategies of competitors.
HSBC, Citibank and Accenture have repeatedly proven to be very adept. But this doesn’t mean that their humbler counterparts can’t achieve equally impressive results by following in their footsteps.
Reconfiguration pays off when it’s cleverly designed to build on a company’s strategic capabilities and leverage on interdependencies.
SYSTEM UPDATES Determine what other systems need to change. When an organisation restructures, its other aspects – for example, management processes, IT systems, culture, incentives and rewards, and leadership styles – must change too. This must happen quickly if not simultaneously especially in fast-moving markets.
Restructuring that is implemented in isolation often leads to misalignment that can cripple an organisation. Meanwhile, reconfiguration is more likely to be successful when executives ensure that changes affect only the targeted units and maintain continuity in other areas of the business.
It’s not about choosing evolution over revolution or vice versa. You should do both in the right way at the right time.