Restructuring

With the current pandemic that is sweeping across our country, many CEO’s are facing extremely difficult decisions. How do we keep the cash flow coming in when our sales are diminishing? This is a dilemma that most companies are facing, except for the few industries that were positioned by their product line to withstand this crisis.

Like any crisis, the key area to remember is that tough decisions need to be made to ensure the survival of your company. If you are able to withstand the current economic downturn, your future will look bright. For your company to have a bright future you need to structure your company to handle the current downturn and be ready for the next economic recovery.

How do we accomplish this task?

We need to look at the company and determine ways to restructure or downsize to reduce the fixed and variable cost. If we are able to accomplish this task without creating a major disruption to the workforce, we will be in position to not only survive, but also prosper when the economy turns around.

The following is an eight-step evaluation for looking at your company and seeing the areas that need to be restructured or downsized to make you more profitable. However, in the current environment you might not have the time to evaluate all eight areas. As the leader of your company, the following eight areas will provide an opportunity for you to focus on an area to work on first that will create the greatest impact on your companies bottom line.

Why should you restructure?

The following is a brief description of the eight areas that need alignment.

Span of Control is an interesting analysis to conduct. Sometimes you might see extra levels of management which creates waste and poor communications. The span of control study will look at how many employees work for each supervisor. If you have 6 supervisors reporting to one manager, that would be a span of control of 6. Low spans of control are quite common in many companies. I have seen span of controls of 1-2 people. In restructuring, having too many levels of management creates a tremendous bureaucracy and extra overhead to the bottom-line. If you want to have a quick restructuring, just look at the span of control to obtain some instant savings, improve communications, while reducing bureaucracy at the same time.
Overhead ratio of a company is a good benchmarking tool to determine if you are getting too large of a corporate headquarters and not enough doers in the company. Many companies start lean and mean when they first come into existence; however, human nature will eventually creep in and the overhead will slowly grow out of control.
Looking at the major roles and responsibilities of the various departments will also help you identify redundancies when starting the restructuring process. When the roles and responsibilities are identified you will see where overstaffing occurs along with departments who have duplicate responsibilities.
Work Processes is a good way to determine if there are inefficiencies. Analyze the flow chart to see where major work processes from department to department. This will give you a visual of who really needs to be involved and what is a wasted step in the process. I would never attempt to work on every companies work process. This could take years to complete depending on the size of the company.
Business strategy needs to be aligned with your organizational structure. The business strategy needs to be structured so that every function that exists will support and advance that strategy. If there are functions that do not support the strategy, they need to be evaluated and sometimes eliminated.
Vision, mission, and values will be the benchmark that you will evaluate with any restructuring process. If your current organization structure is not aligned with your vision, mission and values it will cause disfunction in any company. If you’re trying to expand your market share by introducing new products, you need the team in place to be able to develop and market the new products. If you’re planning on designing new products as your core competency and outsource your manufacturing, you need the right organization structure to accomplish this mission if you manufactured products in the past.
Compensation systems need to be in alignment with the strategy of the company. If your talent level of your employees is going to be your strategic advantage, you will need compensation systems that will support and retain your employees.
Performance Management systems will be the key driver to assess if you have the right people to face the current and future competitive environment? Are we even developing our employees to have the proper skill set to meet those challenges? Performance management, if done correctly, will tell you if you have the right team to even be successful. You will know how to recruit in the future based on the missing skills and leadership capabilities of your current workforce.

These eight areas will help you determine if you need to restructure. From this list you will know which area to focus on first to create the greatest impact.

Once you determine what positions need to be eliminated, the most challenging part of the process is to determine who should remain with the company going forward. If you have a robust performance management system in place, this will be an easy step; if not, you will have to carefully look at the skill sets that will be needed to take the company to the next level in the future.

Once you decide on what positions to be eliminated, conducting the downsizing process in one step is ideal. If you carry out the process in phases, it will create fear and intimidation throughout the company for an unnecessary and prolonged period of time.

Restructuring or downsizing is not an easy process. If done well, it will create a company that can withstand the current economic downturn and position you for amazing growth in the future.