The Domino Effect: How to Plan for and Execute a Successful Reorganization

In today’s fast-paced and increasingly volatile economic climate, layoffs are too often the start of the reorganization conversation rather than the outcome of a collaborative and purposeful decision-making process.

These layoff decisions, when isolated from a larger restructuring strategy, can sometimes create a “domino effect” of unintended consequences, leading to more problems for the company than it started with.

The effects of layoffs in the tech industry especially have made for lively headlines over the past year, ranging from former employees at Twitter filing a class action suit claiming the company broke federal and state laws in communicating layoffs to praise for the difficult-yet-empathetic layoff communications from online payments platform Stripe.

With a recession looming and more reorganization conversations likely to come in 2023, executives should take note of the keys to a successful shake-up, ensuring leadership is aligned on purpose, key decisions, and the practical trade-offs.

Start with Purpose

As the authors of Mastering the Cube: Overcoming Stumbling Blocks and Building an Organization that Works put it, “Structure enables strategy. It can never drive it.” Any effective reorganization begins with a clear definition of the business problem and a well-defined strategy for how the reorganization will provide a solution.

Start by gathering leadership together and asking: What do we want to achieve? What are our priorities? These could involve deeper subject matter expertise, quicker customer service, more advanced technology tools, or a better understanding of customers that drives improvements to their experience. Importantly, purpose is holistic and should go beyond simply cutting costs, which, if done for its own sake, tends to overlook a business’s real problems and opportunities.

Using the defined purpose and priorities, the team should then ask how a reorganization strategy can achieve these goals. The strategy should identify and differentiate capabilities—those the company has already and the ones it needs to develop—while accounting for the trade-offs of investing in or divesting certain parts of the organization. Structure and head count are far from the only variables in this equation; other choices can include changes to processes, skills and training, governance, technology, or data.

Those choices will then provide the signal on whether changes to org structure, such as layoffs, are required. Skipping these steps risks solving for one metric while creating bigger problems, ultimately failing to position the company to successfully navigate the tough environment and move forward with purpose.

Clarity of purpose and a clear, cohesive rationale weren’t consistent across the Twitter reorganization, for example. Leadership said the workforce was too large and too focused on content moderation, platform safety, product development, and marketing. Others say the cuts were needed to boost profit margins. The e-mail sent to workers simply stated that layoffs were needed “to help improve the health of the company.” A unified purpose; a careful strategy; and, most importantly, a thoughtful execution with a consistent message could have prevented some of the resulting confusion and frustration.

Considering the Tradeoffs

Whatever choices a company ends up making, there will be significant downstream impacts—on company culture, team roles and dynamics, and the work itself. There will also be opportunities. Decision-makers should plot out how this might look and plan accordingly.

For example, consider a telecommunications company that offers a customer service help line. While some people call in with billing or account problems or to schedule an installation, others are dealing with technology problems that range in complexity. The company’s executives are therefore considering investing in an artificial intelligence (AI) product to screen calls, address simple needs, and assign complex issues to specialists.

Of course, the company shouldn’t begin this reorganization by laying off half the call center staff. (In fact, it may not need to let go of anyone.) However, beginning with how this change will serve to improve the customer experience, the team leading the reorganization does need to work through:

  • People: How will individual roles and responsibilities change? Are there opportunities to recognize, reskill, and/or promote high performers to give them space to grow? For example, could some administrative and billing staff be retrained to deal with the complex technology problems the AI cannot handle?
  • Process: How will the value streams, workflows, and reporting structures be impacted by the changes? Who is ensuring the AI is effective? What will the new processes look like with the AI screening calls compared with an operator? Is this an opportunity to improve ways of working behind the scenes?
  • Tech: How does the AI program integrate with existing systems the company uses? How does its reporting enable different functions to make better decisions?
  • Knowledge: What institutional knowledge will the company lose if people are moved to different teams or laid off (e.g., about a certain technology tool or key customer process)? Are important documents and transition memos available to those who need them?
  • Culture: How will these changes impact company and team cultures? How will the cultural impact vary across the organization (e.g., with less direct customer interaction)? For instance, are there cultural leaders at the firm who require extra attention and sensitivity?

While the questions in these categories may vary depending on the specific business problem, these considerations ensure leaders are planning for potential consequences and making the transition as smooth as possible.

Execution is Critical

The purpose is clear, the downstream effects are accounted for, and the plans are in place—now it’s time to communicate the reorganization, which may include layoffs. To do so successfully, keep these three best practices top of mind:

  • Leverage company values in key messaging. It’s important to be honest, empathetic, and transparent in announcing a reorganization, especially if layoffs are coming. Make sure communications reflect the company’s core principles and that all messages are tied to the ultimate purpose behind the decision.
  • Cascade the information. One of the most important components of a reorganization announcement, especially when it includes layoffs or role changes, is having employees hear the news from someone they trust, like their manager, who can speak authentically and confidently about the decision. Rumors and leaks, on the other hand, can have a devastating impact on company morale. Ensure there is a clear plan for when, how, and who is notified, with built-in confidentiality until the announcement is ready to go public.
  • Build support systems. Managers will be a crucial component of conveying the announcement to employees, so make sure they have the tools, resources, and guidelines for communicating through the transition in both the short and the long term. Additionally, plan for the information that will need to be available immediately, as well as ways for employees to ask open questions, be heard, and receive feedback, with the understanding that successful reorganizations require time to adjust.

For example, Stripe made the best of a difficult situation when laying off around 14% of its workforce. Departing employees were offered one-on-one conversations with Stripe managers, a generous severance package, and future career assistance. CEO Patrick Collison clearly and effectively explained the reason for the cuts, took ownership of mistakes, and displayed compassion and understanding for the impacts it would have on everyone at the company.

Many businesses will face tough choices in 2023. While reorganizations are never easy, following these tips will ensure they accomplish a specific goal, operational impacts are minimized, and employees are treated with the respect and compassion they deserve, ultimately positioning the company for future growth and success.

Consultants Maura Koehler-Hanlon and Riley Smith are directors at Propeller, a business consultant agency.

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