Management's Holy Grail: Organizational Restructuring

By Prevost, Tom | CMA - the Management Accounting Magazine, February 1992 | Go to article overview

Management's Holy Grail: Organizational Restructuring


Prevost, Tom, CMA - the Management Accounting Magazine


The "true cup" of business success is not to be found in adopting the latest efficiency technique. Rather, it consists of understanding your business and making the various parts work smoothly together.

Today's business magazines are full of stories about the impact on the workforce of top management's endless quest for the perfect organizational structure. Employees are being laid off, given early retirement, or undergoing major job changes or physical moves as a result of management's efforts to reduce costs and improve operating effectiveness.

At the same time, corporate profitability is at an all-time low. While product quality and service delivery seem to have improved in specific sectors or at some companies, they typically lag far behind customers' expectations. People are working longer hours and suffering a reduced rate of real income growth. In general, they have less job security, are highly frustrated, and have less confidence in their management. What's going on? Are costs really being reduced and is effectiveness really improving ? NO!

Like medieval kings and knights, corporate executives are seeking the "Holy Grail" --the mythical source of eternal life--for their business. The most recent candidate for the "true cup" has been organizational restructuring. This process is called by many names: reorganizing, right sizing, re-engineering, restructuring, delayering, and the like. Many different techniques are used to accomplish it: process analysis, TQM, activity-based costing, cycle time reduction, structure analysis, etc. Unfortunately, regardless of the technique used, most organizations fail to realize their expectations and the Holy Grail slips from their grasp. Why?

A vital difference

As is usually the case, there is no "one answer" to this question. It does appear, however, that companies that have successfully restructured have one thing in common. They have discovered that the "Holy Grail" can only be found in themselves. That is, they have taken the time and put in the effort to truly understand what their employees are doing. They have restructured the work and the environment in which it is performed, utilizing "best practices" from external sources in a way as to better meet their business objectives from a total business perspective.

Companies that have been least successful in gaining competitive advantage through restructuring typically:

* Mandate across-the-board budget and/or headcount cuts.

* Implement structural changes on a functional rather than total business basis.

* Don't get outside help, because they think they can do it properly themselves.

* Restructure organizations on the basis of key employee personalities and skills rather than business needs.

* Don't take the time to analyze the work activities actually performed by the employees in the business.

Usually these companies experience an immediate restructing charge to the bottom line, maybe some short-term payroll cost reduction, little change in market penetration, declining employee morale, and gradual creep-up of total payroll through new hires. As a result, they find themselves right back where they started from within a few years, provided the company stays in business.

Across-the-board cuts are unfair

When senior executives are asked why they mandate across-the -board cuts, they usually say it's the easiest way to treat all employees alike and a fast way to reduce overhead cost. Both reasons are valid but, at the same time, are not necessarily very good for the business.

If a business is to pay the price for a restructuring--hard dollars as well as soft dollars in employee morale and good will--it should get the greatest possible benefit out of the exercise. Rather than each operation being forced to cut the same percentage from its payroll, the down-sizing process should be optimized by keeping the best and most highly-skilled employees performing the work that adds the most value to the products or services offered. …

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