Updated: 19 August 2024
As companies feel some financial pain from the country’s recession, the prospect of restructuring is occupying the waking and non-waking hours of many business owners.
There's a lot of preparation and business modelling to be done before you decide to take a scalpel to your organisation. A potential restructure is going to change your organisational structure, disestablish jobs, and make people redundant, so it’s not to be taken lightly.
We spoke to leadership and people management experts on how to best approach restructuring, from creating the business case to communicating and working with your team members to minimise fallout and legal problems.
Wolf + Fox business coach, Toss Grumley, who works with SMEs, says you need to find the business’s weak points before making hasty decisions that may not be relevant to your problems.
If you’re considering a restructure, you’ve got to model it and create financial forecasts, showing what will happen if sales drop, for instance.
These forecasts will help you find any underlying business problems. Is it down to staffing or productivity, or are profit margins the problem? They can be quite squeezed in slow economic times.
“Think about roles. If you make layoffs, are you just going to need people back in two or three months?” asks Toss.
Take all these questions and more, and discuss any proposed changes with people you trust. Talk to your accountant, an HR advisor, business mentors and your advisory board who have hopefully been through some bad times before.
Toss says you’ve got to be careful not to panic. In a downturn, business leaders can get over-eager with cost-cutting and restructuring when things actually aren't that bad.
Keep in mind that slashing and burning can hurt your longer-term growth. Your sales could look the same, but you cut marketing and brand budgets and then it becomes bad. It can be a self-fulfilling prophecy, says Toss.
It’s always good to be cautious, but you don’t want to be alarmist. It’s about finding a balance.
“You don’t want to act too late because restructures take time," he says. "But if you wait and see what happens, that doesn’t end well either. Timing a restructure is more of an art than a science.”
In a restructure, marketing can be the first and worst thing to go. If you look at all the literature on what to do in times of recession, the recommendations are typically to keep up the research and development, marketing, and brand activities.
“Cut unnecessary expenses and lean in on the ones that push you forward,” the coach advises. “That’s what those who did best during the pandemic did.”
This will be a time when you’re thankful you have a good relationship with your bank, notes Toss.
“Banks help good businesses, not bad ones. Don’t borrow and have unserviceable levels of debt. And if it’s the right move, get rid of people and move to cut other non-income generating costs,” advises the business coach.
MyHR chief evangelist Sylvie Thrush Marsh is finding that many company leaders are considering reducing their headcount through restructuring, in order to navigate the economic headwinds.
The HR specialist has seen restructures work out in previous economic downturns when businesses took creative and prompt action.
“It’s about responding creatively to these headwinds you’re facing as well as making choices before things get really bad, and at all times, communicating clearly and consistently with your team, “ she explains.
An employer facing a challenge might say to their team: “This is the opportunity (or risk) that we’re responding to. We want to keep you in the loop so that if we have to act, it’s not a shock.”
The message may be: “We don’t yet know how to navigate this situation, it may affect us, but be assured that we’re aware of it and we’re dealing with it.”
In this way, company leaders are managing the concerns of their team and sharing what’s going on, says Sylvie.
“Employees would rather know what is happening than be left in the dark, trying to figure out what is going on. If you don’t give people a story, they’ll fill in the gaps on their own, often with a much more negative or dire explanation than the reality,” she says.
Rather than disestablishing entire jobs, Sylvie finds businesses are often open to considering reduced hours across the team - this might be going from a 40-hour working week to a 32-hour one for a temporary period of time, or permanently.
Again, this has to be communicated clearly and honestly with employees, so they can respond meaningfully to the proposal.
Your employees’ response to this, likely, unwelcome news will depend on the trust that business owners have built up with them over the years, says the MyHR chief evangelist.
“So much of the work in managing your team as you respond to tough choices has been done (or not!) in the months and years leading up to this moment in time. If you’ve supported them in the past with things like flexible working arrangements, extra sick leave in family emergencies, or additional parental leave, then that trust is there,” she says.
And if you’re communicating frequently, flagging any concerns, it’s likely your staff will continue to put their confidence in you.
Some employers will see restructuring as a chance to ditch low performers whose behaviour they haven’t had the tools or courage to address, warns Sylvie.
Sometimes in their haste to reduce costs by reducing headcount, companies can rush the process leading to legal problems. They make unilateral decisions and underestimate the consultation requirements of restructuring.
"Any decisions around who goes in the layoffs have to be done in a way that’s fair and reasonable," advises Sylvie.
Exploring all options for redeploying staff is also a mandatory part of the restructuring process. If you ask employees to re-apply for jobs - e.g. as your business goes from 30 to 20 roles - you should be very clear about the criteria you’ll be judging people on, she adds.
For example, the message might be: “We’ll be looking for skills and characteristics including punctuality, timeliness, reliability and problem-solving.”
Sylvie recommends this is documented in a skills matrix for each available position.
When the roles are dropped from 30 to 20, the employer can say: “Here’s how we scored those who scored best.” It’s defensible, fair, and transparent, says the MyHR evangelist.
And if your team has been managed well, none of these ratings should be surprising. “You’re articulating what the company considers is necessary to succeed in those remaining positions," explains Sylvie.
Meanwhile, don’t necessarily expect the staff who win those roles to be in a good place.
“You run the risk of those who keep the job being quite disgruntled after the restructuring process, needing some ‘survivor management,” says the HR specialist.
Redundancies change the whole vibe of the team and their experience of the company. They’ve been through a traumatic process, she says.
We spoke to two PR professionals about how to communicate during a restructure - this is not something you want to get wrong.
Anna Radford of Radford Communications, a senior PR professional with extensive crisis management experience says successful communication around the restructuring is vital.
Business owners must have complete clarity around why the organisation is restructuring and what it wants to achieve from the proposed action, she says.
Answers to the following questions will provide a strategic foundation for all restructuring communications:
Be open and honest about why the restructuring is being done and what the potential outcomes are. If job losses are on the cards, then say so. Use clear, consistent and unambiguous language and be empathetic, always protecting people’s dignity, says Anna.
Explain what will happen, the processes and timelines, and always outline the support in place for those going and those staying, she adds.
If your company doesn’t have an in-house professional communicator, Anna highly recommends bringing one in. Poorly delivered communication can cost the organisation reputational damage, and badly impact employee and customer relationships, she says.
When communicating to stakeholders about the restructure, employees should always be the first to know, says the PR specialist. Then tell customers and suppliers. And staff should be told in an all-company meeting so that everyone hears the information at the same time and hears the answers to the questions.
Employees should be given written information to take away with them because people tend to forget information if they’re stressed, advises the PR adviser.
The communications should then be ongoing. “It’s common for employees to feel anxious during a restructuring even if their jobs aren’t at risk. This uncertainty provides fertile ground for rumours and conjecture so it’s vital to communicate often, even if there’s no news," Anna says.
These are some of the common mistakes Anna has seen organisations make:
Rebecca Reid, acting Managing Director at NSPR recommends forming a small sub-committee with key people on it who have authority, ensuring decisions can be made and action is possible.
This might include HR, legal, communications/PR and finance representatives and a person directly responsible for the area or department under review.
Whatever communication is prepared for internal use is highly likely to end up in the public arena, so be prepared for that, she says. And if the company is regularly in the media, there should be an appropriate spokesperson who is ready to speak publicly about the restructure.
Establishing a regular restructure update to staff which is sent at the time agreed upon and promoted is vital, helping people get the right information at the right time, adds Rebecca. Some can be daily, some weekly, depending on the restructure.