COMPANY REORGANIZATION: Does the Medication Treat the Disease?

• Author: BRACHE, ALAN

ANTHONY HARRISON, the fictional CEO of a computer hardware manufacturer we will call Windsor Industries, has to make an impact, and fast. Growth has plateaued. Customers are complaining. Competitors are encroaching. Shareholders are selling. Skilled employees are leaving. Technology is making traditional distribution channels obsolete.

Harrison has a wide range of options. He can redefine Windsor's strategy. He can hunt for an acquisition. He can bring in consultants to shake things up. He can fill key positions with outsiders. He can streamline workflows. He can modify the compensation system. Whether he takes some--or all--of these actions, his game plan will certainly include the most common executive response to critical issues: redesigning the organizational structure.

Harrison is acting in concert with conventional wisdom, which maintains that getting the right boxes on the organizational chart and populating them with the right people will clarify direction, remove barriers to exemplary performance, and improve motivation. That is as logical as dealing with all household challenges by rearranging the furniture. It may address the need, but the odds are against it. Assuming that reorganization is a miracle drug that cures--or at least alleviates the symptoms of--all ailments is naive at best. At worst, it is wise to beware of the side effects.

As the business environment becomes more global, organizations are moving away from structures in which countries dominate. In a desire to increase consumer focus, they are organizing by customer or market, rather than product or function. To break down the departmental silos that can increase cost and compromise speed, they are organizing by business processes such as product development or order fulfillment. To mirror the way work increasingly gets done and minimize the conflict of the two-boss matrix structure, they are organizing by project team. To increase entrepreneurship and agility, they are splitting apart businesses that have grown too large.

Each of these trends is driven by a noble goal. However, regrouping people may contribute little or nothing to the achievement of these goals. While structure is important, it is only one variable in the performance equation. Moreover, it is a variable that is less important than most people think.

Executives like Harrison have made reorganization the solution of choice because it presents highly visible evidence of their desire to change. Through a comprehensive reorganization, they can force a large number of people to abandon their "comfort zones." They can respond to the complaints about the former structure, which--whatever it was--was unarguably imperfect. Furthermore, unlike other improvement tactics, a reorganization can be conceived on a Monday and operational (at least on paper) by Wednesday.

A reorganization can communicate an executive's dissatisfaction with the status quo, demonstrate responsiveness, and shake people up. Yet, it seldom eliminates or avoids deficiencies. In and of itself, it rarely sets a business on the path to profitable growth.

Reorganizations are typically based on two assumptions: The organizational structure is the vehicle through which work gets done, and barriers to accomplishing this more effectively and efficiently lie in the organizational structure. The first assumption is always false. Work gets done through business processes such as order fulfillment, product development, complaint-handling...