is restructuring ever good for staff?

In a September memo to staff, Amazon’s chief executive Andy Jassy laid out a list of symptoms of an over-bureaucratic company that will feel familiar to anyone working for a big business.

He described hindrances such as “pre-meetings for the pre-meetings for the decision meetings” and “a longer line of managers” needing to review decisions. He also suggested some familiar solutions: restructuring, delayering of management and flattening of hierarchy.

Amazon is far from alone in its refocus on productivity. Meta’s Mark Zuckerberg proclaimed 2023 to be a “year of efficiency”, laying out his aim to “defragment layers” and, like Jassy, to increase the ratio of staff reporting to each remaining manager. Citigroup’s “Project Bora Bora” has sliced five layers of management out of 13. Companies including UK bank, HSBC, professional services firm Deloitte and consumer products group Unilever have launched restructurings in the past year. Nissan this week launched an emergency turnaround plan in an attempt to counter falling profits.

The announcements often hold great promise. “We’re cutting the bureaucratic processes and needless complexity that get in the way of us performing our best,” said Citi’s Jane Fraser in a memo in March. “After all, no successful organisation is ever static.”

Many leaders agree. Untended, large companies do gradually accrete bureaucracy and cost. But Fraser’s mantra can be an excuse for chief executives, abetted by consultants, to push through repeat restructurings that can sow uncertainty across organisations and distract and demotivate workers.

Even when there are good reasons to restructure, a lack of proper planning can undermine any benefits, say executives who have overseen such plans.

Bosses will not usually publicise it as their main goal, but most reorganisations involve job cuts, often targeting middle managers, or occasionally — as in HSBC’s recently announced shake-up — senior layers.

Ashley Goodall, a former human resources executive at Deloitte and technology company Cisco, says change is “one thing that stops people from doing their jobs”.

For his book, The Problem with Change, Goodall interviewed dozens of people who had gone through reorganisations. They testified to how poorly explained restructuring, and the consequent uncertainty and lack of control, had a negative psychological impact even on those who kept their jobs.

He says few companies are genuinely in such trouble that restructuring is unavoidable. “Very often we attach to the story of the CEO coming in, [the idea that] ‘this thing is going down the tubes unless you take serious action’. But that doesn’t justify all the parallel restructuring being done for reasons other than actual survival.”

Goodall says many of the restructurings happening now “will give you a headcount reduction target and you figure out where these people are going to come from and what the organisation will look like afterwards”. He warns: “There isn’t a degree of co-ordination across the organisation. It isn’t a designed process.”

On the other hand, a more thoughtful approach, which prepares for the potential human and organisational consequences of job reductions and cost-cutting, can pay off.

After the Australian government renationalised Telstra’s fixed line telecoms network in the early 2010s, the group needed to restructure and resize itself to match its lower revenues. On the surface, the goals of the group’s Telstra 2022 programme sounded like other such initiatives: to simplify, cut costs and headcount, and reduce layers of management. But Alex Badenoch, the HR executive given the task of leading the plan in 2018, says cost reduction — or “cost-out” — was a “byproduct, not a primary goal”.

“When you look at a lot of announcements about delayering, it’s often done as more of a blunt instrument,” she says. “Flattening” hierarchy, even if it starts with the goal of giving more responsibility to front-line staff, can lead to an increase in managers’ direct reports and workload. “The cost-out is often unsustainable,” explains Badenoch. “Twelve months later, they have rebuilt the costs back into the business because they didn’t change the way the company was operating.”

Learning from previous unsuccessful restructurings, Telstra sought to simplify its processes, and remove duplication of activities, so it was not just “doing more with less [staff], but doing less work”. To ease the unavoidable uncertainty, the group explained to staff how it would achieve its goals and over what timetable, scheduling “change windows” when transformation would take place, so employees could prepare. “When you think about change, it’s often very opaque,” says Badenoch, “but this was a clearer story that everyone understood.”

Careful design is also needed in another case where restructuring may be inevitable, after an acquisition.

Less than three years after US wireless carrier Sprint bought rival Nextel in 2005, the buyer had to write off nearly 90 per cent of the $35bn price, largely because of a botched integration. Academics Baruch Lev and Feng Gu describe in their new book The M&A Failure Trap how the merged companies closed service centres, just as they were most needed by confused customers, and put all positions up for competition between staff. The best employees quit; the mediocre stayed. Lev and Gu’s research shows that the most successful acquirers retain key staff and on average enjoy an increase in headcount after the deal.

Lev says the same “adverse selection” flight of talented staff can afflict troubled companies that mishandle internal restructuring. The only consolation is that a well-handled reorganisation is less risky than dealmaking, which Lev and Gu find has a failure rate of 70 to 75 per cent. “If you buy a company, you have to buy everything and pay a premium for it,” Lev says. “[With] internal reorganisation, you do it slowly and [at] the first sign that something doesn’t work, you can stop it and reverse it or change it.”

Careful restructuring can present opportunities as well as dangers. Diane Gherson, former chief human resources officer at technology group IBM, says the flattening trend is now giving way to a networked approach, which frees managers for new roles. Internal communication tools such as Slack allow staff to request help on projects directly from other departments, rather than going through the management hierarchy.

Telstra also took the opportunity to remodel the system, while simplifying its structure. It created two types of manager. “Leaders of people” are responsible for a specific “chapter” of similarly skilled staff. “Leaders of work” manage projects and staff them from the chapters. Gherson and London Business School’s Lynda Gratton acclaimed this as a “bold experiment” in an article in Harvard Business Review in 2022. Almost two years since Badenoch moved on from Telstra to apply her knowledge as a consultant and non-executive director, she believes the system is still working well.

It is too soon to see whether the programmes under way at Meta, Citigroup, Amazon, HSBC and others will reshape the work of managers left behind as radically. Badenoch believes companies bent on restructuring should certainly be trying to adopt a more rounded approach that looks beyond the potential cost savings that delayering could achieve: “My question for Amazon is: what are you changing about how you work to enable that [increased staff-manager ratio], because there’s a limit to people’s capacity to just take more and more direct reports, if you’re not changing anything about how they work or the volume of work?”