Beware the Nuclear Option of Organizational Restructuring

October 13, 2008

Structure follows strategy, so they say in business school. To put this in a timeline format, we have:

Management Strategy Structural Design Structural Change Organizational Success (greater organziational efficiency, greater results)

When an organization is on its last leg, the modus operandi is to bring in a new, highly paid leader who sets out to eliminate excess administration and improve the efficiency of throughput. In such cases, the nuclear option of massive restructuring may be the only viable option.

For most businesses that may be experiencing some significant shortfalls but not on their last leg, I caution you against this type of change. There is a predisposition on the part of newly hired executives to take advanage of the political capital they have when taking over a declining business. Desperate stakeholders will often provide a rather long leash for the executive team to shake things up, and the opportunity to implement massive restructuring may be too enticing to pass up. It is certainly the option most likely to capture headlines.

Let’s suppose that the new organizational strategy is brilliant and perfectly aligned with the proposed organizational design. We can even suppose that management has the political will and ability to implement the changes and all goes as smoothly as possible. According to the simplified model above, that is all that is necessary to achieve organizational success.

The problem with the model is that it lacks a very important distinction between the formal and informal structures. The formal structure shows how work processes are supposed to be organized; the informal structure dictates how work really is organized. The informal structure is not as easily observed, but no less real. It is responsible for processing a great deal of information about business processes and relationships and can be both an ally and enemy.

The informal structure presents a double threat to organizational developers. For one, massive restructuring threatens to torpedo positive informal processes that have developed over time to circumvent problematic formal arrangements. An example might be two managers sharing information and adopting strategies to circumvent an inept director. Formally, it looks at is if the director is responsible for the successes. Reorganization efforts to move this director to a more prominent role would clearly be a bad move.

The other potential threat is that disruptive informal arrangements will remain largely intact when the dust settles from restructuring. The relationships built over years and decades do not simply disappear when formal change occurs. Formal changes can lead to positive changes in informal social networks, but quick successes are key. The first move for any kind of social group that does not see positive developments quickly or extensively enough is to revert back to long established relationships and processes.

In most cases that are not completely desperate, I suggest a different approach to organizational development. The focus is on working with individual units to improve their effectiveness and then building the structure up, much like one would build a house from a solid foundation.