Why companies reorganize | 8 reasons it's time to adopt a new org structure
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Posted by: Lucid Content Team
Every company experiences change. Whether you’re undergoing dramatic growth, shifting your strategy, or responding to new industry regulations or market conditions, there are numerous factors that can impact your business and necessitate a new approach. The key is to adapt to those changes in a timely and strategic manner.
But how do you know it’s the right time to reorganize?
Here are eight reasons why companies reorganize and why finding the right structure is so important.
What is company reorganization?
Company reorganization or restructuring may sound scary, but it is an inevitable and necessary part of any company’s growth and maturity.
Restructuring is when a company changes its internal processes and operations, reorganizes teams and employee structures, repositions itself in the marketplace, or updates its strategy.
Often, company reorganization occurs in response to financial threats or pressures on the company. By making organizational changes, companies can reduce costly inefficiencies, respond to new competitive markets, and develop strategies to move forward successfully.
Potential benefits include:
- Improving competitiveness
- Preparing the company for sale
- Positioning the organization for expansion
- Increasing the agility of the company
But the bottom line is that eventually, some level of reorganization is essential to building a sustainable business that lasts. In other words, as the world moves forward, businesses must be prepared to move with it or get left behind.
8 reasons to adopt a new org structure
While reorganizing your company is often necessary, but it’s not always easy to recognize when the time is right to make the change. If your company is experiencing one or more of the following issues, it may be time to consider reorganizing.
1. The competitive landscape has changed
The business world moves quickly. Innovations and technological advances can disrupt entire industries in just a few short years. Local, national, and global economies evolve, impacting costs and introducing new players to the industry.
If you’re still operating the same way you were even five or ten years ago, you may already be falling behind your competition.
In order to remain relevant and profitable amidst changing markets and growing competition, you’ll need to assess and update your business strategy.
2. Employees' skill sets don't match their function
If there is a mismatch between your employees’ skills and their job functions, you are wasting one of your most valuable resources—your people. Putting the right people with the right skills in the right job is crucial to your business’s success.
Reevaluate your hiring systems, career development programs, or the structure and organization of your teams.
For instance, you might have to combine teams or departments, update job descriptions, create and hire for new roles, or even have strategic layoffs to realign your workforce.
3. Performance is lower than expected
Low performance can have a variety of causes including poor management, lack of proper training, insufficient tools or technology, and low employee engagement.
If performance metrics are consistently lower than unexpected, consider whether your organizational structure is contributing to the problem.
Reorganizing could be as straightforward as hiring or promoting the right leaders, creating (or updating) formal onboarding processes, or upgrading the tools and resources your employees use to get the job done.
4. Inefficiency is widespread
Widespread inefficiencies in your organization point to outdated or outgrown processes. In other words, what worked for you in the past no longer serves your current business.
Inefficient operations can cripple your bottom line. If you don’t address the problem at the source, the only way to grow your business is to increase the number of employees you have. But this will quickly drain your profits and slow your growth.
Instead, you must eliminate inefficiencies in your processes so you can do more with less. This might mean updating your technology and IT systems, changing your workflow, or reorganizing people into more effective team structures.
5. Turnover is high
In today’s tight labor market in the midst of the Great Resignation, retaining employees is more important than ever. Employee turnover costs organizations around 33% of an employee’s base pay—or $15,000 for the average U.S. employee today. That’s double the cost of turnover since 2000.
Employees are appreciating assets—the longer they work at your company, the more valuable they become. That’s why it’s crucial to invest in and retain your people.
If your company has high employee turnover, it’s time to reevaluate. What structures or processes are contributing to turnover? Are your employees leaving for competitors? Why?
Solving the issue of employee retention isn’t always easy, but it is worth it. It may require changing your management, improving your hiring and onboarding processes, increasing salaries or benefits packages, expanding remote and flex work options, or providing more training and mentorship opportunities.
6. Employees are overworked
Do you have teams that are overburdened and overworked? Overworking your employees can lead to increased stress, burnout, and turnover. According to a 2018 Gallup study, 67% of full-time employees experienced burnout. And today, employee stress is at an all-time high.
Burnout isn’t just bad for employees; it’s bad for business. Burned-out employees are more likely to take sick leave and look for another job. Plus, increased stress on the job can lead to inefficiency, mistakes, and low morale.
If you’re overworking your employees for an extended period of time, that’s a sign you need to make some changes to your business. You may need to hire more staff to relieve the workload or provide other structural and strategic support to your employees (such as new technology or updated processes).
7. Employees are underutilized
On the flip side, having too little work (or not assigning the right work) for your employees can be just as crippling and demoralizing to your organization as having too much work to do.
Are you leveraging your employees’ full potential? Do your employees feel their work is meaningful? If not, you risk disengagement, low morale, and turnover.
Addressing underutilization is tricky because your employees are likely performing well with the work they are assigned. One of the only ways to identify this untapped potential is to ask your employees.
Once you understand where your employees are disconnected and what skills or opportunities they want to pursue, you can reorganize your business and adapt your approach to meet those needs and take advantage of all your employees have to offer.
8. Teams that are closely aligned aren’t collaborating
As your business evolves and grows, the structure of your departments and the makeup of your teams may no longer be effective. For example, do you have teams whose work or goals are closely aligned but they remain siloed?
Highly efficient and productive companies strategically structure their organizations to foster collaboration and align teams with their overall mission. An optimized structure streamlines operations reduce miscommunication and misalignment across the organization and creates more opportunities for innovation and growth.
Why it's important to find the right structure
Redesigning your organization is no small feat. It will likely involve significant disruption to your operations. That is why it’s important to recognize both when a new structure is needed and what changes to make.
Because if your organization isn’t designed well, it won’t perform well.
To create the right structure for your organization you will need to identify:
- The core functions that need to be performed to support the business
- The responsibilities of each function
- The way each function’s success will be measured
With these core functions outlined, you can then map out a basic structure for your organization and fill in the specific roles needed to perform and support those core functions throughout the company.
While change is inevitable, keep in mind that change itself can exacerbate some of the problems you’re trying to solve with a reorganization—including burnout and turnover among your workforce. In fact, change fatigue is rampant in the workforce today. According to a survey by Capterra, 71% of employees are overwhelmed by the amount of change at work. As a result, more than half of change-fatigued employees are considering looking for a new job. When planning and implementing a new org structure, be mindful of your change management strategies to ensure your reorganization doesn’t make the problems worse.
Finding the right structure takes time and careful planning. But when it’s done well, reorganization can reduce costs, increase efficiency across operations, engage employees more meaningfully, and drive growth.
Ready for a company reorganization?
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