Magazine article New Zealand Management

ADVICE : Consultation: Think Carefully before Restructuring

Magazine article New Zealand Management

ADVICE : Consultation: Think Carefully before Restructuring

Article excerpt

Byline: Kevin Gaunt

We are looking at how to create an environment in our company that will give us a quantum leap in the way we develop new products and ideas. We are thinking about setting each unit of the organisation up as its own notional business with the aim of creating a more flexible and entrepreneurial culture. It is a bold step but one that I think we should take as otherwise we will remain comfortable with the status quo. Do you have any thoughts to offer that could help me in making the decision?

There is definitely a need in today's world to aim to build an organisation that has high levels of innovation and flexibility. As technology advances the only way to effectively compete is to access the brain power in the organisation. Secondly, as the supply of skilled people reduces with the retirement of the baby boomers there will be an increasing need to create environments that attract talented and motivated people.

By considering splitting your company up into smaller units you will potentially create more opportunity for those capable people. However, as you say, it is a bold step and let me sound a note of warning.

Quite a few years ago I had the opportunity to work for some time in Canada as a management consultant. While I was there I saw a large commodity-producing company do exactly what you are contemplating. It certainly achieved a lot of new energy and innovation but there were some serious side effects.

It broke the organisation up into 15 smaller units, all with a chief executive. In the process a large number of older but highly experienced people left the business, leaving a significant knowledge gap. The new people were very motivated and initially made significant profit from selling large amounts of raw product to competitors and overseas to emerging economies.

However, this was not sustainable and in the end the company had to retrench as the growth capacity of the natural product was exhausted. Secondly, this created a knock-on effect internally with the company's manufacturing units being unable to get the volume and quality of basic product needed. The result was some of its factories being unable to work for days on end and the production of a lower quality end product than before.

The company also ended up with added people costs as it re-hired a number of people it had let go as consultants as it needed their experience. …

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