Planning for a Restructured, Revitalized Organization

Most of us have come to equate the term “restructuring” with layoffs. The reason is simple: during restructurings, management’s focus is typically on developing severance and incentive packages to reduce employee head count. By focusing primarily on how people leave the restructured organization, however, companies too often neglect the matter of who leaves. Senior managers focus so heavily on cutting costs that they don’t give sufficient attention to the company’s future strategy — and who will implement that strategy.

Yet a key strategic issue for any company that is restructuring is the quality of employees who remain. Companies often lose their best people, who quickly find other opportunities rather than wait for the haphazard results of a typical reorganization. Unfortunately, a company can be crippled following a downsizing if the wrong mix of employees remain. Indeed, scores of beleaguered companies seeking to reshape themselves have been damaged for years by focusing on reducing head count rather than on ensuring that the best qualified people staff the new organization.

We cannot overemphasize that workforce reductions, to the extent they are required, should be the outcome, not the objective. The restructuring process must be directed toward positioning the organization for the future, not implementing a downsizing. In planning any restructuring, managers need a link between the reorganization and the company’s ongoing revitalization — a link that traditional methods of downsizing fail to provide. That link requires a strategic approach that enables executives to focus on making sure the organization has the right people in place after the reorganization is completed — a people-based approach we refer to as redeployment or zero-based staffing.

Specifically, redeployment permits managers to select the people best qualified to staff the new organization. Developing the criteria for ensuring that employees with valuable competencies are retained demands that executives concentrate first on the positions they consider essential to the reorganized company and then on staffing.

Reorganization and Redeployment

Because restructuring companies usually focus first and foremost on overhead cost reduction by trimming head count or making staff selections in a seemingly mysterious way, employees see the process as unfair, which diverts their attention from strategic goals. In this article, we provide an alternative process for realigning an organization’s human resources. We have consulted with several companies that saw restructuring as a positive opportunity for change, rather than as a path to reduced overhead, and have minimized or avoided the typical problems associated with downsizing and restructuring. Here we highlight and describe the experience of one of these companies, Arizona Public Service Company (APS).

When APS initiated its strategic approach to restructuring in 1990, it was struggling with high costs, sagging customer service ratings, and a bureaucracy that was inwardly focused and insensitive to the emerging competitiveness in the electric power industry. The company was threatened by a takeover from Pacific Corp., which had publicly targeted the utility. By all accounts, it was a classic example of a regulated, bureaucratic organization resistant to change.

Three years later, its industry association cited APS as one of the best power companies in the United States. The company’s power plants have had the best power availability factor, a measure of its capacity to meet customer demand, in thirty-five years. Customer-service ratings are the highest in years. At the time of its strategic restructuring, APS made a commitment to the rate commission that it would not file for a rate increase before 1993. As 1993 drew to a close, the company had exceeded its cost-per-kilowatt hour goal to lower costs and had canceled the proposed rate increase. CEO Mark De Michele credits strategic restructuring for triggering the turnaround.

Redeployment occurs successfully only if the groundwork is properly laid. First, we explain the advance effort needed before describing the successful redeployment process at APS.

The Groundwork: Strategic Analysis and Structural Redesign

Restructurings are never easy. When they are carried out with an eye toward reducing head count and expenses by some arbitrary percentages, employees invariably respond by trying to protect their own positions and security. Objective standards and strategic goals quickly fall by the wayside. But when a restructuring is driven by strategy, the company can emerge revitalized. Redeployment requires that the most capable employees recognize the competition confronting their organization and see that management is committed to implementing a positive strategy, decisively and fairly, to build a stronger organization, not just a smaller one.

APS faced competition from power companies inside and outside its operating area, so senior management was convinced it needed to reduce costs and improve customer service. These needs led to a redefinition of strategic goals that initially drove the reorganization. Two goals, being a low-cost producer and having a high customer-service rating, were later encapsulated in a vision statement, “Top Five by ’95,” which drove the subsequent revitalization effort. A third goal was to change APS’s culture to emphasize customer service rather than engineering. After the restructuring, the senior management team identified additional strategic issues, related to the utility’s competitive efforts, which led to a more thorough strategic analysis and adoption of the vision. In retrospect, says De Michele, it would have been preferable to identify and deal with the additional strategic issues as part of the reorganization and redeployment process. Nevertheless, the structural redesign and redeployment had made the management team extremely cohesive and thereby provided the momentum to lead to more thorough strategic analysis.

De Michele and his senior management team recognized that reaching these goals required a new organization. The new APS needed to have fewer levels and more decision-making power in the hands of lower-level employees, fewer people (although they weren’t sure exactly how many fewer), and, perhaps most important, the right mix of people with skills and motivation to achieve the goals after restructuring. The company formed three redesign teams with ten managers and supervisors on each team and hired us as consultants to help wrestle with the redesign of the company’s three major areas: generation and transmission, customer service, and staff services. The teams reviewed the work in each area, the best practices for performing the work (benchmarked against other top utilities), and the number of people required. A companywide employee suggestion program generated more than 2,000 ideas for getting more work done with fewer people.

The task was to design the most effective organization for accomplishing strategic goals. The teams’ efforts led to a redesign of the entire company. As the efforts filtered down through the organization, departments were restructured. The teams based the redesign on the work to be done, instead of on the people who were currently doing the work. A cardinal rule for the process was that no one was guaranteed a job. Staffing the new organization, or redeployment, was the next step. At the completion of the redesign effort, the new organization chart had 1,000 fewer positions, a decrease of approximately 15 percent.

Management is often surprised that employees without job security will actively participate in a process of structural redesign. In actuality, their commitment doesn’t just happen automatically. A senior management team that believes in the process enlists their participation through visible and continuing leadership. Even so, skepticism and resistance can occur.

At APS, a member of the human resources department resisted both the organizational redesign and the redeployment process when it was first proposed. People throughout the company were skeptical. Leadership’s challenge was to build a constituency that came to see the strategic necessity for change and was willing to put tentative trust in management’s sincerity in bringing it about. APS had developed five characteristics through which this leadership could grow (see the next section). After the redesign effort, APS implemented a redeployment process, which, among other things, allowed those who had decided the emerging company was not for them to leave voluntarily.

Figure 1 illustrates APS’s strategic restructuring. The process began with strategic analysis (Phase 1), which drove the rest of the restructuring. The subsequent structural redesign of the organization (Phase 2) put the organizational structure in place so the strategy could be implemented. Design decisions were evaluated against the criteria of APS’s strategic goals. Redeployment (Phase 3) was the period during which the new organization was staffed (the details of the restaffing process are provided later). This was a critical time for the organization, because performance was affected as the organization began its transition. It was also a time of opportunity, as the entire organization experienced the impact of change. If the redeployment process results in staffing decisions that place the most competent people in positions and is conducted openly and fairly, management can emphasize the kind of organizational culture it is hoping to create, but this must happen quickly through an extensive and carefully considered renewal plan (Phase 4). At APS, the renewal plan led to ongoing refinements in strategy.

Characteristics of Successful Strategic Reorganizations

APS shares five traits with other companies that have successfully followed the same model of strategic restructuring.

A Strategic Focus.

Senior management must raise and address the most relevant issues and focus the organization’s attention on organizational and staffing implications. The more we work with the concepts of strategic restructuring and redeployment, the more convinced we are that many of the problems of downsizings and restructurings in the past were the result of managers who asked the wrong questions. Focusing on preset staff reduction targets diverts the entire organization from the real issues. As William Ryan, vice president of human resources at SeaLand, another company that successfully completed a strategic restructuring said, “There’s no way you can just downsize yourself into profitability” (see the sidebar).

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APS’s initial goal was to determine what kind of organization would best enable employees to implement a new strategic plan. The matter of overall strategy always dominated the discussions and analysis concerning organization. The details of structure and size emerged from this analysis. Workforce reductions, to the extent they were required, were the outcome, not the objective. The process led to substantial reductions in head count, but everyone knew that the reductions had not been arbitrary but would lead to a more competitve company.

Three factors convinced employees to participate. The first was the continuing emphasis on the strategic necessity for change. People realized, in the words of De Michele, “how far out of kilter with the real world things were within the company.” Second, senior management was to be affected by the restructuring as well. Early in the process, De Michele announced that there would be three fewer senior officers. Since those officers had been with the company a long time and were well respected by their peers, it was evident that management was making tough decisions about its own. Third, the senior management team made repeated presentations about the redeployment to restaff the new organization, so people realized that they would be treated fairly.

A Thorough, Ongoing Communications Plan.

Immediate and full disclosure of information is mandatory. Management needs to avoid the pitfalls of a “need to know” communications policy. The CEO must communicate frequently and establish special newsletters and hot-lines where employees can ask questions and get answers. One of the worst mistakes management can make is to assume that saying it once is enough. The repetitive message and ongoing dialogue with employees — matched by management actions — eventually build support.

At APS, De Michele made numerous presentations to managers, supervisors, and employees. He spent between 30 percent and 40 percent of his time during several months meeting with large groups of employees on a regular basis, invariably answering tough questions from employees about what they could expect. His philosophy was to be absolutely candid with people, “giving them all the information I had and letting them draw their own conclusions.”

Employees often asked, “How do we know the selection process will be fair?” In response, De Michele described the review and appeal boards. He challenged employees to observe the selections that were made before questioning the fairness of the process. He continually emphasized his belief that positioning the right people in the right jobs was critical to the future of the company. Other employees asked, “Isn’t it true that you have a specific number of cuts in mind?” De Michele stressed that “staffing is linked to the new structure.” Another tough question was “How do we know that this is not going to happen again?” De Michele answered, “While we hope we never have to restructure again, we can’t make any promises. The industry is different now and more competitive. What I can promise is that change is a permanent part of the landscape.”

Participative Process.

While senior management can develop the organizational framework, the actual structure is usually best developed from the bottom up. The company should inform employees about its overall strategy and actively engage them in the redesign. The strategic focus of the process, with management continually communicating the competitive issues facing the company, compelled a critical mass of APS employees to participate in the process.

Because information and expertise is dispersed throughout a company, redesign should be approached as a group process. If people are going to embrace the redesign process, they must have a good understanding of how staffing will be handled. Although the process is highly participative, it is not open-ended. Senior management must be visible and accessible throughout. Tight deadlines must also be established and met. The more participative the process, the better the ideas and the higher company morale is likely to be when it is completed.

Obviously, not all of the more than 2,000 suggestions for redesigning APS’s organization could be acted on or were worthy of being acted on. But, in the resulting organization, low-level employees had more decision-making power to solve problems concerning customer complaints or needs than before the redesign.

Positions before People.

Everyone involved in the redesign process should participate without any guarantee of his or her own employment. The underlying assumption is that employees have maximum exposure to the competitive issues the company faces and can be treated as mature individuals who make difficult and, at times, unpleasant choices. Whether this can be done is not an academic question but depends on senior management’s leadership style. Management must be willing to disclose all the issues and enlist allies throughout the organization in making crucial choices.

Conversely, management’s failure to emphasize positions over people increases the risk that everyone will fall into the trap of playing politics to save his or her own skin. That approach inevitably increases the chances that the company’s strategic goals get lost in the shuffle.

At APS, managers overseeing the process prevented office politics and maintained an atmosphere of fairness. Senior officers set the example by questioning the basis for selections, and the review and appeal boards reinforced them. It took only one or two cases to demonstrate management’s seriousness about staffing the organization based on competencies.

Emphasis on Competency.

Redesign must be closely coupled with redeployment to produce competency-based position descriptions. The descriptions are the basis for selecting and placing people according to future needs rather than past performance. The descriptions also help communicate clearly to candidates the selection criteria for a particular position. Creating the descriptions is a disciplined, but not paper-intensive, process resulting in one page that lists minimum requirements, major accountabilities, and critical competencies.

APS managers and supervisors developed descriptions for 4,000 positions during a six-week period, concurrent with the staffing process. As part of their training in the redeployment process, they learned how to identify the major accountabilities of each position from the organization effectiveness study on which the redesign was based. Typically, each position had three to six primary accountabilities that outlined the job’s responsibilities, the depth and scope of duties, and the desired outcome. To determine the accountabilities, managers and supervisors evaluated the answers to four questions: What is the critical output or result required from the position? What individuals or work groups depend on the information, services, or products produced by the position? What do I as the manager/supervisor depend on this position for? What is the impact when the information, services, or products produced by this position are late, inaccurate, or incomplete?

Managers and supervisors learned how to develop critical competencies from the accountabilities. Competencies were the knowledge, skills, and personal qualities necessary for accomplishing all or part of the job. To identify competencies, managers and supervisors reviewed a master list of competencies found in most organizations and determined those critical for executing the previously identified accountabilities. Then they singled out the reference point, or descriptor, in the definition of the competency that linked it to the accountability. They noted specific examples of how the presence or absence of a particular quality would affect performance. These became the basis for defining the competencies for a particular position.

Successful Redeployment

No matter how it is carried out, restructuring has a traumatic effect on any organization, especially if the restructuring involves a substantial staff reduction in a company that has emphasized job security and employee loyalty. However, redeployment enables management to seize the opportunity provided by such a difficult period to progress toward strategically directed performance goals and establish the basis for a new organizational culture.

Redeployment has a handful of essential components, all of which must be coordinated, using a system of checks and balances. Piecemeal application defeats both the effectiveness and integrity of the concept. For example, some organizations have implemented an internal placement program — designed to help employees find jobs elsewhere in the company — with poor results, because there was a strategic vacuum with no senior management oversight.

Effective implementation requires meticulous attention to detail and senior managers who are visible throughout the redeployment and recovery period. Employees are typically skeptical of management’s ability to successfully complete the process. However, as it unfolds, redeployment validates management’s seriousness through both the integrity of the process and the resulting selections and placements.

What are the key steps for implementing a successful redeployment? Based on our experiences at APS and many other companies, we have developed seven important steps:

Maintain a thorough, ongoing communications plan.

The communications plan initiated during the redesign phase, which should include detailed information on how the redeployment will be handled, must continue. Department heads need to be visible and accessible throughout the process.

APS management decided that there was no danger in overcommunicating. The CEO made numerous presentations to managers, supervisors, and employees. Staffing updates were frequently available to everyone in the organization.

Use an employee-assessment system based on the newly defined needs of the business.

The system should consist of a selection matrix for assessing potential employees against the competencies required for the position (see the sample in Figure 2). The assessment, multiplied by the weights for each competency, provides a total score. Data for the assessment come from interviews with employees being considered for the position that focus on the competencies, input from other managers and supervisors, and any other pertinent, job-related information.

While the matrix structures a manager’s thinking, it should not predetermine the selection decision. The matrix is a decision-making tool, not an absolute determinant of outcome. A manager is not required to select the highest-scoring employee but can take mediating factors into account. However, if a manager selects a significantly lower-scoring employee, he or she must defend the decision in terms of the department’s needs.

After observing the assessments of more than 100,000 employees in this process, we can confidently state that there are usually a few surprises. One employee may not score as high as a manager expected, while another scores much higher than predicted. Such outcomes require that managers look thoroughly and objectively at their employees. As with any analytical tool, the selection matrix can be reverse-engineered to make a particular employee look good, but such efforts invariably become transparent to the people reviewing the selection decisions.

The APS selection matrix was the heart of the company’s redeployment process. The assessment was divided into three parts: (1) a “go/no-go” section in which the person was assessed against the minimum requirements for the position in question; (2) an evaluation of each candidate against the competencies described in the position description; (3) documentation to allow for a change in the mathematical results of the matrix because of affirmative action concerns, absenteeism, and similar considerations. All matrices required the signatures of a manager and his or her manager before they could go to the review board. As part of their training in the assessment process, managers learned how to ask targeted questions of candidates for the position in order to document competencies.

Develop a system of reviews and appeals.

An independent review board should approve all reassignments before they are announced. While this may seem cumbersome, turnaround time through the review board can be forty-eight hours or less. The board’s oversight is crucial for ensuring ethical integrity and legal defensibility. Any employee should be able to request a review of his or her treatment at a separate appeals board that includes peers.

At APS, the review board consisted of a retiring officer and two senior managers. They were assisted by the company’s affirmative action group and outside legal counsel. As additional boards became necessary to handle the increased volume of decisions, other officers and senior managers participated. During the six-week redeployment period, the boards reviewed and turned around 4,000 decisions less than 48 hours after each was filed.

The APS appeals board consisted of an employee, a supervisor, and a manager and was assisted by outside counsel. It had wide latitude to investigate allegations and render decisions. When decisions were reversed, the manager who had filled out the matrix developed a solution for the aggrieved employee, such as finding another place in the department or elsewhere. Of sixty appeals, six were modified or overturned. The reversals gave the whole operation credibility and soothed initial employee skepticism about the redeployment process. They sent an important signal about the need to keep politics out of the process.

Implement an internal placement program.

The goal of redeployment is to place employees in the jobs for which they are best qualified. The initial selection process typically fills between 70 percent and 85 percent of the available positions, with the incumbents or other employees transferred laterally. The remaining slots are filled either through promotions (10 percent to 15 percent) or through the internal placement program and outside recruiting. The mechanics of the internal placement program must be tailored to company circumstances.

APS’s internal placement program had both formal and informal dimensions. The formal dimension was an extension of the company’s job-bidding system, although the redeployment process added advertising and bidding for jobs to the electronic mail system. Informally, employees did their own networking to seek opportunities, a component that was probably as effective as the formal one.

Managers needed to make a number of very painful decisions. Fairness was enforced in three ways. First, the ongoing strategic focus and management communication convinced many managers that they needed to select the strongest possible candidates, even if that meant making some personally painful decisions. Second, continuing managerial oversight, through the review and appeal boards, reinforced management’s seriousness on this issue. Third, the assessment process itself was focused on competencies needed by the new organization. Managers had to be prepared to defend their assessments with documentation of their decision-making process.

One of the most difficult phenomena to explain to human resources executives who have not been involved with redeployment is why managers fail to fill all of their positions from the existing pool of employees in their department. In practice, the changes in the organization and the emphasis on competencies for newly defined positions mean that some of the existing employees are not qualified for the new slots. Further, managers value the opportunity to seek the best qualified people for their positions.

The initial selection process leads to three conditions: (1) positions with people; (2) positions without people; and (3) people without positions. The second and third situations are the basis of a continuing internal placement program. Any employee who is offered a position and is not negatively affected is considered placed. Any employee who is negatively affected is eligible for the internal placement program. The definition of “negatively affected” is management’s policy decision. Obviously, any person without a position has been negatively affected, but management must also consider the role of salary and geography in the definition.

Among those “negatively affected,” APS included employees offered jobs for which the midpoint of their new grade was 10 percent less than their former grade or their new assignment was seventy-five miles away from their former work site. Of course, the review and appeal boards continued to function throughout the internal placement program for those who felt they had been negatively affected.

Develop an enhanced severance plan for eligible employees who elect to leave the company.

What distinguishes this approach from traditional restructuring programs is that any salaried employee eligible for the internal placement program is also eligible for the severance plan on an individual basis. Both the placement program and enhanced severance plan are offered for a certain time period — at least forty-five days if the company wants the employee to sign a waiver and release-of-claim form, including age-related claims. Career decision workshops and other support services are available to employees, and there is outplacement support for those electing to leave. The specifics of the internal placement program and the severance program reflect a company’s particular situation.

Provide special training to managers and employees at all levels.

Training helps them communicate, select people, and keep the redeployment process moving. Senior managers should be integrated into the training. Every manager and supervisor should understand the program’s intent and be competent to participate in the selection process. With the help of the human resource development department, managers learn how to complete competency-based position descriptions, interview and assess skills, and use the decision matrix. (APS provided one-and-a-half days of training.) A senior officer from the participants’ area should open each training session to reinforce the process’s strategic focus. The officer should also clarify and emphasize his or her expectations about the integrity of the process.

Plan for organizational recovery following redeployment.

The focus of the recovery plan should be on the systems and processes that drive the strategy. Because redeployment places tremendous demands on everyone, people need to sort out the implications of what they have experienced once the staffing process is complete. The company should acknowledge the scope of the effort already made and the enormous effort still required to go forward. It needs to attend to career concerns and what form success will take in the new organization.

APS took specific steps to aid in recovery and contribute to an ongoing process of renewal. In doing so, the company avoided the two mistakes many management teams make: (1) considering the restructuring process finished after staffing decisions are made; and (2) seeking to reassure people that things are suddenly “normal.” The first mistake leaves people without leadership during a period of transition. The second encourages them to return to their old habits, which aborts the process of transformational change. Worse, people may hear promises that management cannot realistically deliver. For example, employees may interpret reassurances as promises that there will be no more changes in either the organization or its staffing levels.

A properly conceived recovery should link with efforts to renew the corporation. Renewal is a complex area of managerial leadership that is independent of redeployment. However, three outcomes of redeployment are the basis for a strong positive leadership message. First, the organization has been shaken to its core, creating a window of opportunity for change. Second, assuming the process has been well managed, those who remain can, with full understanding of the selection process, observe tangible evidence of management’s serious intent to create a different kind of company. Third, every salaried person in the organization is perceived as specifically reselected to be part of the organization’s future, rather than as merely a survivor.

Successful change in organizational culture requires senior management’s persistence and relentless insistence on learning how to make the strategy operational. Management must use leverage points to create a new culture. These leverage points include organizational systems; managers’ roles; criteria for staffing decisions; education, training, and development efforts for all levels; reward systems; employee involvement processes; operative goals; and modeling leadership behavior. All the levers must focus on the strategic business goals of the company.

Shortly after APS completed its redeployment, at a meeting of all managers, the officer team discussed the company’s mission, values, and strategic goals. The vision “Top Five by ’95” became the companywide theme. Following De Michele’s presentation, the officers commented on how they envisioned their future roles in the organization. In addition, managers participated in a case study scenario that highlighted the need for managers to work with their employees in facilitating the transition. The meeting was partly a celebration of the newly selected organization and partly a preparation for the work ahead. In the months that followed, managers and supervisors were given leadership training relevant to the new organization.

As we mentioned, the renewal phase at APS was integrated with ongoing strategic planning. The vision “Top Five by ’95” was translated into specific operational goals. The strategic planning process was integrated with a comprehensive simulation that emphasized the company’s strategic goals and direction and incorporated demands for team-work, cross-functional behavior, and a customer-service orientation. Initially, only the officer team participated in the simulation, but eventually all employees did. In all these activities, senior managers tried to become models of the managerial and leadership behavior they wanted to instill throughout the organization.

Other changes included a revised appraisal system and a planning process that specifically linked corporate goals to the front-line activities in the company. The company continues to use the selection criteria developed during the redeployment process for staffing decisions.

A Process of Choice

The foundation of redeployment is that people have choices — choices that may not always be pleasant and are undeniably stressful, but choices nevertheless. Redeployment requires both management and employees to confront the consequences of competition.

Redeployment is not a process that can be delegated to middle management, because only senior management can provide the level of leadership demanded. Management must view redeployment as an important piece of a much larger puzzle that, when completed, will have significantly altered the nature of the company. Making it work must become a major preoccupation of management at all levels. Not every company manages this process as well as APS did (see the sidebar for some of the more common ways in which the process breaks down).

In the flatter and leaner organization that APS has become, managers and supervisors have to concentrate on what is important — enabling lower-level people to perform their jobs without impediment. Management has continued the strategic focus of the reorganization, emphasizing the need for customer service and changing how people view their jobs. Every year, the company conducts a “high-performance cultural audit” at all levels, feeds results back to employees, and addresses any problems. Not all of the staffing decisions made in 1990 were successful; twenty senior people have left. In each case, he or she struggled with the emerging management style of empowerment.

Staffing levels have remained basically constant since the reorganization. However, in 1993, the company embarked on a companywide reengineering effort. People have been assigned to work full-time on reengineering teams, with their permanent jobs filled by others. These employees have been willing to accept the assignment because they believe the company will treat everyone fairly when restaffing the reengineered organization, and they value the new competencies they will gain through participating in the reengineering process.

De Michele is committed to using the redeployment process again to staff the reengineered company. And the new effort is driven by the same strategic focus that guided the company since the initial restructuring. As with the first effort, the emphasis is on eliminating unnecessary work and then staffing the organization appropriately. A more competitively focused culture has replaced the old bureaucratic orientation. Employees throughout the company believe that further change is inevitable in their competitive industry. The one constant is understanding how employment decisions are made and how competency has become the best source of employment security.