IT reorgs: Be sure of your reasons

When companies think about an IT reorganization, the first two questions raised are usually “Who?” and “Where?” Wrong on both counts! The first two questions should always be “Why?” and “How?”

Reorganizations encompass far more than moving lines and boxes on an org chart. The process usually has a major impact on personnel and productivity. When rumors of change emerge, productivity often plummets, and it typically remains low long after the reorg. Losers complain, winners boast, and the reorg’s success or failure is argued. When the scale and scope of jobs change, employee morale and job satisfaction are at risk; new jobs mean adjusting to new responsibilities, skill requirements and co-workers. Moreover, reorgs often require changes to business processes, compensation systems and employee performance metrics.

Reorganizations are often extremely costly. Are they worth it? Bain & Co. recently studied 57 major reorganizations. It reported that “fewer than one third produced any meaningful improvements in performance. Some actually destroyed value.”
So, reorgs shouldn’t be undertaken lightly, and never for the wrong reasons. Too often, though, reorgs are announced merely because they seem to demonstrate activity, suggest change or give the appearance of progress. Worse, such inadequate reasons can obscure the real reasons. There is little chance that a reorg driven by one of the following underlying (if unspoken) motivations will be effective:

Rectifying management-level personnel problems. These often result from nepotism or incompetence. One midsize company repeatedly promoted its best technical designer until he became the IT director. Unfortunately, he hated managing people and never received managerial training. But making him the chief architect would have frozen his salary indefinitely. Instead, his boss buffered him from the IT organization by creating two assistant directors. In the end, the company paid three (de-motivated) people to do one job and confused everyone with the awkward management structure.

Avoiding uncomfortable questions. Without a clear IT strategy, questions about business/IT alignment, outsourcing, mobility, etc. can be threatening. One company asked what new products and services IT would offer in the next three to five years. IT leaders proposed a reorg, thereby deflecting questions it could not answer. It also avoided specifying whether new services would be delivered internally or through business partners. Executive management began to doubt the competence of IT leadership. With good reason!
Increasing resources and power. Some reorgs are purely political. Ambitious managers can use them to steal existing staff and budget or to reduce rivals’ power. This type of reorg benefits the initiator, not the company.

Deferring decisions. Managers sometimes reorganize when they don’t know what else to do. One company was very unhappy with IT’s responsiveness, quality and product offerings. After two unsuccessful years, the CIO reorganized. When the (ineffective) reorg was announced, IT staff balked and departmental chaos ensued. Executive management felt they could not replace the CIO until IT stabilized. The CIO delayed his inevitable termination, but at great cost to the company.

Once you have adequately addressed the “Why?” question, you can take up the much less complicated “How?” As Alfred Chandler, an expert on corporate strategy, states, “Structure follows strategy.” Chandler believes companies must identify their products and services, along with how they will be delivered, before determining the new organizational structure.

Any reorg must significantly improve IT’s delivery capabilities to justify the associated costs and upheaval. Help ensure the success of yours. Make sure you have good answers to “Why?” and “How?” before you even think about who goes where.

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Jim Love, Chief Content Officer, IT World Canada

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