We received this really useful artile on using Six Sigma to manage change. Some aspects of the Realising the Benefits in MSP was drawn from Six Sigma and also Lewin theory of organisational change. We hope it proved interesting for you to read.
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 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 aboard professional finance and sales and marketing personnel, 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
The principal reason for restructuring your business is to allow it to best 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.
External factors include the need to address new markets, react to changes in demand, or to keep up with new technologies or products from competitors. Your business may need to reorganise in order to achieve its objectives in the face of such changes.
In addition, other external occurrences 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 review your business performance, how to assess your options for growth and how to prepare a business plan for growth for more information.
Internal business needs can also be a prompt for positive change. These may include the need to raise additional capital or the necessity of addressing outdated and inefficient working practices and processes.
Make sure that you are not changing the business just for the sake of it. Understand why you are reorganising the business and have a rational analysis of the situation.
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
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
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 are:
- divisions can better serve local needs and communicate with local customers
- you can encourage positive competition between departments
The disadvantages are:
See the page in this guide on the different business structures: by product and project for information on organising your business according to products or by project.
Different business structures: by product and project
Businesses can also be organised according to product and project.
Products
This 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:
Project management
Project based management is becoming increasingly popular. 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 develop a new product.
The advantages 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.
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.
You can read about the ICE Regulations at the Department for Business, Enterprise and Regulatory Reform (BERR) website - Opens in a new window.
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.
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. See our guide on how to fit the training to your needs.
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.
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.
You can read about the ICE Regulations at the Department for Business, Enterprise and Regulatory Reform website - Opens in a new window.
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.
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:
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
If your business is growing rapidly, you may decide to move premises to accommodate extra staff. Or you may want to reduce costs by moving to a location that is cheaper or nearer to customers, labour or transport links. Relocation is stressful, so make sure that new premises have quantifiable advantages over the old ones to justify this upheaval.
Potentially, the most damaging effect of relocation can be the ability to retain staff. Develop a relocation support package for employees who are moving with you and consider further financial incentives to retain key staff. 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 then you’ll 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 making an employee redundant.
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.
Here’s how reorganising workspace increased our options for growth
Shaun Hazlett
Shaun’s top tips:
- “Get top level buy-in, but remember that change ultimately has to come from the bottom up.”
- “Have a plan that the team writes and owns.”
- “Give people autonomy if you expect them to help you grow.”
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’ve 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.”
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Related guides on businesslink.gov.uk
Review your business performance
Assess your options for growth
Prepare a business plan for growth
Use innovation to grow your business
Inform and consult your employees
Use our interactive tool on your legal responsibilities when taking on new staff
Use our interactive tool to get a checklist of how to handle potential redundancies
Use our interactive tool to create a written statement of employment
Making an employee redundant
Responsibilities to employees if you buy or sell a business
Fit the training to your needs
Use your business plan to get funding
Budgeting and business planning
Recruiting and interviewing
Workers leaving: the basics
Manage your suppliers
Related web sites you might find useful
Buy an online course on planning and change management at the learndirect business website
http://www1.learndirect-business.com/business-catalogue/change-management/
Buy an online course on planning change at the learndirect business website
http://www1.learndirect-business.com/?target=xpc.asp?course_id=5567%26wbt_type=course
Read about the ICE Regulations at the BERR website
http://www.berr.gov.uk/employment/employment-legislation/ice/page37924.html
Read about informing and consulting employees on the Acas website
http://www.acas.org.uk/index.aspx?articleid=1598
Download a report on organisational change from the Chartered Institute of Personnel and Development website (PDF)
http://www.cipd.co.uk/NR/rdonlyres/C3F16CBB-E53E-4F40-9A5C-2EABB2430941/0/org_success_survey.pdf
Buy an online course on motivation at the learndirect business website
http://www1.learndirect-business.com/?target=xpc.asp?course_id=5557%26wbt_type=course
Read about managing change on the Office of Government Commerce website
http://www.ogc.gov.uk/briefings_delivery_lifecycle.asp
Buy an online course on building the team at the learndirect business website
http://www1.learndirect-business.com/?target=xpc.asp?course_id=5556%26wbt_type=course
Buy an online course on appraisals and performance management at the learndirect business website
http://www1.learndirect-business.com/?target=xpc.asp?course_id=8327%26wbt_type=course
Read about TQM on the CQI website
http://www.thecqi.org/resources/d2-4.shtml
Read about BPR at the Team Technology website
http://www.teamtechnology.co.uk/business-process-reengineering.html
Read about Six Sigma on the Office of Government Commerce website
http://www.ogc.gov.uk/what_is_productive_time___working_smarter_six_sigma.asp
Find a relocation agent on the ARP website
http://www.arp-relocation.com
Read about TUPE on the Department for Business, Enterprise and Regulatory Reform (BERR) website
http://www.berr.gov.uk/employment/trade-union-rights/tupe/page16289.html
