Stephen Heidari-Robinson and Suzanne Heywood on How to Get a Reorganization Right: Part 2 of an interview by Bob Morris

heidari-robinsonstephenStephen Heidari-Robinson was a leader in McKinsey & Company’s organization practice, heading the firm’s work on energy-sector reorganizations and on the practicalities of implementing reorganizations across all sectors. Stephen was UK Prime Minister David Cameron’s energy and environment adviser. He has also worked as a vice president at Schlumberger, as head of a not-for-profit focused on Asia, as an analyst for a private equity player, and as a UK civil servant. He currently runs his family business and holds the post of Adjunct Senior Research Fellow in Energy Technology and Policy at Oxford University. Stephen was educated in history at Oxford and London Universities and is a fluent Persian speaker. He lives in Surrey in the UK with his wife, Neggin.

heywoodsuzanneSuzanne Heywood
was a Managing Director at Exor Group, and sits on the boards of a number of companies, including The Economist Group and CNH Industrial, and is Deputy Chair of the Royal Opera House. She started her career in the UK Treasury and then worked at McKinsey & Company, where for several years she led the firm’s work on Organization Design. Suzanne was educated at Oxford and Cambridge Universities. She spent her childhood sailing around the world – the subject of another forthcoming book, Wavewalker, which includes her recollections of being shipwrecked in the Indian Ocean, an operation without anaesthetic on an isolated atoll, and teaching herself through correspondence to gain at university. She lives in London with her husband, Jeremy, and her three children.

Their book, ReOrg: How to Get It Right, was published by Harvard Business Review Press (November 2016)

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For those who have not as yet read ReOrg, hopefully your responses to these questions will stimulate their interest and, better yet, encourage them to purchase a copy and read the book ASAP.

First, when and why did you decided to write it and do so in collaboration?

Heidari-Robinson: After the oil price plummeted, Schlumberger divested my business and I lost my job. (I have just gone through a similar disruptive moment with Brexit, when my boss, the Prime Minister, and all his advisors, including me, lost our jobs, so, believe me, I do understand some of the dislocation I am talking about in the book!).

After leaving Schlumberger, I realised that it would take a few months to find the right next step, so I wanted to find something meaningful to focus on in the meantime. I remembered the reorganizations that Suzanne and I used to run together, whilst in McKinsey, and thought it could be helpful to set down some of the lessons that we had learnt for the benefit of other executives. The culture of collaboration is so central to McKinsey it made sense to co-write this book. And, because I had learnt so much about reorganizations working with Suzanne, she was the obvious person to work with.

Suzanne too was moving on – from McKinsey to Exor – and I guess, at that stage of our careers, it was a good point to look back on our work in consulting with the benefit of hindsight and a little bit of distance. We were both excited to write this book, but what really caused us to pick up our pens was when we researched the existing advice in this area. Despite reorgs being one of the biggest topics for consultants, we learned that there was a literal hole in the market: lots of books on what kind of organization to go for; but no simple rule book on how to deliver one. Unfortunately, once we got started, we found that neither of us had quite as much time to write it as we had first thought.

Soon, I was advising the UK Prime Minister on energy and the environment; and Suzanne was helping to run a company that invests in fast cars, soccer, and a prominent newspaper. She was also writing a second book on her childhood, spent sailing round the world, recreating one of Captain Cook’s voyages. So, we really did need to have a passion for the topic to find the time to get this book written!

Were there any head-snapping revelations while writing it? Please explain.

Heywood: Most of the lessons in ReOrg were ones that we knew well from the many projects that we have done over the years. However, in writing Reorg we were able to interview a number of business leaders – like Elon Musk – who emphasised some points (like the importance of meaning in an organisation) very powerfully. We are very grateful to them for their insights. We are also very grateful to our very talented cartoonist, Markus Schweizer – he demonstrated the power of a single picture and a little humour even in a business context.

To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

Heidari-Robinson: As we originally envisaged it, the book was in two halves: the first, on the content of a reorg (the structure, process and people); and the second, the process for running one (the five steps). It was our editor, Melinda Merino who persuaded us to structure it purely around the five steps. I remember the conversation well: I was struggling to find a phone connection as I was midway through a holiday, cycling through the countryside in the south west of England.

Another change to the structure of the book was the addition of a data chapter up front. Suzanne and I wanted to have the book written purely as a practical guide for executives, with quizzes, cartoons, stories, tips and tricks – in short, a quite un-McKinsey book. But early feedback on the book revealed an expectation – given the fact that we came from McKinsey – for a chapter with data. Now that we have it, I can see how important it is to start from a firm fact base. For us, with our experience, it was intuitively obvious. For others, they need the business facts to make the case.

You introduce a five-step process. Which step seems to be the most difficult to complete? Why?

Heidari-Robinson: The fourth step. That is, “getting the plumbing and wiring right” is the most difficult. It is the first step where you cannot get by on intuition: you need to know that first you must recut the companies profit and loss (P&L) and other reporting metrics to fit people’s new roles; then redesign individual KPIs; then plan the IT changes to deliver them; then test the changes; then implement them – to take just one of very many examples. Otherwise you end up driving a fast new car with no steering wheel. Unfortunately, this is also the step that executives typically underinvest in. They declare victory after they have a concept design and then just trust that someone in the organization knows how to deliver the detail. Usually they do not.

What are the unique challenges for those who lead a reorg?

Heidari-Robinson: The biggest challenge, by far, is the responsibility for interfering in people’s jobs, which can affect their entire lives. Some people may lose their jobs through a reorg; others will find themselves confused and challenged. For the executive leading this, it can and should feel like a huge burden of responsibility. That’s why you owe it to your people to follow a structured, logical and fair process – such as the one we outline in our book. This responsibility is not someone you can simply outsource to HR, junior staff or a consultant, even if you do need them to help you.

What are the defining characteristics of an ideal reorg leader?

Heywood: They need to be very good listeners (this is work that requires active engagement), they need to be detail oriented, and they need to be decisive. When reorgs go wrong, it is often because people fail to listen to their people’s thoughts on what is really happening; because they fail to understand how much detail needs to be covered; or because they fail to insist on a clear decision and come up with a messy compromise.

What are the most important “rules of engagement” when communicating with stakeholders?

Heidari-Robinson: The first rule is to start off by informing people and end up by engaging them. People don’t want to be engaged at the beginning: they just want to understand what is happening when and what it means for them. After they know what their new jobs are going to be, then they are in a position to be excited. The second rule is to communicate more often than you think necessary. This is a stressful time and it will take repeated communication of the same thing for people to hear you and believe you. And the third rule is to communicate broadly – not just to staff, but also to the Board, and to customers and suppliers if they are likely to be affected or have ideas to improve things.

With regard to the five-step process, what are the most important dos and don’ts to keep in mind when formulating the reorg’s “profit and loss” (P&L)?

Heywood: The most important thing is to be complete – about both the costs and the benefits. Some of these will be hard to quantify but you can still estimate them. For example, if the reorg is to enable revenue growth, how much and over what time period? For the costs, the costs of any external consultant is an easy one to quantify. So too the cost of employees’ time involved in the reorg. But you also need to factor in the disruption caused by the reorg. This could, for example, be a 5% decline in productivity. What this simple equation will also tell you is that speed is important: the quicker the reorg, the sooner you get the benefits and the less long the period of disruption. This should be obvious, but it runs counter to received wisdom that a slow evolutionary approach is best. Understanding the reorganization’s P&L is critical at the start of the work to make sure a reorg is really justified and at the end of the work to test that the Reorg has delivered. Along the way it’s your guide to what you are trying to achieve.

When gaining an understanding of current weaknesses and strengths?


Heidari-Robinson:
Three things are critical at this stage. Firstly, as much as possible, try to link the diagnosis to business results. For example, why is one sales unit performing worse than another? What structural, process or people issues are causing this divergence? Don’t just rely on what people are annoyed about. Secondly, don’t just ask leaders what they think: enquire widely. One thing Suzanne and I do is to use a “card sort” of issues (either physically, in an interview or through a survey tool). We ask respondents to sort through a list of say 40 potential issues (for example, business planning, the reporting structure of sales, financial capabilities) and identify the top 5 problems. That way we get a quantitative analysis of issues, which you can cut by seniority, geography, function and so in, to understand where people agree on the problems and where there are differences of opinion worth investigating. Finally, take care to identify the strengths in the current organization as well as the weaknesses, so you don’t lose the former while trying to fix the latter. You can use the card sort to have folk identify the top 5 strengths as well as the weaknesses and, again, investigate areas where judgements differ.

When selecting the new org model?

Heywood: It is critical here to consider more than one option. All too often leaders decide on the answer early on and all the following work is focussed on justifying that choice. By keeping more than one option in play you allow dissent – and often the final answer will take some elements from the different options that were considered. It is also extremely important to determine ‘how the organization works’ (the processes and the people numbers, behaviours, and capabilities) as well as ‘what it look likes’ (the structure or wire diagram). Managers love focusing on the latter – as it determines how many people report to them – but in our experience the former is far more important. I remember one reorg, where we were called in late in the day. The client had already determined the new design of the organization, but had not covered processes at all. Slowly, they started to realise that their new structure had created all kinds of breaks across their main processes and had blurred responsibility. It ended up taking years to fix the issue.

When getting the “plumbing and wiring right”?

Heidari-Robinson:
As mentioned above, this is the one area which is not intuitive. You simply need to know all the things you have to cover. We give you a list in the book and advice on how to sequence them. In short, though, what really matters is to have a plan, with an end date and a few intermediate milestones, to define all the stuff that needs to get done, and to determine the critical path to get there and any big risks that can hold you up along the way. It is not rocket science: it’s basic project management. But it is amazing how few companies do this properly, because they do not appreciate the range of detail they need to cover. Oftentimes, they declare victory at the end of the previous step. Very occasionally, it can go the other way. I was working in one, very high-performing, operationally focused organization and when I turned up they were already covering all the elements – and more! Leaders were also duplicating each other’s activities. Again, the answer is to have a plan. On the one hand, you need to make sure you cover all the bases and do not create a half-born reorganization that then leads to years of fixing the mess. On the other hand, you want to get this done quickly, to minimise disruption: it is not the time to solve world hunger.

When launching, course correcting, and learning?


Heywood:
Not declaring victory too early. We argue strongly in the book that you should do reorgs quickly but this does not mean doing them in a superficial way. It takes time to work through the change and almost every reorganization of any scale will require some course correction. Even if you digest every element of our book, I can guarantee you will find some surprises when the rubber hits the road. Real life is just too complicated to have anticipated everything. The trick is to differentiate between people who are just unhappy that things have changed and those who are giving you genuine feedback as to why an approach that seemed so good on paper just does not work in reality. In one of the reorgs that Stephen and I did together, the company took the decision to centralise IT with the part of the business with which it was most connected. Everyone agreed to this. But when the new organization was launched, this approach just did not work, and they decided to revert to the previous arrangement, where IT was split into the different business units. This was not a flip flop in the overall design (95% of the new organization stayed as planned), but a genuine recognition that a course correction was required.

Of all the “pitfalls” that you examine, which seems to cause the most serious problems? How so?

Heidari-Robinson: In the book, we identify three or four pitfalls for each of the steps. But if I had to pick out the three that tend to cause most problems, I would say: skipping the first two steps entirelyThat is, jumping straight to a new design without identifying the value you are trying to capture or understanding what is good or bad about the existing organization; focusing only on the structure/ reporting lines and failing to address process or people issues; and then treating the implementation of the new organization as a process of long, evolutionary change – thus dragging out the water torture – rather than getting on with it and reducing the fear of uncertainty.

Of all the “winning ways” that you discuss, which seems to be the most valuable to successful reorgs? Why?

Heywood: McKinsey’s survey of 1,800 executives identified the most common pitfalls of reorganisations – and the number one issue was employees actively resisting the change. So the most important winning way is engaging the workforce (at all levels and in all areas) in the change. This means good communication (we dedicate an entire chapter of the book to this topic given its importance) and effective engagement during each of the five steps of the change.

By which process should business leaders determine whether or not a reorg is necessary?

Heidari-Robinson: Firstly, go through our Step 1, constructing a P&L for the reorg – weighing up the benefits against the costs and risks. Secondly, ask yourself if you can achieve the same results through less disruptive means – for example, training or an operations improvement programme. One way to improve the success rate or reorgs is to do less of them. Of course, some are necessary but, even with those, leaders should take care to identify which bits of the organization are truly broken, and focus the changes on them, not throw everything in the air and end up losing all the current strengths.

How to maximize buy-in by those who will be primarily involved or at least affected by the reorg?

Heywood: The best way to do this is to involve people in the change – we talk a lot about this in the book. In the diagnosis phase give people a chance to share what they think the organisation is good and bad at. When you are getting ready to implement let people get engaged in testing new processes. If you have been involved in the change you are much more likely to accept it.

In between reorgs, what can — indeed must an organization — do to sustain a workplace environment within which continuous improvement is most likely to thrive?

Heywood: A big part of this is incentives. People have to feel that innovation and improvement is valued by the leadership in the organisation. It is also worth being thoughtful about what an organisation sees as ‘successful’. In several organisations I have worked with, having a large number of people reporting to you is seen as a measure of your status. If this is the case it is hard to make change happen. Companies which focus more on the impact of the work that people do – whether they do it working with peers, with their direct reports or as part of cross functional teams – than on the size of the empires that people build, tend to be a lot more flexible.

For more than 30 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in ReOrg, which do you think will be of greatest value to leaders in small companies? Please explain.

Heidari-Robinson: Well, at McKinsey I did a few reorgs for companies of about 100 people. The smallest I did was for a company of only 40 employees! People may think: “How many options can there be for an organization with only 40 people?”. But that is because they are thinking about a reorg as being focused only on how the organization looks (the wire diagram of reporting lines), not how it works – the latter is more important. One of my business initiatives now, together with my wife, is to run a small dental business of 10 people (my wife is a dentist) and we have also employed the principles from the book there. While small businesses do not need to go through a massive reorg, the thinking style in the book – working out what needs to change and why, what’s going well or badly, what your options are, how to deliver them, and how to check it worked – is absolutely appropriate even for the smallest of businesses.

And, of course, small successful businesses experience the most challenging organizational issue of all: how to manage growth in size and complexity by professionalising the business, adding some form of structure and process, whilst maintaining the magic of what made them successful in the first place. This was one of the topics we explored with Elon Musk in our interview with him for the book, discussing how he thought this through for SpaceX and Telsa. So, I would argue that the whole book is appropriate to small businesses, even if they take a week or a month to go through the reorg process, rather than a year.

Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Heywood: I would have liked an opportunity to thank the many people who were part of making this book happen – our many colleagues at McKinsey, the executives who shared their time and insights, the fantastic team at HBR and our very tolerant families.

Heidari-Robinson: The question I would have liked to have been asked is “Given the poor record of success of reorgs, why haven’t businesses sprung up to help executives deliver them in a better way?” I think one reason is that reorgs tend to be treated like a fluffy people process and somehow get outsourced to people who use all kinds of jargon to bamboozle their clients. Or they are treated as something that any general consultant can do: throw a few bright people at a problem and have them solve it from first principles. If you combine this with the fact that most managers who get involved in a reorg have a miserable experience and run for the hills when the next one comes around, you basically get no year on year improvement. What executives really need is two things: firstly, business metrics to measure success and what drives it; and, secondly, a process to follow that simplifies the process rather than mystifying it.

Suzanne and I are trying to solve the first one through an HBR survey, which is coming soon, and which we encourage all your readers to participate in – you will find a link at our website. This will provide a benchmark for measuring and planning successful reorgs. Our book, Our book is designed to give executives the process. But we are currently thinking through what else executives will need to turn this situation around: to deliver more business value and inflict less human misery. Watch this space. We are not done yet!

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Stephen and Suzanne invite you to check out the resources at their website. Here’s a link.

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