Sometimes it feels like the dust hasn't quite settled on the last organisational restructure before an announcement is made for another one.
Why do companies embark on restructuring and reorganisation efforts?
- Market conditions or competitiveness, leading to downsizing or rightsizing, rationalisation or cost-cutting
- Driving internal improvement, by seeking efficiency or effectiveness through decentralisation or centralisation or maybe flattening of the hierarchy
- Business Strategy - possibly a change in existing strategy, merger or acquisition, cultural change, new product offering or internal market re-alignment
- Management change - often brought about by the arrival of a new senior executive
- Unexpected change, due to a micro (internal) or macro (external) crisis
All companies, throughout their life cycle, experience the need to adapt and restructure. It is inevitable. Organisations that quickly identify when the time is right for a restructure will continue along their growth trajectory. Those that don't, struggle and often fail.
Top leaders understand when the time for change has arrived, and they proactively take appropriate measures for the necessary transformations. As companies grow, certain signs will emerge pointing to the need for change.
A discussion at a recent CEO Institute Syndicate meeting centred around key indicators that suggest it is time for change. Here are what the members agreed on:
- If profit growth has come to a halt
If historically, the enterprise has had growing (or at least consistent) profit margins that have started shrinking for an extended period, there is a problem.
- Turnover is high - but the wrong kind of turnover
This includes both employee and client turnover. If clients start leaving, it probably means they are no longer satisfied with your offerings. Similarly, if the business starts turning into a revolving door for staff, something needs to change. Employee frustration can be viral and spread quickly if not treated appropriately.
- Systems are no longer effective
The processes that worked when the business had a dozen employees are probably going to be redundant when the number of staff reaches a hundred. That is not saying that systems must be increasingly complex as the business grows. In fact, it is quite the opposite. As the company grows, it will typically force a review of existing processes.
- If there are rampant inefficiencies
When a business becomes inefficient, it has probably outgrown processes that previously worked. For inefficient companies, the answer to more business, or more customers, is often more people. However, more people means higher payroll, which decreases profit. Efficient enterprises can grow without having to continually hire more people. Industries do evolve. If the company is doing business the exact same way as it did ten years ago, they are probably falling behind. As technology improves, industries change.
- Economies shift
Economic changes might increase the costs of doing business which dictates the need to review things like pricing or find new vendors with lower costs. Good companies pay constant attention to what's happening in their industry and the world around them.
Recognising a few of these signals does not necessarily mean it's time for a drastic change. However, seeing a number of these occur year on year, the time has probably come to adapt and get back on track.
Many enterprises fear change and see the need for it as a bad thing. It is not at all. Every successful company evolves over time and good leadership must champion these changes and communicate the reality of the situation to team members.
How often in the last 10 years have you recognised the need for organisational change in your business?
The CEO Institute was founded in 1992. It is now Australia's leading membership organisation for CEOs and senior executives. It provides a forum for over 1,000 Chief Executive members to connect and share their learning with each other. In 2011, The CEO Institute became the world’s first global certification body for CEOs, and in 2013, partnered with UNESCO in support of the "Malala Fund for Girls' Right to Education". In 2014, they began offering their programs globally.
The CEO Syndicate is an exclusive peer support network for CEOs. The first meeting of The CEO Syndicate program was held in Melbourne in June 1992. Offices were opened in Adelaide in 1996 and Sydney and Brisbane in 1997, with Perth launching in 2007. In 2015, the New Zealand office opened.
The Future CEO program is a certification course designed by the business leaders of today for the business leaders of tomorrow. The first Future CEO meeting was held in Melbourne in May 2012. In 2014, the "Future CEO Scholarship Fund for Women" was established, and continues to be offered today.
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