The House of Rolling Heads

This year is a leap year, and like February 29 - which comes around every four years - it seems that restructuring efforts unfortunately come into vogue in a big way only every few years in response to some economic issue or malaise. You need to just read through any number of recent company earnings announcements to see that many organizations are taking restructuring charges and lowering their earnings as a result. Restructuring is generally a euphemism for "heads are rolling" and despite the significant impacts to the organization and its people, restructuring efforts are often undertaken in quite a haphazard and arbitrary way. Organizations often find that while restructuring may cause everything to change, nothing is actually different once completed.

Traditional restructuring efforts, whether in the finance organization or across the company, tend to suffer from three primary problems:

• They do not discriminate. Restructuring efforts generally treat all expenses the same. Edicts to "cut expenses by 5 percent across the board" or "reduce head count by 10 percent" are not uncommon and fail to consider that all expenses are not created equal nor should every business unit, product group, etc., be subject to the same restructuring requirements.
• They don't solve the fundamental issues. Restructuring efforts are similar to putting a Band Aid on an infected wound. You're not really solving the problem, but you're making yourself feel better because you are at least doing something. The fundamental problems reside in inefficient and poorly constructed processes which ultimately result in cost and resource inefficiencies that hurt the organization. Traditional restructuring only goes after the visible signs of substandard performance - it doesn't get at the underlying causes.
• They are generally reactive. Restructuring typically happens in the face of economic challenges that are hurting the organization, so such efforts are often "imposed" on the organization because of exogenous issues or factors. Instead, a well-structured discipline to optimize processes and costs by rooting out inefficiencies and unproductive complexity that crops up within the organization should be practiced on an ongoing basis.

Organizations should always be "restructuring" and optimizing how they do things. This ongoing optimization can be likened to the well-known philosophy of Toyota, which seeks continuous improvement. To solve for the aforementioned challenges and weaknesses apparent in most restructuring efforts, a well-defined Process and Cost Optimization (PaCO) methodology should be used.

If organizations adopt and commit to the PaCO discipline and its mantra of continuous organizational improvement, we submit that it will allow them to weather economic turmoil better than their competitive peers and also position them to emerge more nimble out of any such strife. When times are good, their leaner and more well-constructed structure equips them with greater capacity to invest in and capitalize upon opportunities that may be before them to grow their businesses.