Reorganisations, restructurings and other major changes

When your business reaches a new stage in its development, you may need to change the way it is organised. For example, as you come to the end of the start-up phase and begin to focus on developing the business, you may need to create a formal structure so that the business is better positioned to achieve its objectives.

In a start-up, staff numbers tend to be limited so employees take on multiple roles. As the business and workload grow, it makes sense for employees to focus on what they do best. Many entrepreneurs choose to bring on board professional finance and sales and marketing staff, for example. Introducing a solid organisational structure will help you stay in the driving seat while your business expands.

This guide examines why businesses decide to restructure and considers the implications of such change. It offers advice on how planning, training and communication can ease the process.

---

Reasons for changing the way your business is organised

Reasons for changing the way your business is organised

The main reason for restructuring your business is to allow it to achieve its objectives. When a business reaches a new stage in its life cycle, such as moving from an entrepreneurial organisation to one with a more stable, planned development, it often needs to make some changes. Other factors, both internal and external, can also prompt change.

Make sure that you are not changing the business just for the sake of it. You need to understand why business reorganisation is required.

External factors prompting business reorganisation

External factors that might prompt you to look at ways of reorganising your business include the need to:

• address new markets
• react to changes in demand
• keep up with new technologies or products from competitors

Other external events such as mergers and acquisitions, affecting either your business or your rivals, can stimulate organisational change.

Readying your business for sale is an equally important reason to instigate change. See our guide on mergers and acquisitions.

If you wait until your business’ position is threatened, it may result in defensive and ineffective management. Proactive change – when management foresees a change in the market or economy that will affect the business and makes changes in order to better its position – is much more effective. Analysing your strengths and weaknesses can help you identify potential changes.

See our guides on how to measure performance and set targets, how to assess your options for growth and how to prepare a business plan for growth for more information.

Internal factors prompting business reorganisation

Internal business needs can also be a prompt for positive change. These may include the need to raise additional capital or to address outdated and inefficient working practices and processes.

---

Different business structures: by function and area

Every business, from a sole trader to the largest company, is organised in a particular way. You should review this structure regularly to ensure that it fits the objectives of the business.

Businesses can be organised by:

• function
• geographical area
• product
• project

Structure by function

Larger businesses are traditionally organised into departments according to their role. Individuals, teams and line managers in sales, for example, will be grouped together and report to the head of department, ie the sales director.

The advantages of this type of structure are:

• specialisation – departments focus on one area of work
• accountability – there are clear lines of management
• clarity – employees understand their own and others’ roles

The disadvantages are:

• closed communication – for example, the sales team may not interact much with other departments and therefore may not realise how their work affects or can be informed by the activities of these departments
• co-ordination may become difficult
• departments may become resistant to change

Structure by area

Some businesses organise their activity according to geographical area. This is common in large multinational companies but it might also be appropriate for medium-sized businesses, eg a group of taxi firms, a small retail chain or a fast-food chain with several branches, as each site can operate according to local demand but still be directed by business policy.

The advantages of this type of structure are:

• divisions can better serve local needs and communicate with local customers
• you can encourage positive competition between departments

The disadvantages are:

• there may be conflict between local and central management
• potential duplication of resources and functions

For information on organising your business according to products or by project, see the page in this guide on the different business structures: by product and project.

---

Different business structures: by product and project

Businesses can be organised according to product or project as well as by function and area.

Structure by product

Structuring by product involves organising the business into departments, each of which focuses on a different product. Employees too, regardless of the type of their duties, are also assigned according to the product their work relates to.

For example, in a business that distributes computer software for home and for business users, the employees working on software for businesses would be grouped together while everyone working on software for home users would be in a separate division.

The advantages of this type of structure are:

• the clear focus on market segments helps meet customer needs more effectively
• you can encourage positive competition between each department, ie provide incentives for the team that produces the most viable products

The disadvantages are that there may be:

• duplication of functions, eg a different sales force for each division
• a lack of central control over each separate division

Structure by project

Project-based management is becoming increasingly common. A company that is divided by function takes a member of staff out of each department to form a temporary project team that will work on one specific task, eg developing a new product.

The advantages of this type of structure are that it:

• facilitates a multi-disciplinary or cross-functional way of working
• can flatten a business’ hierarchy
• ensures a business is organised according to its core activities
• makes better use of employees’ skills

The disadvantages are that it:

• can blur organisational boundaries
• confuses lines of accountability as employees may report to several different managers

See the page in this guide on different business structures: by function and area for information on organising your business according to function or area or for more information on project management, see our guide Project management – the basics.

---

The importance of planning and communication

Planning and communication are critical for any reorganisation. Getting top management involved in planning and executing any major changes can improve your chances of success.

Planning for any restructuring will help you ensure that changes happen in the way you want them to and that costs are identified in advance and kept under control:

• Plan well ahead. Set flexible priorities and change them with your circumstances.
• Assess any risks to the success of the change and to your business. See our guide on managing risk.
• Draw an organisational chart to understand existing processes, workflows and lines of authority, and draft another organisational chart for your new business structure.
• Develop a vision of how the change will put the company in a better competitive position to achieve its business objectives – communicating this vision can be a great motivator for your staff.
• Set objectives that will help you measure the success of the change.
• Plan resources and schedule timing for the change.
• Incorporate your objectives into a restructuring plan and distribute it among senior management.
• Plan how you are going to communicate the change to your employees – it demonstrates commitment if the managing director or chief executive talks personally to employees.

Sustained communications are vital. You should meet managers and employees regularly to explain the reasons for the change, how it will be carried out and how it will affect them. Combat unfounded rumours by tackling them head on. Make sure that managers operate an ‘open door’ policy to any employees who may have questions. See the page in this guide on managing people.

You may also need to take account of the Information and Consultation of Employees (ICE) Regulations, which can apply to businesses with 50 or more employees. Under these regulations, and where you already have an agreement in place, employees can request a change to the way you inform or consult them about major issues affecting the organisation. If no agreement currently exists, employees can request that one is drawn up, subject to certain conditions.

It is important to talk to suppliers, partners and customers to keep them informed of any changes that could affect them. Try to give this information as far ahead as possible.

---

Managing people

One of the most difficult aspects of organisational change is getting employees committed to the changes you are planning.

Many people are inherently cynical about organisation-wide change because such programmes often go against the way they believe things should be done. Often, they feel their position is threatened. See our guide on managing conflict.

Research shows that reorganisations that involve the employees are more successful than those that exclude them. If you have a human resources professional, get them involved from the start in consulting employees. Ask staff for feedback and suggestions at the initial stage of designing the reorganisation.

When the organisational restructuring dramatically changes employees’ roles, providing a new job description can help them understand what they are now expected to do, how they are expected to do it and who they should report to. This is particularly important for businesses that are graduating from a start-up phase – when all employees are required to help wherever needed and often perform more than one function.

There may be a need for retraining if you expect employees to use new technology, operate new machinery or perform different roles. Ensure that the right people have the right training at the right time. A training needs analysis will help you plan this.

Keeping employees involved in these ways may help prevent falling productivity by clearing up any confusion and making sure each staff member knows what is expected of them. Front-line managers in particular can have a major influence on the behaviour and attitude of employees.

You may also need to take account of the Information and Consultation of Employees (ICE) Regulations, which can apply to businesses with 50 or more employees.

Under these regulations, and where you already have an agreement in place, employees can request a change to the way you inform or consult them about major issues affecting the organisation. If no agreement currently exists, employees can request that one is drawn up, subject to certain conditions.

The Acas Model Workplace

The Acas Model Workplace tool can help you assess the effectiveness of your practices for managing change. It can also give you guidance on setting up and maintaining good employment relations. You can find out about the Acas Model Workplace on the Acas website- Op.

---

Implementing change

You can follow well-defined practices to maximise the effectiveness of your changes and minimise the disruption to your business:

• lead by example – adopt the new working practices that you expect from your staff
• change can disrupt teamwork – ensure managers keep their teams focused during restructuring
• build a team to take over some of the responsibilities of a change programme
• provide adequate resources for ensuring cultural change, eg provide training for staff to help them adapt their working practices
• set goals based on appropriate and achievable targets
• consider incentives to retain key employees
• monitor the reorganisation – be flexible and ready to incorporate any unexpected changes into your plans

There are recognised systems for managing change and its implementation – see the page in this guide on systems for delivering change.

For more information on project management and how to deliver a project, see our guide project management – the basics.

---

Systems for delivering change

There are a number of recognised ways for you to change your business so that it minimises disruption and maximises progress towards your goals.

Management consultants may recommend one of the following systems:

• Total quality management (TQM) philosophy prescribes a gradual and continuous process of improvement. You can find out about TQM on the Chartered Quality Institute (CQI) website- Opens in a new window.
• Business process re-engineering (BPR) advocates a radical shake-up of business processes within a particular time frame. You can find out about BPR at the Team Technology website- Opens in a new window.

---

Financial considerations

Even changes designed to save your business money, such as automating processes or cutting the workforce, can have high up-front costs. These, like other costs associated with change, are an investment in the future success of your business.

Potential costs of an organisational change include:

• Communicating the reasons for change and the business’ new structure. In some cases it may be desirable to carry out a formal public relations strategy to inform employees, customers and suppliers.
• Rebranding everything from stationery to delivery vans – this is particularly important for businesses undergoing a merger or acquisition.
• Redundancy payments.
• Retraining, development and cultural change programmes to help employees adapt to the organisational change and new business practices.
• Resources, and particularly human resources, taken away from other parts of the business to help with the organisational changes.
• Relocation.

It is a good idea to work out a detailed costing of the change programme, so that there aren’t any unforeseen expenses that derail or halt the reorganisation. This does not mean that you must rigidly stick to your original plan when implementing any changes – you may need to modify your proposals, policies and procedures to take into account changing circumstances in the business and in the market place.

---

Special considerations for change

You may encounter specific considerations depending on why you are planning a reorganisation.

Relocation

You may decide to move premises to accommodate extra staff or a physical change to your premises. Or you may want to reduce costs by moving to a location that is cheaper or nearer to customers, labour or transport links. Relocation can be stressful, so make sure that new premises have quantifiable advantages over the old ones to justify the upheaval.

Potentially, the most damaging effect of relocation can be the ability to retain staff. It’s vital that you consult with employees and their representatives and keep them informed. See the page in this guide on the importance of planning and communication.

Employees may resist relocation because of:

• the attitude of family and friends
• house price differences
• the effect on the education of any children
• their age

You will need to give employees sufficient information to help them decide whether or not to relocate. This should include details about the facilities available in and around the new area.

In order to persuade key employees to move with your business, you may wish to offer relocation packages. These incentives could include:

• payment of a disturbance allowance
• reimbursement of house-hunting costs
• payment of an allowance for excess housing costs
• help arranging a mortgage
• reimbursement of legal costs

Note that additional costs may result from having to provide redundancy or early retirement packages for those not chosen for relocation, or offered a suitable alternative job. See our guide on redundancy: the options.

Check out the quality, availability and costs of labour in the new area. Consider and consult with suppliers and customers – if your current suppliers face problems delivering to your new location, you may need to find new ones, for example.

Thorough research, proper planning and effective execution are essential to ensuring relocation is as smooth as possible. It is a good idea to set up a small team of employees who have the authority and management backing to take decisions. You could also hire a relocation agent if you feel you don’t have the relevant skills in-house. Find a relocation agent on the Association of Relocation Professionals (ARP) website- Opens in a new window.

Mergers or acquisitions

If you are contemplating a merger or acquisition, the people factor becomes hugely important. Reconciling two different business cultures can be extremely difficult. You will need to review salaries and contracts and make sure everyone is remunerated and treated fairly. See our guide on mergers and acquisitions.

If you are planning redundancies, make sure you comply with relevant legislation concerning consultation. See our guide on redundancy: the options.

In the case of acquisitions, employers have certain information and consultation (I&C) responsibilities:

• Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), you must inform and consult with representatives of affected employees – eg employees who transfer to the new employer – about the sale.
• If you have an I&C agreement in place, you must inform and consult employees or their representatives on – among other things – changes to the workforce. This means that you may have to inform and consult when planning to buy or sell all or part of a business.

Note that you do not have to inform and consult at the same time under both TUPE and your I&C agreement – you can choose instead to ‘opt out’ of the agreement and consult under TUPE only.

---

CASE STUDY

Here’s how reorganising workspace increased our options for growth

Daniels Healthcare Limited manufactures specialist waste containers for the healthcare industry. With its head office in Hertfordshire, it employs 55 people. Operations director Shaun Hazlett explains how reorganisation of the company’s manufacturing areas has allowed it to grow without the need for a move to larger premises.

WHAT I DID

Build foundations for growth

“Before you can hope to implement an effective growth strategy, you have to take stock of what you have got and understand the strength of your foundations. We undertook a thorough business review, including customer surveys, an analysis of gaps in internal skills and benchmarking with other companies.

“The review highlighted areas for improvement, not least that factory space was stretched to the limit. There was no point bringing in new orders if we couldn’t supply the product.

“It made sense to optimise our current site rather than needlessly spending money on a new manufacturing facility, so we began looking at ways to make better use of the space we had. Additionally, we wanted to use the reorganisation to boost staff skills and motivation.”

Get outside help

“We got help from a manufacturing industry body, Process Industries Centre for Manufacturing Excellence (PICME). A PICME engineer helped us analyse workflow on the shop floor. We then pulled together a team of volunteers from all areas of the business, who attended a 13-week masterclass workshop to discuss and agree what to do.

“We decided to clear the shop floor and effectively start from scratch. We only put back on the floor what was essential for production, plus we made some process changes. For example, colour coding was introduced for machinery, materials and packaging. This helps staff keep everything in the right place, and makes the best use of space.

“The results have been impressive, contributing to the company raising its UK market share to 55 per cent and winning a prestigious industry award for plastics processing.”

Involve staff

“A major part of the project involved devolving responsibility to supervisors, equipping them with the tools to communicate across the shop floor and involving them with aspects of the business they previously weren’t party to.

“The new confidence it’s given them has been amazing, they have effectively driven the project themselves. Attitudes have really changed, as measured by staff questionnaires and interviews. A PICME engineer still visits us bi-monthly to help us review progress, but the difference now is I don’t get involved unless they ask me to!”

WHAT I’D DO DIFFERENTLY

Don’t cling on to existing structures

“Looking back, some of our existing structures stifled the way forward. For example, we should have been more honest about the abilities and mindset of key personnel, so that they could be deployed in the area best suited to their skills.”