The nine golden rules of organisational redesign

High performance is delivered when a company’s structure is aligned with its strategic intentions.

Or put another way “structure must follow strategy”.

With the COVID-19 pandemic forcing many companies to rethink their business strategies – and in some cases necessitating radical changes – we have seen an increase in organisational restructuring initiatives in recent months.

COVID-19 sees a spike in organisational redesign activity

In the wake of the COVID-19 pandemic, many companies are being forced to make hard decisions on just how many people are necessary to get the job done.

The Department of Education, Skills and Employment states that 30% of companies have reduced staff since the onset of the COVID-19 pandemic. 28% expected to reduce staff in the coming months, while 22% stated they were ‘unsure’ of how they expected their staffing levels to change.

That leaves only 20% of companies with any level of confidence that current staffing levels would be maintained or would grow.

Having advised hundreds of Australian companies on organisational redesigns since 2005 (most notably in the wake of the global financial crisis), we have seen “the good, the bad and the ugly” of organisational restructures.

Common challenges that we have seen companies face over the last few months include:

• Current structures and/or talent not able to deliver the post-COVID strategy
• Inefficient, bloated structures which have evolved over time and need to be realigned with the post-COVID world
• Overly expensive structures (costs disproportionate to post-COVID revenues or funding) which need to be rationalised
• Too many middle-managers – but not enough leadership and accountability

It’s easier to summit Mt Everest than it is to successfully complete an organisational redesign

In the process of working on these engagements, I revisited a McKinsey article from 2015 which delivered the classic line “organisational restructuring is far more than just tinkering with lines and boxes”.

Given the heightened importance of organisational redesign in the post-COVID 19 world, we thought it appropriate to revisit some of the key insights provided by the article.

To start – let’s look at some frightening statistics on organisational redesign:

• 44% of organisational redesign projects are never completed
• 33% of organisational redesign projects fail to meet objectives or improve company performance after implementation
• Less than 25% of organisational redesign projects are successful

It’s easy to skim through those statistics without fully appreciating them. But when you consider that only 29% of attempts to summit Mt Everest are successful, it puts the difficulty of successfully complete an organisational redesign into perspective.

The nine golden rules of organisational redesign

McKinsey researchers studied 1,323 organisational redesigns and identified nine “golden rules” which can significantly increase the likelihood of success:

• 73% of the companies that followed more than six of the golden rules enjoyed successful organisational redesigns. These companies were six times more likely to declare success than companies that adopted just one or two of the rules.
• Following all nine rules in a structured approach yielded an 86% success rate

Rule 1. Focus first on the longer-term strategic aspirations

Companies should be clear from the start about what the redesign is intended to achieve.  This aspiration must be linked to strategy. This means assessing each structural decision based on whether it aides the achievement of your company’s key strategic pillars and operating processes.

Rule 2. Take time to survey the scene

Design casts the longest shadow. Taking the time to analyse the root cause of current pain points will reduce the risk of miscommunications that have to be walked back (i.e. over/underestimating the extent of the redesign) and/or revisited in supplementary restructures down the track.

Time invested upfront to fully explore, analyse and stress test the situation will save significant time and expense down the track.

Rule 3. Be structured about selecting the right blueprint

The field of organisational redesign has established principles, best practice guidelines and rules of thumb that should be carefully considered by leaders. Unfortunately, many companies base their new structures on untested hypotheses or intuitions. Established principles, best practice guidelines and rules of thumb all need to be considered and discussed in order to understand the right macro and micro-structure for each company’s unique mix of strategy, people and other assets.

Intuitive decision making can be fine in some situations – but this involves little pattern recognition, and there is too much at stake to rely on intuition in organisational redesign.

Interestingly, whilst many believe that benchmarking other companies and trying to adopt some of their structural choices might be an important ingredient of successful redesigns – there is no evidence from the research that it is.

Rule 4. Go beyond lines and boxes

A company’s “lines and boxes” are only one dimension of an organisational redesign. Companies that used a more complete set of levers to design their organisations were found to be three times more successful in their efforts than those that only used a few.

Going beyond lines and boxes means looking at areas such as a company’s operating (or accountability) system, seating arrangements, layout of communal spaces, work polices, processes, communication and performance management systems.

Rule 5. Be rigorous about drafting in talent

One of the most common—and commonly ignored—rules of organisational redesign is to focus on roles first, then on people. This is easier said than done. The temptation is to work the other way around, selecting the seemingly obvious candidates for key positions before those positions are fully defined.

Companies should be careful not to assume that any individual will ‘sit’ in a particular box until all boxes have been identified and performance profiles completed. The helps to avoid any forgone conclusions that may detract from ensuring that the right talent sits in the right seats.

Rule 6. Identify the necessary mind-set shifts—and change those mind-sets

Leaders of organisational redesign efforts too often forget the people element. Organisations are collections of human beings, with beliefs, emotions, hopes, and fears. Ignoring predictable, and sometimes irrational, reactions is certain to undermine an initiative in the long run.

Getting the basics of change leadership right is key. Communicating a compelling reason for change, role modelling the new mind-sets, putting in place mechanisms that reinforce the case for change, maintaining momentum and building new employee skills and capabilities will help drive towards a successful outcome.

Rule 7. Establish metrics that measure short- and long-term success

No sane pilot would fly a plane without a functioning cockpit display system, yet a surprising number of companies roll out an organisational redesign without any new (or at least specially tailored) performance metrics.

Simple, clear key performance indicators (KPIs) and objectives that focus on how a changed organisation is contributing to performance over the short and long term are vitally important.

Rule 8. Make sure business leaders communicate

Any organisational redesign will have a deep and personal impact on employees – it’s likely, after all, to change reporting lines, team structures, how work gets done, and even where they work. Impersonal, mass communication about these issues from “corporate office” will be far less reassuring than direct and personal messages from the leaders of the company, cascaded down.

Rule 9. Manage the transitional risks

In the rush to implement a new organisational design, many leaders fall into the trap of going “live” without a plan to manage the risks. Every organisational redesign carries risks such as interruptions to business continuity, employee turnover, a lack of engagement, and poor implementation. Companies can mitigate the damage by identifying important risks early on and monitoring them well after the redesign goes live.

Bringing it all together

Done right, organisational redesign involves the integration of structure, processes, and people to support the implementation of strategy.

These initiatives need to be supported by strong change leadership and communication.

Following the nine golden rules of organisational redesign described in this article will increase the odds of a successful outcome for your company.