Definition
Organizational restructuring is defined as an act that reorganizes the ownership, legal, operational or any other structure of an organization for making it organized and profitable. It occurs when there is a change in the business model because of external or internal factors and the business entity has to adapt to survive and grow in the market.
What is organizational restructuring?
Organizational restructuring is referred to as a corporate action that is conducted when the company is facing some severe issues. It is a significant modification that tries to save the overall company’s jeopardy or severe financial harm.
Positive restructuring creates a sense of belonging and unity in the company that encourages growth and development. It happens by creating a competent HR department so that they can allocate the best people to fill the various job positions.
Negative restructuring happens because the HR department of a company is not equipped to handle its responsibilities adequately. It generally results in either stagnant growth or a downward spiral that can cause severe repercussions for the company.
Reasons To Use it
The essential reasons for organizational restructuring are as follows
1. Changing the nature of the business
Change is imminent, and if a business entity is not prepared to handle change in an effective manner, it will become obsolete with time. It is imperative to explore new markets and keep track of consumer needs and wants to boost the sales figures and increase revenue margins. In some cases, a business entity needs organization restructurings to deal with the changing nature of the market.
This process will help in shedding those divisions that are not promoting the company, hiring experts who can make a difference and come up with effective product strategies, etc
2. Downsizing
An essential reason for organizational restructuring is downsizing. Cutthroat competition and the changing nature of business forces a business entity to adopt lean techniques and other measures to cut costs and achieve efficiency. In this situation, it has to restructure through downsizing to remain in the game
3. Integrating new methods
Most companies are still following the traditional ways of working. With time these entities will require organizational restructuring to incorporate new methods, policies and processes, for instance, telecommuting, outsourcing, flex time, etc. to move with times
4. Proper technologies
There have been various advancements in technology, and the business entities are in favor of integrating new technologies into their business to felicitate better growth and development.
5. Mergers and acquisitions
Business entities need organizational restructuring after mergers and acquisitions to reconcile with the systems of the other organization and ensure consistency in approach. The process will also eliminate any duplication of work or system and incorporate the preferences of the new management and owners.
6. Buyouts
A critical reason for organizational restricting could be buyouts. It is the prerogative of the new owner to make changes so that it will allow the new management to make a fresh start and take control of the new situation effectively
7. Finance-related issues
Small and medium scale entities have informal structures, and when these grow, they will need fresh funds. The venture capitalist might demand a formal structure and policy before providing the necessary funding.
This is one of the reasons for organizational restructuring. A listed company can opt for restructuring because it wants to unlock hidden value and improve efficiency.
8. Bankruptcy
Bankruptcy is an essential reason for shedding excess land, workforce or any other resource to become lean and attract bail-out. The company can then opt for organizational restructuring.
Planning the restructuring of an organization
Organizational restructuring is a severe step for a business entity that needs proper preparation and planning. Big decisions have to be made that can have a significant impact on the future viability of a company and its employees. The planning stage of organizational restructuring includes
1. Quality over quantity
While planning for organizational restructuring, put your onus on quality over quantity in terms of the size of the company and product development.
2. Flexible
Make sure that the teams are flexible and that they encourage members to discuss and participate in the development process freely.
3. Collaboration
Listen carefully so that you can understand the needs of your target audience and then build a strong rapport. This is the time to ask questions and understand what needs to be done for the welfare of the company. Set common goals and collaborate both externally and internally so that you can set a proper planning process in place.
Restructuring Strategies
The strategies associated with the organizational restructuring are as follows
1. Map out your destination
Take a look at the business and think where it stands and where does it need to go. Before undergoing any significant changes, communicate your vision to the team. Anticipate delays and new changes that have to be incorporated at a later stage and then make a viable strategy
2. Identify the existing responsibility of business units
Your target is to optimize the process of organizational restructuring hence take inventory of the current framework tasks and business units. This will help to make an effective plan to remove any loss of value in the process.
3. Align the organizational structure
It is essential to align strategy to organizational restructuring for better results
4. Establish a transitional management team
Assign some people to specific roles throughout the organizational restructuring process so that they can oversee and make sure that everything is implemented as per the plan. Identify the best candidates for the job who has the necessary skills and know-how to get it done.
Make sure the team includes people who are organizational restructuring design experts, data analysts for managing, validating ad collecting data and experts in reporting, planning and implementing
5. Communicate the plan
Be honest and open while dealing with such a significant step as leaving the employees in the dark will cause confusion and resistance for the organizational restructuring plan.
Create a role-based organizational chart so that the employees can inspect the new structure and visualize the potential one. This will encourage better understanding and help everyone to accept the step
6. Carry out a skills assessment
It is imperative to assess and recognize strengths and weaknesses so that one can make plans accordingly.
7. Cut down on complexity
If the organizational design, product or structure is complex, it will prove expensive and drag the performance a bit. Cutting down on complexity and minimizing the use of matrices will prove an effective strategy
8. Focus on better activities
Remove inefficiencies, for instance, redundant activities and duplication that can hamper the progress of a business.
9. Create feasible roles
Assess the suitability of roles so that you know upfront, which will prove a perfect fit. Understand the workload of the employees and assign work without overloading them with several responsibilities or assignments at once.
10. Establish a new structure
Design a new structure that will support strategic goals. Define accountability parameters for both horizontal and vertical authorities. It is imperative to retain the fundamental talents and communicate the reason for an organizational structure to your employees so that they can offer their trust and support during the process
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