Managing Director & Senior Partner
With all the uncertainty that business leaders face today, the one thing they can count on is organizational change. Reorganization has become a fact of business life, an undertaking now as commonplace as launching a line extension was 20 years ago. Heightened volatility, shifting economic realities, and more rapidly evolving competition are forcing companies to adapt and restructure—and to do so more frequently, more fundamentally, and faster than ever before. In fact, in a recent BCG study of executives worldwide (leaders at organizations with more than 1,000 employees), almost 90 percent of those surveyed said they had recently carried out a reorganization. (See “About the Study.") Roughly half were large-scale enterprise-wide reorganizations—efforts designed to fuel global expansion, unleash innovation, capitalize on a market trend, slash costs, digest a merger or an acquisition, or respond to a major social or economic shift. Some reorganizations were implemented during a crisis (amid plummeting profits, for example), others during periods of strength and stability.
Our recent executive survey on reorganization was part of a broad-based study of the role of organizational capabilities in business success, including a company’s capacity for instituting change. In partnership with a dozen major research and business organizations around the world (see pages 17 to 20), we surveyed 1,600 executives from more than 35 countries. We sought to pinpoint the organizational capabilities that matter most in financial performance.1 Our aim was to identify the gaps between best-practice capabilities and the capabilities typical of organizations today, and to create a set of priorities that can guide companies in closing those gaps. The study involved cross-analyzing quantitative performance data with executives’ reports on their perceptions of performance. (See Organization of the Future—Designed to Win: Organizational Capabilities Matter, BCG Focus, January 2012.)
1. We identified six broad categories of capability: structural design; roles and collaboration mechanisms; processes and tools; leadership; people and engagement; and culture and change.
Yet as common as reorganizations have become, what’s even more common is their high failure rate. Less than half of all reorganizations in our survey were considered successes by survey respondents—that is, they achieved their objectives (this figure was high compared with objective measures in other studies). That’s an alarming statistic, and one with perilous implications. Apart from the high costs and squandered opportunity, a failed reorganization can leave an enterprise even worse off than it was before, with lost productivity, a weakened market position, and a disengaged workforce, among other impacts. In today’s unforgiving environment, there is less latitude for error; an ill-conceived or poorly executed reorganization carries markedly more risk than it did in the past.
The good news is that success in reorganization does not have to be either elusive or improbable. By dissecting scores of reorganizations from our consulting experience and from our survey and interviews—reorganizations that were successful as well as unsuccessful—we have learned a great deal about what it takes to achieve success.