by Peter Buchas, Stephen Heidari-Robinson, Suzanne Heywood, and Matthias Qian
The Covid-19 pandemic has forced countless companies to reorganize at an accelerated pace. To understand what makes a crisis-driven reorganization succeed or fail, we drew on our own 15 years of experience advising companies on organizational change as well as a database compiled by Quartz Associates and HBR documenting over 2,500 reorganizations.1 The database shows that crisis-driven reorganizations are a net benefit in just two-thirds of cases; 19 percent actually damage the company, and only 8 percent fully deliver everything they aim to in the time planned. What can leaders do to increase their chances of success?
Whether a reorganization is motivated by cutting costs or by growth, our research found seven things companies can do to maximize their chances of delivering the intended outcome in the time planned while minimizing disruption.
Time is of the essence. If a crisis-driven reorganization takes longer than six months, it is significantly more likely to fail. After all, the longer it takes, the more likely it is that the business context will have changed (especially in a rapidly developing crisis situation), making the new model irrelevant—something we see in 30 percent of crisis-driven reorgs.
Of course, moving quickly does not mean rushing ahead without a plan. Only a third of companies pursuing a crisis-driven reorg develop a detailed plan; another third have just one milestone that everyone needs to hit; and a final third have no plan whatsoever. The data shows that the latter two cases have much lower success rates. In our HBR Press book, ReOrg: How to Get It Right, we go into greater detail on how to successfully plan and implement a reorganization.
The vast majority of companies’ human capital analysis capabilities are not nearly as substantial as their financial analysis, leading them to sacrifice either speed or rigor in their reorg. As the HR head of a large U.K. energy company explained, “We do not have the right data on people, so we have to use the blunt instrument approach: I know we need to reduce headcount by a certain amount to cut costs, but I don’t really know where the inefficiencies are.” Our experience suggests that this situation can be remedied within days or weeks and does not require a multiyear enterprise resource planning implementation.
Nevertheless, rather than investigating their own organizations, some companies attempt to benchmark their cost-saving targets against peer-group companies. This typically takes a long time and results in less reliable comparisons since leaders do not know whether differences are driven by a different context, level of automation, level of outsourcing, or just worse performance. In addition, this sort of analysis is essentially backward-looking, so any conclusions you draw from it may no longer be relevant.
Instead, our data suggests that internal benchmarking analysis (for example, “why is my operations team more efficient in region X than region Y?”) is much more likely to lead to success. Internal benchmarking enables companies to move fast, understand what is driving differences, roll out best practices to other areas, and more effectively challenge naysayers with detailed evidence.
Saving 20–30 percent across the board is not always the right answer—perhaps some organizational units should be cut by 50, 80, or even 100 percent while others might need focused investment. For example, we once worked with an energy company that had set the same cost-saving target across all departments. They found that some departments, such as HR, remained inefficient even after meeting the new target while others, such as technology, were essentially unable to function after being hollowed out by the reorg. In this case, a differentiated target system would have been better for everyone.
Companies that can reinvest a portion of their cost savings into building up their internal capabilities are significantly more likely to succeed, even if this means cutting costs more deeply elsewhere to afford it. This may be intuitively obvious, but it is easily forgotten in a crisis. For example, when we worked with a logistics company to reduce costs in their quality control department, we found that an existing success framework (and the expensive statisticians who supported it) actually made performance worse. As such, we decided to close down this team and invest some of the savings into growing the department’s coaching team that did have a demonstrated record of success.
How you decide on organizational change really matters—sometimes even more than the actual decision. The Quartz/HBR data set clearly shows that the most successful reorganizations involve the whole leadership team in the decision-making process, often with some staff input as well. Our experience tells us that this is because the entire leadership team will need to support the execution of the plan, so they all need to buy into it.
Unfortunately, the data shows that this approach is not very common. Instead, crisis-driven reorgs are most frequently designed by just the leader and a few of their most trusted colleagues. This is even worse than a single dictator deciding because executives who feel excluded from the inner leadership circle are more likely to resist later.
In 50 percent of cases, crisis-driven reorgs fail to deliver as planned because leaders resist a centrally mandated solution. Companies that allow leaders some flexibility in deciding how the changes are implemented—ideally based on a solid business rationale—are far more likely to succeed.
For example, when we reorganized a division of an oil and gas company, we agreed that if a geographic business unit was below a certain level of revenue and/or activity, it would not need to make the all the changes that we expected of larger business units but could instead adapt the reorganization design to match its specific circumstances. When we work with companies, we help them to define an overall design, guardrails for what is acceptable, targets for cost, and a process for local leaders to fill in the details. It turns out that this is far quicker and more likely to lead to a workable outcome than deciding on every last detail in advance.
In everyday reorganizations, face-to-face communication has a much greater correlation with success than communicating via email. However, in crisis-driven reorganizations, electronic communication is actually far more likely to correlate with success—probably because in a fast-moving situation, employees would rather receive news quickly than be left in the dark.
Ultimately, the most important thing for leaders to remember is that reorganizations are not only about numbers—they’re also about people. Friends and colleagues will lose their jobs. You have a duty to treat them fairly and sympathetically, and your remaining workforce will judge you on how you handle the situation. Mass, impersonal layoffs by video conference without any forewarning are unlikely to win you accolades from either community.
A better approach is to tell all employees what is happening and why and then to have managers or HR personnel who know the people affected speak to them directly (all of which can be done virtually). Even when changes happen quickly, employees need to understand why, when, and how they will happen.
Nancy McKinstry of Wolters Kluwer (rated by HBR as the top-performing female CEO of 2019) told us: “It is unrealistic to expect the new organization to work perfectly from the beginning. You have to live with it and digest it, and rapidly course correct when you find issues.” Crisis-driven reorgs that have formal mechanisms for feedback (such as managers escalating issues, staff surveys, or a formal review three to six months after completion) are much more likely to be successful while reorgs without clear processes for escalating issues are most likely to fail.
Interestingly, while growth-driven reorgs consistently benefit from surveying employees about implementation issues, our research suggests that this approach is less effective for cost-cutting reorgs. This may be because cost-cutting is by nature divisive, so staff may take longer to embrace the changes and contribute positively rather than focus on their concerns. Nonetheless, companies which have completed a cost-cutting reorg should not neglect other formal means of assessing organizational performance post-launch.
Delivering organizational change in a crisis is never easy, and Covid-19 poses unprecedented challenges. But armed with the seven guidelines listed above, you are much more likely to succeed.
TAKEAWAYS
The Covid-19 pandemic and subsequent recession have forced countless companies to reorganize at an accelerated pace, yet only 8 percent of crisis-driven reorganizations deliver as planned. Companies looking to reorganize in response to a crisis should follow these seven strategies.
1. Stephen Heidari-Robinson and Suzanne Heywood, “Assessment: How Successful Was Your Company’s Reorg?” hbr.org, February 24, 2017, https://
Adapted from “7 Strategies for Leading a Crisis-Driven Reorg” on hbr.org, August 31, 2020 (product #H05TUN).