Under what circumstances is a reorganization justified?

There are only two legitimate reasons to reorganize:

1. The current structure is impeding implementation of the organization’s strategy. For example:

• Executives in a metal fabrication company decided that most of their growth would come from international customers. Their structure did not support global sales, sourcing, or distribution.
• The top team of a financial services company created a vision in which they would meet a broader set of needs in a smaller set of markets. Their product-based structure made it difficult to focus on those markets.
• The strategy of a consumer products company stated that customer service—rather than product quality or price—would be its primary competitive advantage. Service responsibilities were diffused across a number of departments, all of which had relegated service to the second tier of priorities.
  

2. The current structure is disrupting the flow of key business processes. For example:

• The structure in a medical products company made it difficult for Manufacturing to participate in the early stages of the product development process. As a result, new products required expensive, late-stage modifications before they could be safely and profitably produced.
• In a software company, the number of cross-functional hand-offs slowed down the order fulfillment process, causing missed deadlines and dissatisfied customers.
• The dominance of a hotel chain’s geographical structure led naturally to country-specific positioning and pricing. This Balkanization impeded the company’s ability to launch a marketing campaign around a universal brand identity.

Other objectives driving the desire to reorganize—clarifying roles, establishing more appropriate spans of control (the ratio of employees to supervisors), moving low-performing employees out of the way, stimulating fresh thinking—can often be accomplished through actions that entail less cost and significantly less angst.

Organization structure is simply not the most important performance variable.

James, a customer service representative, has a clearly defined role that is appropriately linked to his company’s strategy. He can interact easily with his external and internal customers and suppliers. He has the necessary skills and support. His measures reflect organizational priorities. He is rewarded for exemplary performance.

How critical is the name of James’s department, who is sitting next to him, and whether he reports to Jennifer or Michael?

Next excerpt: Performance Improvement--do you need to fight a battle on every front?