You restructure to reduce cost, labour is often a key line item on your Profit and Loss and a restructure is one lever you can pull to reduce this. Sure, it will cost you some money in redundancies, but once they are paid, this is a cost that will not come back into your organisation again, right?
As I mentioned previously, organisational restructures are something we frequently help clients with. We have worked with clients who are restructuring to achieve a pre-determined cost target and we have also worked with clients who want to restructure their business to address identified organisational issues.
It is important to note that, there are very few restructures we have completed that do not result in a reduction in labour cost.
Improving the flow of information is a key outcome that any successful redesign initiative should deliver. You should be able to look at a new design and see how it enables the flow of information across organisational interfaces both inside and outside of the new structure.
All organisations work as open systems, responding to factors in their external environment that impact their operating model. As these factors impact components of their operating model, for example, leadership / management capabilities, work practices, structure, culture / work climate, etc. they can become misaligned.
Whilst the impact of this may manifest itself in different forms, ultimately work will be required to realign them.
An organisational redesign, is a technique often used to realign certain components of the company’s operating model with its external environment. Thus, in our experience, where a redesign has commenced with a pre-determined financial objective, the resultant outcome may also deliver adverse organisational benefits in both the short to medium term.
If cost reduction is a key focus, there is a series of well-known and industry proven techniques that can be used to achieve this. Additionally, as stated above, a large percentage of organisational redesign activities we have completed have delivered reductions in labour cost.
Additionally, this can sometimes be achieved without a net reduction in associated FTE, as the redesign has been focused on improving information flow, aligning resources with organisational processes, realigning or reducing the existing scope of functions, removing and / or reducing organisational interfaces and associated transactional costs, realigning work with the correct level in the organisational structure, etc.
Ultimately, we have found that a restructure, focused on realigning the components of an organisation’s operating model will typically deliver both financial and other organisational benefits that ultimately have an improved likelihood of sticking in the short to long term.