ORGANIZATIONAL DEVELOPMENT AND CHANGE

Dealing with Organizational Restructuring

Iqbal Lalani (11041) 6/28/2012

Introduction:
A corporation is a sociological institution as well as a collection of financial assets (Alkhafaji, 1990). For organizations to develop, they often must undergo significant changes in their overall strategies, practices and operational tactics (Rainaldi, 2009). Corporate restructuring is broadly used to denote significant changes in the structural components of organization through conscious management action (Som, 2002).

Organizational structure describes how the overall work of the organization is divided into subunits and how these subunits are coordinated for task completion (Cummings & Worley, 2007). As companies evolve through various life cycles, their leaders and employees must be able to successfully align with organizational changes so that they can evolve as well (Rainaldi, 2009). Many companies recognize the need to restructure too late, when fewer options remain and saving the company may be more difficult (Gilson, 2001). That's why the topic of organization restructuring management analysis has become an important part of today's workforce (Rainaldi, 2009).

Organization restructuring help organization gain insight about job fit and how best to align talent with business needs to deliver the highest level of performance (Rainaldi, 2009). While employees understand that corporate change is necessary to corporate survival, they will not accept abrupt, radical change imposed from outside that has nothing to do with current business condition (Alkhafaji, 1990). Restructuring is more likely to be successful when managers first understand the fundamental

business/strategic problem or opportunity that their company faces (Gilson, 2001).

According to Gilson (2001), research suggests that voluntary or preemptive restructuring can generate more value than restructuring done under the imminent threat of bankruptcy or a hostile takeover. Scott Paper's new CEO was widely criticized in the news media for the magnitude of the layoffs he ordered. However, such drastic
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action was arguably necessary because the company had taken insufficient measures before that to address the long-standing financial problems. (Gilson, 2001).

Knowing the goals and objectives of each individual in the organization can be difficult. Solutions can provide them with the means to easily align the goals of employees to the overall mission of the company (Rainaldi, 2009). When restructuring a company, its critical that key people are involved with all aspects of the planning, developing and execution stages of the plan. By seeking input from employees, greater acceptance and buy-in will emerge, and support for change will materialize (Furnari, n.d.). The decisions that managers have to make as part of implementing a restructuring plan are often critical to whether the restructuring succeeds or fails. In the language of economics, implementation is the process of managing market imperfections. The challenges that managers face are many and varied. (Gilson, 2001)

A new wave of holistic models of organizational performance has emerged during the past decade. These models share a common framework that explicitly acknowledges the interrelationships among management strategy and leadership practices, employee satisfaction, customer satisfaction, and the financial outcomes for a business firm (Wiley, Brooks, & Hause, 2003).

Models such as the Service-Profit Chain, Balanced Scorecard, and High Performance Model provide explanations of how organizations become successful; these models help organizations understand, track, and manage their resources (Wiley, Brooks, & Hause, 2003).

The Challenges:
Organization restructuring brings about change that brings about stress and conflict. It's important for managers to be able to effectively lead their team through challenging and turbulent times (Rainaldi, 2009). Lin, Zhoa, Ismail, & Carley (2006) founds that a crisis can present critical challenges to organizational performance both externally and internally, and that there is no design guarantee that a high-performing organization will continue to perform well during a crisis situation. (Lin, Zhoa, Ismail, & Carley, 2006)

Faced with more competitive markets and greater demands on costs controls, organizations and businesses are taking the fast track to cost-cutting by downsizing, reorganizing their divisions, streamlining their operations, and closing down unprofitable divisions (Lee & Teo, 2005). In addition, when organizations restructure to adapt to crisis situations, they often face the serious challenges of having to understand not only the external environment, but also organizational design traps (Lin, Zhoa, Ismail, & Carley, 2006).

Restructuring seems to be an unavoidable and inevitable part of doing business today (Marshall & Yorks, 1994). Changes that are introduced in an organizational restructuring will affect the socio-psychological well-being of organization members given the potential for uncertainty that may accompany such changes. (Lee & Teo, 2005)

Too often, companies focus on reducing head count and fail to consider the qualifications and morale of the employees who remain after the restructuring. How can a company restructure and develop a revitalized organization that is positioned for the future and staffed with the best qualified people? (Marshall & Yorks, 1994). There is a need to better understand the consequences of organizational restructuring and consider some of its potential side effects on the work environment. Employees in a post-restructuring context are understandably wary about the future direction of the organization and their roles within it (Lee & Teo, 2005).

Marshall and Yorks explains the strategy driven approach to restructuring in which people are "redeployed" in a positive way. Their method focuses first on describing and redesigning the work to be done in the new company and only then on the people to do the work (Marshall & Yorks, 1994).

The Dilemma of Downsizing:

Marshall and Yorks (1994) equate the term restructuring with layoffs. The reason is simple: during restructurings, managements focus is typically on developing severance and incentive packages to reduce employee head count (Marshall & Yorks, 1994). A corporate restructure is often associated with a failing business model or major job cuts. While the restructure may help the company move forward and improve business, the process comes with some fallout for both the company and the employees (Frost, 2007). By focusing primarily on how people leave the restructured organization, however, companies too often neglect the matter of who leaves (Marshall & Yorks, 1994). Restructuring often causes employees to panic and wonder how the changes will affect their job security. When the news gets out that the company is restructuring, some employees may begin looking for new employment. The stress of the restructuring sometimes takes away from the staff's focus on their actual work (Frost, 2007). Senior managers focus so heavily on cutting costs that they dont give sufficient attention to the companys future strategy and who will implement that strategy. Unfortunately, a company can be crippled following a downsizing if the wrong mix of employees remains (Marshall & Yorks, 1994).

Yet a key strategic issue for any company that is restructuring is the quality of employees who remain. Companies often lose their best people, who quickly find other opportunities rather than wait for the haphazard results of a typical reorganization

(Marshall & Yorks, 1994). Depending on the size and funding of the company, investor reactions are sometimes negative to a restructuring situation (Frost, 2007).

Indeed, scores of beleaguered companies seeking to reshape themselves have been damaged for years by focusing on reducing head count rather than on ensuring that the best qualified people staff the new organization. (Marshall & Yorks, 1994). In some cases, the corporate restructure involves downsizing the workforce, facilities or product lines. This means managers are forced to choose the employees who will let go. With the employees who leave, company also lose the experience, skills and knowledge of company projects that those staff members possess. Prioritizing the staffing and facility needs going forward helps organization decide how to handle the loss of various assets (Frost, 2007). Specifically, redeployment permits managers to select the people best qualified to staff the new organization. Developing the criteria for ensuring that employees with valuable competencies are retained demands that executives concentrate first on the positions they consider essential to the reorganized company and then on staffing. (Marshall & Yorks, 1994)

As company restructures, public image may begin shifting. The restructuring potentially leaves customers and the public in general questioning the future of the company (Frost, 2007). The restructuring process must be directed toward positioning the organization for the future, not implementing a downsizing (Marshall & Yorks, 1994)

The Goliath of Change

Richard L. Daft one of the recognized academic leadership experts raises the question, "What kind of people can lead an organization through major change?" Daft points out that this type of leader is characterized by the ability to bring about change through innovation and creativity (Johnson, 2008). In planning any restructuring, managers need

a link between the reorganization and the companys ongoing revitalization (Marshall & Yorks, 1994).

Daft point outs four principles in discussions about leading an organization through major change. These four principles are the foundation of the restructuring Turn-ARound process. 1. Create a compelling vision 2. Create a new organization 3. Mobilize commitment, Empowerment 4. Institutionalize a culture change (Johnson, 2008)

The second element in organizational restructuring is the strategy to be used. So what is a strategy? Robbins defines Strategy as "the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to carry out these goals". (Huffine, 2000)

1. Portfolio Restructuring Strategy: The first of the three restructuring strategies discussed by Bowman is portfolio restructuring. Companies involved in acquisitions, divestitures, or spin-offs are using a portfolio restructuring strategy. This type of strategy includes selling off those business units that are drawing down operations or spinning off business units to raise more capital. (Huffine, 2000)

2. Organizational Restructuring Strategy: In this strategy the terms downsizing, redesign and layoffs are often used. Many times a company tries to redesign the organization for one of two major reasons: either they have changed the strategic thrust of the company, or the organization has drifted away from the original design of the company. Organizational restructuring will normally change the levels of management in the company, affect the span of control or

shift product boundaries. There is also a change in production procedures and compensation associated with this strategy. (Huffine, 2000)

3. Financial Restructuring Strategy: The final restructuring mode Bowman discussed is the financial

restructuring strategy. This type of restructuring is identified by changes in the firm's capital structure. Changes can include debt for equity swaps, leverage buyouts, or some form of recapitalization. In a financial restructuring that is in the form of a leverage buyout, research reveals there is an immediate influx of free cash flows, organizational efficiency is enhanced and the company refocuses on the core business. (Huffine, 2000).

The restructuring change process begins with the strategic restructuring of the organization, which is required to "Stop the Bleeding." This process starts with the immobilization of the old culture. This is mandatory, as introduction of change into any existing culture is difficult at best (Johnson, 2008). Success at anything requires a sense of urgency, a commitment to accomplishing something. If employees don't have this sense of urgency, complacency can become an issue. To meet difficult challenges, to excel at anything, to create competitive advantage it is absolutely essential that employees release their discretionary energy toward achieving company objectives (Johnson, 2008)

Institutionalizing New Approaches:

Success must be anchored as it occurs and then built upon by articulating the connections between the new behaviors and corporate success. Leverage this success to ensure leadership development and succession (Johnson, 2008).

Make no mistake, effective leadership is about creating change. This is true in every circumstance, whether a company is facing restructuring or dealing with the challenge of accelerated growth. Change is the defining moment that identifies true leaders from imposters. To become an effective leader, understanding change, creating change and most importantly managing change is the first prerequisite (Johnson, 2008).

Concept of reengineering
The concept of reengineering calls for many debates, especially in its relation to a concept of restructuring (Morden, 1997). Reengineering focuses on remodeling enterprise processes that are thus straightened it strives for eliminating all useless duplicate activities, uniting the activities and innovating the ineffective ones (Tetevov, n.d.).

The purpose is to carry out a strategic evaluation of re-engineering, restructuring, delayering and downsizing as an influential management paradigm . Coulter consider reengineering of processes, together with a vertical levels reduction and changes in particular teams job descriptions, main components of enterprise restructuring (Tetevov, n.d.)

However companies are forced to downsize and lay off employees because they fail to monitor and control their basic business operations and have not made the incremental changes to their strategies and structures over time that allow them to changing conditions (Hill & Jones, 2010). Industry journals and business press regularly contain accounts of dramatic business outcomes attributable to reengineering (Cummings & Worley, 2007)

Conclusion:
Organization structure is at the heart of all businesses. It applies to those involved in the manufacturing of a product or providing a service. It can be concluded that organizational restructuring is a value tool for an organization to use in an attempt to maintain their goals and objectives. The choice of which strategy to use will depend on which area the company wants to improve: profitability, performance, or operation. As has been illustrated restructuring is an ongoing process. It is a very complicated subject and this paper has only brushed the tip of the iceberg. The results of how well those restructuring efforts were can take years to determine depending on which performance measure is used. The treatment of employees during downsizing and restructuring has only briefly been discussed as a by-product of organizational change and because it receives so many headlines. (Huffine, 2000)

Works Cited
Alkhafaji, A. F. (1990). Restructuring American corporations : causes, effects, and implications. United States of America : Quorum Books. . Cummings, T. G., & Worley, C. G. (2007). Organization Development and Change. Dehli: Baba Barkha Nata . Frost, S. (2007). chron. Retrieved from chron: http://smallbusiness.chron.com/disadvantagesrestructuring-organizations-33848.html Furnari, J. (n.d.). KAF Financial Group. Retrieved from KAF Financial Group: http://www.kafgroup.com/resources/articles/key-concerns-when-revitalizing-and-restructuringorganizations/ Gilson, S. (2001, october 01). HBS Working Knowledge. Retrieved from Working Knowledge: http://hbswk.hbs.edu/item/2476.html Hill, C., & Jones, G. (2010). Strategic Management Theory: An Integrated Approach. USA: SouthWestern, Cengage Learning. Huffine, T. G. (2000, March 1). Organizational Restructuring Strategies. Retrieved from University of North Florida: http://bellsouthpwp.net/c/w/cwotom/Restruct.html Johnson, R. (2008). Article Geek. Retrieved from Article Geek: http://www.articlegeek.com/business/management_articles/change_management_restructuring.htm Lee, G., & Teo, A. (2005). Organizational Restructuring. Impact on Trust and Work Satisfaction , 23-39. Lin, Z. (., Zhoa, X., Ismail, K. M., & Carley, K. M. (2006, October/September). Organizational Science. Retrieved from Organizational Science: http://orgsci.journal.informs.org/content/17/5/598.abstract Marshall, R., & Yorks, L. (1994, July 15). MIT Sloan. Retrieved from http://sloanreview.mit.edu/themagazine/1994-summer/3547/planning-for-a-restructured-revitalized-organization/ Morden, T. (1997). A strategic evaluation of re-engineering, restructuring, delayering and downsizing policies as flawed paradigm. In Management Decision (pp. 240-242). United Kingdom: MCB UP Ltd. Rainaldi, A. (2009, May 9). ArticlesBase. Retrieved from ArticlesBase: e.com/organizationalarticles/organizational-restructuring-management-analysis-945103.html Som, A. (2002). Building Sustainable Organizations through Restructuring . France: Cergy-Pontoise Cedex. Tetevov, L. (n.d.). upce.cz. Retrieved from upce.cz: http://dspace.upce.cz/bitstream/10195/32208/1/CL655.pdf

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Wiley, J. W., Brooks, S. M., & Hause, E. L. (2003). Resizing the Organization Managing Layoffs,Divestitures, and Closings Maximizing Gain While Minimizing Pain. San Francisco: Jossey-Bass.

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