Why Do Companies do Reorganizations and Why they Fail

Organizations of all types look to reorganize.  But the reasons are based in assumptions with the hope that it will lead to improvement.  Less evidence exists that reorganizations actually make the business or government run better.

I have heard  many reasons why companies/government do reorganizations.  Here is a list of reasons – by no means comprehensive:

  • Recent merger or acquisition
  • To stay competitive
  • To “shake things up”
  • Realign the business
  • New strategy (or strategies)
  • Improve communication
  • Prelude to downsizing
  • Better decision-making
  • Better execution – related to strategy
  • Going global
  • Free-up creativity and innovation

Please comment if you have more to add.  The assumption is that the reorganization will somehow make things better.  After all, isn’t reorganization what a leader does in the first two years during the honeymoon period?

If you look at these reasons many are based in assumptions.  Mergers and acquisitions are many times are decisions made based on economy of scale thinking.  But scale thinking in organizations is flawed.  Improvement comes from flow and not scale.

Strategies lead to plans and the flaw here is that knowledge is needed before talking about strategies or plans.  Reorganizations are rarely based in fact about how a business will improve, they are full of assumptions about economy of scale, functional separation of duties, and how much an individual leader can affect change.

Knowledge is gained by actually understanding an organization as a system, not from what other organizations are doing or what is “believed” to be true.  This is the reason reorganizations become such incredible failures.  Even though they are often spun as being magnificent successes.  If executives only knew that basing reorganizations on flawed assumptions was a mistake they could bring much to the bottom-line.

Reorganizations don’t have to be a bad thing though.  However, they need to be based in evidence and fact.  This is gained through understanding your organization outside-in as a system.  In essence, understanding the work that creates value for customers, understanding customer purpose and then gaining knowledge about how well an organization performs against purpose.

Reorganization with knowledge of your system leads to a natural change in the roles that workers and managers do.  Otherwise, it becomes an assumptive activity that leads to an expensive failure.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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