Corporate Executive Board

Reorganizations That Last


Four out of five organizations have gone through some type of redesign initiative over the past 12 months. This may not be big news since during the recession, many companies were quick to undertake reorganizations in order to reduce costs, improve efficiencies and increase the quality of service. However, you may be surprised to learn that more than half of these organizations expect to go through another major redesign over the next 12 months. Why? While companies have had relative success in hitting their cost cutting targets, the results might be masking a significant problem that's growing in the organization, and threatens to undermine overall organizational outcomes in the long term—the cost to employee performance as a result of these redesign initiatives.

Over the past year, the Corporate Leadership Council (CLC), a program of the Corporate Executive Board has interviewed more than 260 organizations around the world about more than 400 redesign initiatives they've undergone over the past 18 months. While 90 percent of those organizations reported hitting the cost-cutting targets after one year, only 60 percent hit the employee performance targets for their redesign initiatives. Many of these redesign efforts resulted in a work environment with unclear decision-making authority, reduced collaboration or poor alignment between an employee's interest and their new job. To address these challenges and improve employee performance, most companies have focused on change management activities such as improved communication or more coordinated implementation planning and decision making after a reorganization.

Certainly these are important activities yet, according to CLC analysis, they are not the real differentiators in improving employee performance. In fact, the companies that have been successful in not only achieving their cost-cutting goals but also their employee performance targets, have chosen to focus on two additional areas which can significantly impact the overall success of a company's redesign efforts: defining workflows and monitoring the success of organizational design.

Defining Workflows

It is critical for companies to change their view of workflow (those tasks, people and organizations required for each step in a business process) from simply an input into the reorganization process. The reality is that it's one of the most important variables to achieving desired business outcomes. Successfully defining workflows can improve performance by identifying efficiencies and innovations in how is and should get done.

One innovative approach a large retailer has used effectively is to map these processes into one overarching workflow based on customer value. Simply stated, they identify the key work being done by each function (Finance, Operations, etc) that ultimately leads to what they deliver to their customers. In addition, the company focuses only on understanding the activities across the value chain rather than which employee does which job. As a result, the company is able to distill critical workflow information required before embarking on a redesign initiative. Finally, this innovative process has enabled them to identify some of the potential barriers to employee performance such as gaps in the current workflow, unclear decision making ownership or required handoffs that might not be working effectively.

Monitoring and Evaluating Redesign Success

While most companies focus primarily, if not exclusively, on financial outcomes in order to monitor the success of their organizational redesign, they often miss the bigger picture—the impact on employee outcomes like performance, engagement and turnover. Financial metrics such as revenue, costs or margins are often incomplete and sometimes misleading indicators of the success, or failure, of a redesign initiative. As a result, companies often continue to follow a redesign that's not actually working and in fact, may be contributing to reduced employee performance. Misleading financial indicators can also cause companies to engage in yet another restructuring initiative, further disrupting the organization.

Innovative companies are taking a different approach and supplementing their financial metrics with a series of interim measurements around employee performance. This includes interviewing key stakeholders post-reorganization to gauge the ability of teams to effectively perform their work in the new structure. By surveying employees on such matters as role clarity, decision-making authority and collaboration, companies have a more holistic view into whether the right work is being done by the right people in the right way after the reorganization.

CLC analysis has shown that companies that effectively define workflows and monitor success are 20% more likely to achieve their employee performance objectives in the first 12-24 months after a redesign. As the economy continues to rebound from the recent recession, many companies will be looking to reorganize to further reduce costs and stay competitive. By focusing on defining workflows and monitoring redesign success as part of a reorganization, companies can ensure they achieve their financial goals as well as their employee performance targets.

What the Best Companies Do™

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CEB specializes in helping companies drive corporate performance by identifying and building on best practices. The organization offers data analysis, research, and advisory services relevant to business leadership. CEB's client and member network includes 85 percent of the Fortune 500, 50 percent of the Dow Jones Asian Titans, 70 percent of the FTSE 100, and 80 percent of the DAX-30. CEB membership encompasses 50 countries, 5,300 individual organizations, and 225,000 business professionals.

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