The key to successful corporate reorganization

The key to successful corporate reorganization

Fewer than one third of overhauls improve performance. Here's why those few work.

  • min read


The key to successful corporate reorganization

New chief executives often feel compelled to reorganize their companies. In fact, nearly half launch some kind of reorganization during their first two years on the job. Even that brisk pace seems to be accelerating, with Hewlett-Packard, Nokia and Caterpillar recently announcing organizational overhauls.

The spike in ambitious plans to reorganize doubtless reflects the economic cycle. Companies are only now clawing their way back to health, and full recovery seems to demand strong medicine. Changing an organization's structure can seem like an effective way of shaking up the entire operation and thereby unlocking better performance.

But corporate reorganizations are risky investments of time, energy and resources, and many do little to improve the business. Chrysler restructured its organization three times in the three years preceding its bankruptcy and eventual combination with Fiat. None of those reorgs had much effect. A recent Bain & Company study of 57 major reorganizations found that fewer than one third produced any meaningful improvement in performance. Some actually destroyed value.

What do the few successful reorganizers know that so many others don't? The reorganizations that work best don't just reshuffle the boxes and lines on an org chart. Rather they improve a company's ability to handle its most important decisions. They enable people in the organization to make better decisions. They speed up decision making. They also increase the "yield," or the proportion of decisions that are executed effectively.

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