Introduction
A Practical Manual for Your Reorg
Reorg. What emotion do you feel when you hear this word? If you feel excited, chances are you’ve never experienced a reorganization. Most people dread them. If you’re heading one up, you’ll probably agree that no other management practice consumes more of your time and attention or creates more fear and anxiety among your colleagues than a reorg. And if you’re one of those employees affected, then the reorg can create paralyzing uncertainty about your future, making it next to impossible to concentrate on anything else, let alone what you need to be doing to be successful in the new environment. Reorgs always have some adverse consequences—employees get distracted from their jobs, leaders resist change, key people leave or become demotivated because they feel they have been treated unfairly—and if you take too long to navigate through these challenges, the market can change underneath you, rendering original plans irrelevant. Given the time commitment and genuine human pain of doing a reorg, there is a temptation to outsource it to others and fail to step up to the plate yourself. For all these reasons, only one in six reorgs delivers the value it is supposed to in the time expected.1
Yet, if you work in an organization today, it’s likely that you will lead or be part of a reorganization effort. A successful reorg can be one of the best ways for companies to unlock latent value, especially in a changing business environment—which is why companies are now doing reorgs more often. If you have not yet been involved in a reorganization, you are likely to be involved soon, either as a leader or as a participant. John Ferraro, the former chief operating officer (COO) of Ernst & Young (EY) who has reorganized his own organization and seen reorgs at clients, told us: “Every company today is being disrupted and has to reorganize itself frequently to keep up with the incredible pace of change. The companies that can do this well will thrive in today’s environment and will be tomorrow’s winners.”
We’ve written this book to help executives do just that—get better at reorgs—by providing them with a proven and practical five-step process for leading and implementing a reorg.
Who We Are and What This Book Is Based On
This book is based on over forty-five years of our combined experience as leaders of the organizational practice at the international management consultancy McKinsey & Company, as executives in business, as leaders of not-for-profit organizations, and as managers in the public sector. During this time, we have supported more than twenty-five reorganizations, big and small, and advised on hundreds more (some of their stories are included in this book as examples). The five-step process described here is our attempt to distill what we and our McKinsey colleagues have been practicing as an “art” into a “science” that executives everywhere can replicate.
As you might expect from two former McKinsey consultants, we have also grounded the book in analytical research, in particular a survey we first ran through the McKinsey Quarterly in 2010. This survey was based on responses from eighteen hundred executives whose companies had undergone a reorg in the past five years; from midlevel managers to the C-suite; from private firms to public bodies; across North America, Latin America, Europe, China, India, Asia Pacific, and the rest of the world; and covering business-to-business, consumer, energy, financial services, health care, high-tech and telecom, manufacturing, and professional services. Just over half of the results related to reorgs of the whole organization; the rest covered a particular function or business unit. The survey was rerun—with improvements—by McKinsey colleagues led by Aaron De Smet in 2014, covering twelve hundred respondents with a similar range of coverage.
In addition to our research and experience, we interviewed several prominent business leaders who have successfully led their companies through reorganizations. We will draw from those interviews throughout this book to illustrate the challenges of reorgs and how those leaders overcame them.
Why We Wrote It
When we started writing this book, several people asked us, “Why are you doing this?” The answer is pretty simple. This book is born of frustration: our frustration, as consultants who have been brought in to help companies through a reorganization; and, more importantly, the frustration of the people we’ve seen facing the challenge of a reorg. Over and over again, we have seen the debilitating consequences of bad reorganization processes that led to either poor designs or poor implementation (and sometimes both). Badly run reorgs cause massive human stress and cost shareholders value. Often, consultants like us are called in to help. More often than not, we are contacted midway through the process, when much of the damage has already been done. Conversely, external support is seldom sought when an organization is designing the detailed plumbing and wiring and planning phase of a reorg—which we see as the most challenging part.
It doesn’t have to be that way. We always wished for a simple book or document that would help our clients move through the full process. Many books have been written on different organizational models or frameworks (the answer). But we struggled to find a book that laid out a simple, step-by-step way of doing reorgs (the process). So, we thought we’d better write one ourselves.
Avoiding the Typical Mistakes in a Reorg
The five-step process we present in this book should stop you from making two of the biggest mistakes in a reorg. Most reorgs start with the drawing of the organization design: what the boxes and lines on the new org chart are going to look like. And most reorgs end—or think that they have ended—when the new org chart has been announced. In reality, the process needs to start before you even envision the new org chart and must extend way beyond putting it in place. The five-step process therefore starts earlier and ends later than executives typically plan for.
This book gives you a ready-made plan and puts everything in the right order for you, at the right time. Through our experience, we have become firmly convinced that you need to have a plan so that you know what you are deviating from and what you must keep coming back to, as the various reorg brickbats are thrown at you. Having a set of steps to work through, in the right order, should help you avoid what happens all too often in reorgs: missing out on essential steps, the impact of which, as you will see, will only become apparent later, when it’s often too late to fix them. Some practitioners advocate evolutionary change and making it up as you go along, because they can then be useful in leading you out of the chaos. Don’t fall for this approach.
By contrast, the five-step process presented in this book gives you a clear menu for your reorg, extending from soup to nuts: it starts before you move around all the boxes and lines on the org chart and continues after the new organization is in place (figure I-1). As you will see throughout this book, there are many things that you need to remember if you want to get it right. You must do things in the right order to avoid delaying the overall process. For example, you need to set the business targets before you decide on new or adjusted job descriptions, and you need the job descriptions before you start staffing people into new roles. Similarly, you have to determine any required changes to your IT systems early in the process and conduct testing before you make the changes. If you do not, you can end up with a new organization without a profit-and-loss steering wheel.
What We Hope You’ll Be Able to Do with This Book
Because our process works in practice and avoids missteps and rework, it should help you to deliver your reorganization much faster than the typical eighteen-month reorg. With this process, we’ve seen most reorgs happen in nine months or less—some as fast as three. At the same time, we don’t pretend that reorgs are ever simple: we have lived through enough of them to know that they are not! But we are firmly convinced (by seeing the failings of reorgs that we have been brought in to fix) that the answer to this complexity is not to abandon all structure, treating the reorg as an evolutionary process and figuring it all out from first principles as you go along. This route typically leads to disaster.
In addition to a ready-made plan, the book provides checklists and templates for each step of the process. Appendix D contains blank versions of all the templates in the book. The templates are designed so that you can reproduce them and use them with your team, to organize and complete the tasks at each step of the process, in the right order and as quickly as possible. We hope that this book helps you navigate through the pitfalls that you will undoubtedly face and will help both you and your colleagues succeed.
Our approach works equally well in small businesses and large ones; in cross-business reorgs and individual business units and functions; and in reorgs run with consultants as well as those—probably the majority—run independently by company managers. We’ve written the book especially for those company managers. Even with smaller, simpler reorgs, the five-step thinking style is essential to keep you on track, although you may be able to complete a step in one afternoon for a simpler reorg, rather than spending weeks on it.
How the Chapters Work
We begin the book describing the findings from our research on reorgs. Our findings set the context for the five steps and explain why they work. We developed the five steps with colleagues in McKinsey, basing the process on our experience and what the data told us.
Chapter 2 looks at engagement. Nothing seems to cause more problems than what executives communicate—and what they don’t—during a reorg. Though there are specific messages to communicate, and ways to do that, at each step of the five-step process, it makes sense to address engagement all in one place, as it needs to run across the whole reorg. You will learn how communication needs to change over time and why, typically, one communications manager is responsible for leading the stakeholders’ engagement.
After these two introductory chapters, we then devote a chapter to each of the five steps. Using stories and cases, each chapter describes one step, the typical pitfalls that managers run into, the “winning ways” to address the pitfalls, and how to manage communications. Each chapter concludes with a summary that contains tips that you can refer back to.
Where the Stories in This Book Come From
Reorganization is a contact sport, so the majority of this book is made up of stories, not analysis. We use a central story—of John, Amelia, and their global energy utility—as the backbone to the book. Each chapter begins with the pair falling into the common pitfalls of a reorg, and ends with an alternate version of their story where they avoid those pitfalls by using the process described in the book. The central story is based on a real case (with the challenges and subsequent solutions distilled into the two alternative versions of the story), but the names and industry have been changed to protect the innocent (and the guilty!).
In addition to the central case, we have used a number of anonymous cases that we have worked on over the past fifteen years to illustrate the winning ways of running a reorg, with the last ones in 2015. Although we did consider providing the company names, we wanted to share with you exactly how the reorganization actually took place. This information is never made public: companies only share the outcomes of their reorganizations (e.g., “We moved from seven regions to three!”) but never how they got there or the problems they encountered along the way. For this reason, we had to draw on our own personal experience and contacts for the cases to make them real. Understandably, the companies concerned asked that we conceal their names, given the level of detail being shared.
As a reader of this book, you might be contemplating a reorganization to respond to the changing environment you are experiencing. You may be in the midst of the process, trying to get your organization back on the rails. Or you may realize that running a reorg is something you will have to do at least once in your career. We have written this book for CEOs who are reorganizing their companies, for senior executives who are leading the reorg or are affected by it, and for project managers and members of reorg teams. For this reason, you will see that our central case deliberately covers what happens from the perspectives of a CEO or senior executive (John) and a project manager (Amelia).
The Promise of This Book
We cannot promise to make reorganizations fun. You will be affecting leaders’ powers and people’s jobs. (If there is no impact on people, there’s a good chance that little of significance is changing.) There will, therefore, always be difficult conversations. However, we can offer you an effective guide to negotiate your way through these conversations—a way to ensure that the results are worthwhile, to accelerate the process dramatically, and, most important of all, to minimize people’s anxiety and treat them fairly.
