Explainers

The Role of Reorgs in Organizational Change

As a leader, when should you pursue a reorg and shake up the org chart as part of an overall organizational change program?

A reorg is one of the most common interventions leaders turn to for organizational change, and often the first: everything from adding, merging, or breaking teams apart to rethinking how whole organizations are structured (should we be product-led or customer-led, geographically partitioned or split into business units?). But when is a reorg really the right intervention?

The logic of starting with the org chart, at least at first blush, is pretty sound: organizations are just people, and org charts are the blueprints of roles, responsibilities, and reporting lines. In theory, therefore, changing the blueprint should change how the organization functions. Moreover, necessary changes are often frustratingly constrained by the org chart; whether by a leader blocking progress or the structure itself limiting you from making necessary leaps (e.g. being divided into legacy product lines vs customer segments). Lastly, on paper at least, it should be a relatively straightforward and painless operation to move folks around, like getting up and swapping desks in a classroom.

But (and you probably realized this was coming) in actuality, changing an org chart is far more complicated. First, org charts might look like a comprehensive, well-defined map of the organization, but the reality—everything from who has implicit authority over whom to how work actually gets done—isn’t captured. Rather than a blueprint, org charts are often illusions of order; and a reorg may simply swap one illusion for another.

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Second, changes to the org chart take a long time to come to fruition. Teams often must learn new skills, establish new relationships, and go through the forming and storming phases of a team before they can start performing at their best. If you’re in a competitive market, a reorg can actually slow the organization down causing it to miss critical opportunities and hemorrhage market share.

Finally, between triggering loss aversion and unintended consequences, reorgs have a high failure rate: one McKinsey study found that 80% of reorgs failed to deliver the intended value, and 60% noticeably reduced productivity. This potential for not only failure but long-term harm is why reorgs should be undertaken with special care and intention.

When a Reorg Is and Isn’t Due

Despite those complications and unfavorable odds, structure shouldn’t be ignored. There is one legitimate and vital cause for a reorg: when the structure of the organization no longer serves its needed strategy. After all, structure should follow strategy. Strategy, based on long-range goals and objectives, should determine a course of action and call for resources that structure must then apportion and administer. Although it does happen, organizations shouldn’t be locked into a course of action simply because of their org chart (see: Conway’s Law). A reorg is therefore likely due when the structure of the organization stands in the way of the organization acting strategically in its market.

This strategy/structure opposition can come about under many scenarios, including:

  • When the existing strategies of the organization are threatened or made obsolete due to any number of factors (e.g. competitors, legislation, technology, etc.) requiring new strategies and their associated roles and resources
  • When an organization—often a rapidly scaling startup—has grown so fast that they’ve added individuals or whole teams in a rushed rather than strategic, manner, and the resulting org chart is leading to confusion rather than aligned, strategic execution
  • When organizations merge and there is a challenge to define the strategic purpose of the new entity and then shape the collective resources accordingly

What these scenarios don’t include are the many times that leaders do leap to reorgs when they really shouldn’t (when there isn’t strategy/structure opposition):

  • Don’t rush to reorg simply to cater to a single person or role; this is often a costly and risky attempt at employee retention (or worse, ego stroking)
  • Don’t rush to reorg just to reproduce a structure that is more familiar to you; we often see this with newly hired executives under pressure to reproduce the wins at their last organization but who fail to understand that they can’t just copy/paste that organization and its context
  • Don’t rush to reorg to solve a process or decision-making problem that can be solved more easily with a process improvement or meeting re-design; changing a meeting or step in a process will trigger far less loss aversion, gossip, and overall uncertainty than changing someone’s job title or reporting lines

Rather than a blueprint, org charts are often illusions of order; and a reorg may simply swap one illusion for another.

Tips to Keep In Mind

If after assessing your strategy and structure, you realize it may in fact be time for a restructure:

  • If you’re a new leader to the organization, experiment with ways of working or process changes before a reorg. As we’ve discussed, reorgs can be slow and risky, particularly for leaders who don’t have a grasp on how the organization works and why. Focusing first on ways of working changes not only reduces risk (you may be able to solve the problem largely without a reorg), but it also allows you to learn about the organization in the process (go see how the work is done, meet the teams, identify their roadblocks, experiment with other ways of getting things done, etc.). Yes, you may still have to do a reorg, but you’ll be far better equipped to do so.
  • Pause and align before drawing boxes. Leaders often default to redrawing org charts because they’re (deceptively) simple to understand and modify. But before you do, make sure you and other leaders are aligned on why you’re making these changes and what you hope to achieve. In particular, align on the strategy that the structure must serve. Because “strategy” is so often misunderstood or oversimplified, consider these initial questions together:
    • What is the ultimate advantage we aim to wield in our market? (e.g. speed, cost, differentiation, etc.)
    • How will we hone that advantage? Where will it come from? (e.g. suppliers, our own processes, etc.)
    • What roles, resources, skills, abilities, etc. are key to that advantage?
    • What has changed to trigger a reorg now? Outside the organization, inside the organization, related to our strategy, etc? What must we change in response? Do we need a reconfiguration (i.e., shuffling teams around) or a revolution (i.e., complete rethink of the basis of our structure, product vs customer segment, etc.)?
  • Don’t overcomplicate structures or fall in love with fads. As much as the latest management books and consultants like to rebrand matrix structures every few years (Spotify’s famous “squads” and McKinsey’s new “helix”) there’s only a few ways to actually organize teams. Don’t try to over-engineer a solution or expect an org chart to solve all your problems; simply pick trade offs that are aligned to your strategy and that you can live with and then move on to designing process, rituals, governance, etc. to balance the most severe of those tradeoffs.
  • Remember, the hardest part comes after the boxes are shuffled. Inevitably, org charts don’t turn out exactly the way you think they will on paper because, well, people are involved. The emotional, intellectual, and collaborative work that occurs between individuals can never be truly accounted for in a box. Make sure you’ve spent just as much, if not more, time preparing folks to make the transition and developing new ways of working within the new structure as you have redeveloping the chart. Ultimately, a reorg isn’t truly done until value is being generated between the people in those boxes.
Published August 14, 2022

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