Organizational change is one of the riskiest, most earth-shaking things a company can do. But a successful reorg can set an organization on the path to future success like nothing else can.
It’s a radical move, but often it is the only way to truly shake opportunity loose, whether a company is struggling or looking to maintain its momentum. A reorg requires vision and flawless execution — or at least as close to that as is realistically possible — but when it works, it’s a thing to behold.
Three reorganizations stand out as inspiring examples of what can be achieved:
- CEO Satya Nadella’s reorganization of Microsoft
- Google founder Larry Page’s breaking up of the massive and thriving company into parts of a new company, Alphabet
- British Airways’ reorganization in the 1980s
PS: Check out the Definitive Guide to Employee Engagement
01. A new CEO turns a legendary company on its head
Why the reorg was needed: After the phenomenal and long-lived success of its Windows operating system and suite of Office products, Microsoft was struggling to write its second act. The gigantic company was stagnant and rife with turf wars between major business units that often viewed each other more as competitors than partners in the same company.
SOURCE: Manu Cornet
Innovation was being thwarted by a toxic environment that kept the company increasingly dependent on regular refresh cycles for Window and Office. As the world moved forward, with Google becoming dominant online and Apple owning the market for mobile products, Microsoft struggled to keep up, with unevenly executed new products (e.g., Zune) in which even the company soon lost interest.
What the reorganization was: After being named CEO in February of 2014, Satya Nadella undertook a major restructuring of the massive company to do away with the destructive internal competition. Products and platforms would no longer exist as separate groups, but rather all Microsoft employees would begin focusing on a limited set of common goals including:
- reinventing productivity and business processes
- building the intelligent cloud platform
- creating more personal computing
In September 2016, Nadella shook things up again with the merging of the Microsoft Research Group with the Bing, Cortana, and Information Platform Group teams to create a new AI and Research Group. With about 5,000 engineers and computer scientists, its goal is to innovate in artificial intelligence across the Microsoft product line.
What they got right: As the reorg began, Nadella shared with employees a new sense of mission: “To empower every person and every organization on the planet to achieve more.” He recalled his thought process: “Over the past year, we’ve challenged ourselves to think about our core mission, our soul — what would be lost if we disappeared. . . . We also asked ourselves, what culture do we want to foster that will enable us to achieve these goals?” Prior to the restructuring, employees had been lacking a positive sense of purpose, with the result being low morale and weakened employee engagement.
Although Microsoft’s future does look brighter as a result of the still-ongoing reorg, perhaps its greatest achievement has already been realized: to offer the company’s employees a new sense that their work has real meaning.
02. Google splits up under the Alphabet umbrella
Why the reorg was needed: By the early 2000s Google was a phenomenal success, dominating internet search and making itself indispensable in our lives through products like Google Maps and Gmail. Its R&D teams were seemingly interested in everything, searching for what cofounder Larry Page termed “moonshot” projects, supposedly impossible things Google engineers could perhaps make real. From human longevity and autonomous vehicles to wearable tech, smart home devices, and artificial intelligence — the list goes on and on. Some things succeeded, some failed, and many haven’t left the labs yet.
Google as a company grew monstrously diverse. It was all connected, and yet not: an increasingly impossible entity to manage, with intertwining goals, teams, funds, and managers. Mindful of the troubling latter days of other once-great tech companies, Page decided it was time to deconstruct the entire thing.
What the reorganization was: Page broke up Google into its constituent parts, making each one its own company, with all of them owned by a new umbrella corporation called Alphabet. Page sits atop the structure as CEO of Alphabet, with Google cofounder Sergei Brin as president and long-time Google exec Eric Schmidt as chairman. Each of Alphabet’s companies has its own goals and a CEO focused solely on those goals.
SOURCE: Business Insider
In a blog post, Page wrote, “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related. Alphabet is about businesses prospering through strong leaders and independence.”
Page admitted the reorg was radical in the same post, saying, “in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant.”
What they got right: Page let everyone at Google in on his thinking when the launch of Alphabet was announced, explaining that the reorganization would free the employees to concentrate more productively and happily on their own mission without having to be concerned about Google overall. With each company responsible for its own expenditures and income, they’d also enjoy a new sense of cause and effect that could make innovating more meaningful. (Page has the power to funnel additional funding to an Alphabet company should the need arise.)
03. British Airways restructures its entire organization
Why the reorg was needed: British Airlines is the largest airline of UK. It was created in 1974 from four other companies — BEA, BOAC, Northeast Airlines, and Cambrian Airlines — taking to the sky with 215 aircraft supported by 50,000 employees, a level of staffing that was, even then, viewed as precariously oversized. The oil crises of the 1970s shrunk the airlines’ customer base, and its huge staff resulted in massive financial losses. The company soon developed a reputation for terrible service as a result.
In 1981, British Airways brought on a new chairperson, Lord King, who noticed that the company was operating very inefficiently and wasting valuable resources.
What the reorganization was: To increase profits, King decided to restructure the entire organization by reducing its workforce from 59,000 to 39,000, eliminating unprofitable routes, and modernizing the fleet. He repaired the airline’s image by bringing in a new marketing expert. Within 10 years, the airline reported the highest profits in its industry: $284 million.
SOURCE: Piergiuliano Chesi
What they got right: Before King began announcing layoffs, he explained his reasons for the restructuring to the entire company to prepare them for the upcoming change. Without his transparency, British Airways could have experienced employee backlash and negative press around all the layoffs. But the chairperson always communicated honestly and frequently to manage the change.
Reorganization Done Right
These successful examples of organizational change are instructive and even inspiring. They show how courage and thoughtful planning can be rewarded when you put your employees first and help them through a period of upheaval by sharing with them your vision for their new roles and the future of the company.
What’s the secret to successful organizational change? Three words: communicate, communicate, communicate.
Because times change and organizations evolve, virtually all companies that wish to keep their doors open for a long time need to successfully undergo organizational change sooner or later.
Generally speaking, change management refers to switching up the way things are done at an organization.
Whether that means reallocating the distribution of resources or budgets or changing processes altogether depends on the organization’s specific situation.
So how can you ensure your change management initiatives are successful? Here are five real-world case studies that should provide some insight into how strong companies pivot successfully.
In July 2012, shares of Nokia were trading below $2 — far off from their highs of nearly $60 in 2000 and nearly $40 in 2007. At the time of this writing, the shares have somewhat rebounded, up more than 300% after having climbed into the $6.50 range.
At the turn of the millennium, Nokia was one of the world’s largest suppliers of mobile devices. This, of course, was before smartphone mania swept the nation (and the world).
Fast forward to 2010, and while Nokia remained profitable, the writing was on the wall. It was only a matter of time before Nokia phones, as they currently existed, would remain relevant.
Because Apple beat Nokia to market with its iPhone, the latter company missed its opportunity to lead the smartphone revolution.
Understanding this all too well — Nokia has reinvented itself time and again in its 150-plus-year history — the Finland-based company hired a new CEO to take the reins.
Ultimately, Nokia’s new management team decided to sell the company’s struggling phone division to Microsoft.
Like it has done so many times over the years (how else does a company founded in 1865 become the worldwide leader in mobile devices in the 1990s?), Nokia has changed the focus of its operations once more.
Currently, the company is building network and mapping technologies, among other initiatives.
When Asa Griggs Candler founded The Coca-Cola Company in the late 1800s, there was no way he knew his company would one day be valued at upwards of $180 billion. That’s a lot of money for a business that sells soft drinks.
But Coca-Cola didn’t become the powerful force it is today by sheer chance.
An illustration: In the 1980s, Coke’s biggest rival, Pepsi, was aggressively targeting it. This caused Coca-Cola to reevaluate its offerings. Eventually, the company decided to concoct a new, sweeter soda. They called it simply New Coke.
Unfortunately, the public didn’t take too kindly to the new beverage. But Coke’s executives didn’t let the mishap derail their success.
Quickly, management decided to pull New Coke and replace it with the older, established formula. Lo and behold, Coca-Cola Classic was born, and Coke maintained its market dominance.
Just as quickly as Coke changed to accommodate its customers’ sweeter palates, it changed direction again when it realized it made the wrong move.
But that’s not the only instance where Coca-Cola listened to its customers and enacted change. Again, how is a company primarily known for selling sugary drinks valued at $180 billion in 2016?
Coke doesn’t only sell sweetened carbonated beverages. In fact, the beverage king sells more than 500 brands to customers in over 200 countries.
Today, many of its offerings — like DASANI, vitaminwater, and Evian — are even considered healthy drinks.
In other words, Coca-Cola has consistently strived to diversify its product portfolio and expand into new markets. By and large, Coke has succeeded in these efforts.
In the aftermath of World War II, the Japanese auto market was nearing destruction. On the other hand, American car manufacturers like Ford and General Motors were crushing it.
Understanding that something major had to be done in order to keep pace with their Western rivals, Taiichi Ohno, an engineer at Toyota, convinced his managers to implement the just-in-time approach to manufacturing.
Instead of having to order and store an insane amount of heavy equipment and machinery, Ohno thought it made a whole lot more sense to receive supplies the moment they were ready to be used.
This way, Toyota wouldn’t have to waste any space, time, money, or energies dealing with supplies that would just collect dust until they were needed.
Additionally, Toyota would have more cash on hand to pursue other opportunities; it wouldn’t be tied up in inventory.
Toyota implemented Ohno’s suggestions, opting to take the just-in-time approach to manufacturing. Though it didn’t happen overnight, Ohno’s recommended changes ended up transforming the Japanese automaker for the better.
Ohno ended up becoming an executive.
When Jack Welch assumed the top position at General Electric in 1981, he inherited a company that had a market value of $12 billion — certainly a modest number, by today’s standards. By the time he left in 1998, GE was worth $280 billion.
While leading GE, Welch was charged with the task of making the conglomerate better by any means necessary. With his gut telling him that his company was due for a complete overhaul, Welch decided to implement Six Sigma at GE in 1995.
Six Sigma is a methodology that aims to reduce defects and errors in all processes, including transactional processes and manufacturing processes. Organizations that use Six Sigma test their processes again and again to make sure that they are as close to perfect as possible.
Five years after Welch’s decision to implement Six Sigma, GE had saved a mind-blowing $10 billion.
Welch claimed to have spent as much as half of his time working on people issues.
By assembling the right team and ingraining them with the right management philosophies, Welch successfully oversaw the transformation of GE from a relatively strong company to a true international juggernaut.
Ever since Amazon went online in 1995, the e-commerce juggernaut has undergone a slew of changes — despite being led by the same man, Jeff Bezos, during the ensuing two-plus decades.
When the Seattle-based company first launched its website, all it sold was books. Gradually, Bezos and his team expanded Amazon’s offerings to include things like CDs and DVDs.
But Amazon never really stopped changing the inventory it sold.
Bezos said he wanted his store to become the world’s largest, so he worked hard toward meeting that goal — whether that meant offering new products, launching Amazon Prime, launching Amazon Instant Video ... the list goes on and on.
Today, Amazon sells more than 200 million products to customers all over the world.
Though for years, Amazon’s detractors insisted that the company wasn’t making enough profits to justify any investments, that all changed in 2015 when the company posted back-to-back successful quarters.
The market responded kindly, and today, Amazon boasts a market valuation of more than $440 billion.
But Bezos isn’t anywhere close to done yet. There are talks of Amazon delivering packages via drone.
And if that wasn’t enough, Bezos recently said he hopes Amazon can produce as many as 16 feature films each year. In 2017, Bezos & his team took home three Oscars.
Indeed, it appears as though Amazon is a company that can be characterized as changing constantly. To date, they’ve been successful, probably because the company is always putting its customers first.
Is it time for your company to move forward with organizational change?
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