GENERAL MANAGEMENT GM 601 PROJECT PAPER

STUDENT NAME: MARK MISOMALI

STUDENT ID: 24ELI-11765

INTAKE AND VENUE: EVENING 24, LILONGWE

LECTURERS NAME:

MARTIN LYEWE

DATE SUBMITTED:

JUNE 22, 2012

Table of Contents
GENERAL MANAGEMENT GM 601.......................................................................................... 1 Table of Contents.................................................................................................................. 2 Abstract................................................................................................................................ 3 Introduction.......................................................................................................................... 3 Why organizational restructuring.......................................................................................... 5 Changing Technology........................................................................................................ 5 Economic consideration..................................................................................................... 5 Acquisition and mergers.................................................................................................... 5 Financial Considerations.................................................................................................... 5 Organizational restructuring strategies................................................................................ 6 Downsizing........................................................................................................................ 6 De-layering........................................................................................................................ 6 Outsourcing....................................................................................................................... 6 Starburst............................................................................................................................ 6 Virtualization...................................................................................................................... 6 Challenges of a restructuring program.................................................................................7 Critical factors of restructuring............................................................................................. 8 Top Management support.................................................................................................. 8 Culture............................................................................................................................... 8 Involvement of employees................................................................................................. 8 Resource availability.......................................................................................................... 8 Communication.................................................................................................................. 8 Planning............................................................................................................................. 9 Kotters eight reasons why major change initiatives fail....................................................9 Recommendations.............................................................................................................. 10 Page | 2

Conclusion.......................................................................................................................... 11 References.......................................................................................................................... 12

Why organizational restructuring initiatives succeed or fail

Abstract
Companies may be motivated by different reasons to restructure and the strategies they adopt may be different. Are the outcomes of restructuring always positive? The answer is No. A number of studies on organizational restructuring have reported mixed findings. While some reported cost savings and improved efficiency, others reported high organizational costs in terms of employee morale, trust, and feelings of job insecurity, higher levels of stress, loss of productive employees and feelings of uncertainties among the survivors. Organizational restructuring should therefore be carried out after a careful analysis of all the pertinent information in order to yield positive results. In the modern world change is unavoidable; therefore, knowledge of significant factors that predict failure or success of organizational structure is important. Using available literature and subject knowledge, this project paper identifies potential factors which affect success or failure of organizational structure.

Introduction
Definition
Organizational restructuring is the process of redesigning one or more aspects of the company which leads to altering the original structure of the company. As defined by Robbins (1999), organizational structure defines how tasks are to be allocated, who reports to whom, and the formal coordinating mechanism and the patterns to be followed. It is within one or all of these components that an organization tries to make changes to improve specific new goals. Organizational restructuring is a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company

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Background of the project

In their pursuit of greater efficiencies organizations adapt to the demands of increasingly global markets. For organizations to grow they must undergo significant changes in their strategies, practices, and operations. As companies evolve through various life cycles, its leaders and employees must be able to successfully align with the organizational changes. Since the world is continuously changing, organizations that cannot change will become obsolete. Organizational restructuring often means making critical decisions about the job and employees. Organizations need insight into where to best utilize talent and find the best fit between existing employees and the job. Organizational restructuring can help management gain this insight to deliver the highest level of performance. This paper will briefly explain why organizational restructuring initiatives succeed or fail. The paper has been written to fulfill the requirements of a General Management module of an executive MBA program with ESAMI.

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Why organizational restructuring

The need to implement change is almost inevitable in todays business environment if organizations are to survive and continue to grow. The decision to restructure can be driven by many factors. Below are examples of the factors that can influence a company to restructure:-

Changing Technology
Changes in technology will often create changes in the workflow production processes. This may result in job losses for low skilled staff and skill shortages in highly technical positions. In order to manage these changes organizations need to constantly review their operations and staffing to ensure that they are not left behind.

Economic consideration
A downturn or an upturn in business could result in a review of business operations and staffing considerations.

Acquisition and mergers

Most takeovers usually result in a restructure. Employees roles may change and new skills may be needed to meet current or expected operational requirement. Parts of the organization may be under or over staffed due to the merger.

Financial Considerations
Companies with severe liquidity problems may need review in order to improve the cash flow position

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Organizational restructuring strategies

Downsizing
This restructuring strategy is about reducing the manpower to keep the employee costs under control. This type of restructuring is tough to manage and is mostly adopted to overcome adverse situations.

De-layering
De-layering involves breaking down the classical pyramid into a flat organization. The main objective of this type of restructuring is to thin out the top layer of unproductive and highly paid white collar staff. The major advantage of de-layering is that the decision making process becomes shorter and more effective.

Outsourcing
This is the type of restructuring which is caused when the company decides to outsource some of its processes. Outsourcing may help in reducing costs and allow the company to concentrate on its core business.

Starburst
This involves breaking the company into smaller independent units to increase flexibility and productivity. This may be done to make the company more manageable or to diversify into other unrelated product areas.

Virtualization
This strategy involves pushing employees away from the office to places where they are more needed like clients office

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Challenges of a restructuring program

Different companies and industries face a wide range of challenges when restructuring their businesses. In his book, Introduction to Creating Value through Corporate Restructuring, Stuart Gilson states that there are three hurdles or challenges that management faces in any restructuring program. These challenges are:(a) Design - What type of restructuring is appropriate for dealing with the specific challenge or opportunity which the company faces? Restructuring is more likely to work where managers understand the business problems or opportunities which the company faces. (b) Execution - How should the restructuring be managed so that barriers are overcome and greater value is obtained? For some companies, business factors may warrant that a restructuring be done at once while in other situations it may be necessary to be done gradually over the years. (c) Marketing - How should the restructuring be explained and portrayed to investors so that value created inside is credited to stock price? Restructuring affects not only the value of the firm but also the shareholder value. If not properly done, a dispute by the shareholders can work to the disadvantage of the restructuring. Management must find ways to bridge or resolve any such disputes. In the section which follows, we will discuss critical factors which affect the success or failure of an organizational restructuring.

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Critical factors of restructuring

Top Management support
The success of any change or policy depends on adequate support from top management. If management do not put their weight on the proposed changes or if their actions indicate that they do not support the change, nobody will be willing to buy-in. Management style usually sets the tone of the organization therefore success or failure heavily rely on the top management support.

Culture
Culture helps or hinders an organization as it seeks to implement change. The right culture for an organization is the one that supports its strategic objectives. The organization must assess the fit between the current culture and the culture required for the implementation of the new strategy and, if necessary, change the culture to better align it with what is required.

Involvement of employees
Restructuring requires a lot of change: change in the mindset, reporting, working, etc. It is human tendency to resist change so the best way is to involve them at all the stages from the beginning. In his book Leading Change John Kotter (1996) writes that the methods which managers have used to transform their companies routinely fall short because they fail to alter behavior. When employees are incorporated in the change process they are more likely to participate and provide valuable input but failure to include them will invite resistance which will affect success of the restructuring.

Resource availability
Adequate resources, both financial and non-financial must be available for a smooth and successful restructuring. For example, the organization should have the required finances, materials, equipment, space, and time to implement the change.

Communication
Communication is vital at all stages of the restructuring process to help employees manage expectations and have clear understanding of where they are going. Poor communication
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affects the effective working of employees and their performance, especially at the lower levels. Unstructured communication flow, unclear reporting structures, after restructuring, can affect the efficient working of the organization.

Planning
Ideally, managers should anticipate future crisis and prepare in advance. Prior studies have shown that greater value can be created when restructuring is done before rather than after a crisis (Donaldson, 1994; Gilson, 2001). Many companies recognize the need to restructure too late when fewer options remain and saving the company becomes difficult. However, it is difficult to convince management to restructure without any imminent crisis. As shown above, major change will not happen easily. In his book Leading Change, Kotter believes that a significant amount of the waste and anguish which has been witnessed in change initiatives is avoidable. He cites the following eight common errors which companies have made in the past:-

Kotters eight reasons why major change initiatives fail

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Error No 1: Allowing too much complacency (by far the greatest mistake), soestablish a sense of urgency. Error No 2: failing to create a sufficiently powerful guiding coalition, so, create one and get it to work like a team. Error No 3: Understanding the power of vision, sodevelop a vision and strategy. Error No 4: Under communicating the vision by a factor of 10 (or 100 or even 1,000), so use every vehicle possible to communicate it and have the guiding coalition role model the expected behaviours. Error No 5: Permitting obstacles to block the new vision, so.. empower broad-based action by changing systems or structures that undermine the change vision and encourage risk taking. Error No 6: Failing to create short-term wins, soplan for visible improvements, create them, and visibly celebrate them. Error No 7: Declaring victory too soon, so consolidate gains to produce more change by leveraging increased credibility to change systems, structures, and policies that dont fit together. Ingrain the vision through hiring and promotion processes. Error No 8: Neglecting to anchor changes firmly in the corporate culture (until new behaviours are rooted in social norms and shared values, they are always subject to degradation as soon as the pressures associated with a change effort are removed), so develop more and better leadership with more effective management.

Recommendations
From the foregoing discussion, we recommend that organizations should particularly pay attention to the following factors in order to have effective change initiatives:-

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Training Staff and management should have the requisite training in broad areas that affect their jobs. The training should not just focus on the professional development but also behavior change preparing them to embrace change. When employees are well trained reassignment is easy; even when retrenched the prospects of finding another job are high. Communication Staff at all levels should be brought on board to understand the vision, and values of the organization to appreciate any change that may come. All relevant information must be made available to all concerned staff to keep them updated on all major events that may affect the direction or structure of the organization. Planning Identify challenges at an early stage. Organizations must prepare for staffing needs, training requirements, and financial challenges other than wait for a crisis. Planning helps proper allocation of resources which may help the organization to grow and make good profit. Assessment Organizations should continually assess their operations to ensure that they remain competitive. This honest assessment which must focus on internal as well as external factors should also draw lessons learned by other organizations. A study of factors that led to failure of other organizational changes must be analyzed to avoid repeating the same mistakes committed by other organizations.

Conclusion
Change for organizations is inevitable. Organizational restructuring is a major critical decision which is very common when companies try to address change. There is growing evidence that some organizational restructuring initiatives succeed while others fail. Factors that lead to the success or the failure are varied and depend on the context in which a business is operating. This calls for managers to understand the business environment in which they are operating, and making the right strategic choices.
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Recognizing the problems and making decisions to restructure at an early stage enhances the chances of having a successful restructuring program. Today businesses operate in an open competitive environment. Managers must therefore constantly evaluate their business and determine whether they will continue to be competitive in the foreseeable future. Any identified gaps should be addressed as soon as possible. It is the people who will make the change successful or not. Proper communication at all levels is therefore important to keep abreast all the concerned parties.

References
i. ii. iii. Robins S.P.1993. Organizational Theory, Structure, Design, and Applications. 3 rd Edition. New Jersey: Prentice-Hall Inc. Beixin Lin, et al. Operational restructuring: reviving an ailing business. Emerald Publishing group Limited. Kotter, John.1996. Leading Change. Harvard Business School Press

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iv.

Sidhart Thakur. 2011. Business Restructuring: A Look at Some Strategies. On-line. Available from Internet, http://www.brighthub.com/office/humanresources/articles/122397.aspx, accessed May 28, 2012. Ugboro, Isaiah, O. Organizational Commitment, Job Redesign, Employee Empowerment and Intent to Quit, Among Survivors of Restructuring and Downsizing. On-line. Available from Internet, http://ejournal.narotama.ac.id/files/jbam_7_3_1_organizational_commitment.pdf, accessed May 28, 2012. Gilson Situart.2001. How To Make Restructuring Work for your Company. On-line. Available from Internet, http://hbswk.hbs.edu/item/2476.html, accessed May 31, 2012. McBain, Richard. Why do change efforts often fail? On-line. Available from Internet, http://web.ebscohost.com/pdf18_21/pdf, accessed May 31, 2012.

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vi. vii.

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