As a business grows, there will inevitably be challenges and ever-changing market conditions—many of which are unforeseen. To survive in a hyper-saturated, competitive market, companies have to be agile and willing to pivot in order to capitalize on opportunities or optimize inefficiencies.
Often, tough decisions need to be made, whether it is rejiggering strategic and financial operations or fully restructuring the company. But successfully implementing sweeping organizational changes is no simple task. It requires vision, a plan, and, most importantly, the participation of all employees and stakeholders.
A haphazard plan or a restructure that does not have support from C-suite on down will be dead on arrival. So, how can you effectively and successfully restructure a company?
This guide has your answers.
Reasons For a Company Restructure
To fund growth opportunities and drive progress, companies must engage in a ceaseless hunt to cut costs, be they administrative, general, or sales-related. Often, these cost-reduction strategies involve a reorganization or a restructure of the business (or a department within the business).
In fact, according to McKinsey, “Approximately 60 percent of companies in the S&P 500 have launched large-scale cost-reduction and reorganization initiatives within the past five years.”
Typically this is done for one—if not several—of the following reasons:
- There are organizational problems – Common issues include departmental conflicts, internal inefficiencies, talent mismatches, bureaucratic waste, job overlap, lapses in accountability, or communication breakdowns.
- A key person has left the company – Certain key members of a company can have an outsized impact on the business decisions and organizational structure.
After Apple’s head of design, John Ive, departed the company, CEO Tim Cook pushed a restructure that rebalanced the power dynamics between the design and operations departments. This was in response to the fact that product decisions had been made favoring aesthetic design and form over practicality and durability, resulting in impractical costs and poor customer feedback.
- The market is shifting – Industries and consumer behavior can shift on a dime. Sometimes a restructure is necessary to seize on a new opportunity or to capitalize on changing markets, consumer bases, products, or services.
- Your company is growing or (shrinking) – As a company fluctuates in size, internal structures must change in accordance.
For instance, Google was growing at such an exponential rate that it was becoming an impossible task to manage as one entity. So, the leaders of the company decided to deconstruct the behemoth by breaking up into the Alphabet Umbrella, which consisted of more than 40 subsidiaries and sub-holding companies, each with its own goals and a CEO focused solely on attaining them. This structure looks like:
- Google Ads
- Google Cloud
- Google Maps
How To Effectively Restructure a Company
So, how can you begin the restructuring process? Consider these five steps.
Step 1: Are You Restructuring or Reconfiguring?
Sometimes, a business needs sweeping changes across the entire entity. And for other companies, all that may be required are slight modifications.
One of the first critical decisions you have to make is opting for a total restructure or a simple reconfiguration. As Harvard Business Review notes, two factors play into this decision:
- The level of dynamism or turbulence in your industry
- How urgently you require a strategic shift
According to their research, fast-moving markets—those which fluctuate in size and are responsive to newly emerging competitors—typically respond better to reconfigurations since a restructure can take too long to accomplish in time. But for smaller firms or companies in industries experiencing significant disruption, a total overhaul may be the better approach.
Step 2: Develop Your Criteria
If major changes are to be made, then you will need to clearly outline an action plan with specific, measurable, achievable, realistic, and timely (SMART) goals.
Discuss the issues you are actively attempting to fix as well as the opportunities you hope to seize. Then, rank each of these criteria according to priority—they will be the benchmarks you use to evaluate potential structural alternatives and then measure your success.
As you brainstorm restructuring options, do not fall in love with a single action plan. Instead, have several contingency plans ready so that you can test as you go, responding to what works.
Step 3: Gather the Right Team
You need the right personnel in place to install organizational changes. For your transition management team, key people will have to take agency over various different roles. What that looks like depends on the size of your company and your specific industry.
That said, ideally, you want a mixture of company leaders and a small team of trusted advisers representing different parts of the business.
Step 4: Communicate
A company restructure can be an unsettling experience, especially for employees who may worry how these shifts will impact their careers or futures at the company. This uncertainty is unhealthy both on an individual level and for the company as a whole.
As you go about the process, be transparent with your intent. Consider building out a visualization for what the new structure will look like and the underlying motivations for the changes. According to The Balance: “Stakeholders, including employees, are more likely to get on board if you not only share the “what” and “why,” but explain the alternatives you did not choose and why.”
Remember, change takes acclimation. And that is especially true if the process involves personnel cuts. Give employees space and time to soak it in, ask questions, and gain a sense of what the restructure will look like.
Step 5: Monitor and Share Success
After a restructure has taken effect, it is important to closely monitor the situation. In doing so, you can confirm that you are moving toward your target and making small course corrections as necessary.
During this process, be sure to regularly highlight wins for the company to demonstrate that the major changes are working. This could be anything from an ROI increase to capturing a larger market share.
From the inside, it is much harder to have perspective and see the fruits of difficult decisions. By getting excited about your progress, you can inspire employees to share your enthusiasm and instill confidence that the company is heading in the right direction.
CFO Hub: Your Partner in A Restructure
A company restructure can create significant lift for a business that results in efficiencies, cost reductions, and competitive advantages—can being the operative word. A restructuring can also be disastrous if you fail to properly plan and execute.
Do you feel like you need help restructuring your company?
Then you’re in the right place.
At CFO Hub, we offer outsourced CFO solutions and financial and strategic consulting. Whether you’re looking for the help of a single expert or an entire team of financial wizards, we have the professionals you need to successfully restructure or reorganize your company.
To discover more, contact us today.