Organizational Restructuring Risks

Organizational restructuring is the process of redesigning and transforming the organizational structure and processes in order to achieve better results and objectives. It offers a lot of opportunities and benefits to the employees and improves their morale and productivity. The company should carefully perform planning, implement the changes, and constantly evaluate the changes. Today, we’ll discuss organizational restructuring risks; their various types, and the top risks of organizational restructuring.

Objectives and Goals of Organizational Restructuring

• Managing changes in the external environment
• Developing new capabilities
• Better agility and operational efficiency
• Decreasing overhead cost

Changes in the Organizational Structure

• Workflow processes
• Reporting structure
• Division, units, and departments
• Roles and responsibilities
• Job titles

Types of Organizational Restructuring

• Divestment
• Spinoff Restructuring
• Reposition Restructuring
• Turnaround Restructuring
• Cost Restructuring
• Legal Restructuring
• Merger and Acquisition
• Downsizing

Top Organizational Restructuring Risks

Some of the top organizational restructuring risks are as follows;

Non-Profitable Investment

The biggest and top risk of a restructuring project is that it turns out to be unprofitable for the company. In fact, it decreases revenue, profitability, and lower shareholder value. Most importantly, it has a negative long-term impact and it jeopardizes the trust, confidence, and price of shares. Companies invest a significant amount of capital resources in the short term, but they aren’t able to recover their investment in the long term.

No Streamlining with Goals and Objectives

When the business goals and objectives aren’t streamlining with the restructuring, then it poses a major risk to the company. It is significant to mention here that the organizational restructuring has a great impact on the company’s alignment and its objectives, strategy, and operations. However, if the company’s restructuring initiative doesn’t envision long-term goals, then it needs to adjust to the customer needs and the competitive market demands. Often, it results in the form of a very bad outcome.

Roles and Responsibilities

The restructuring initiative causes a lot of confusion over roles and responsibilities. The restructuring project becomes highly risky when the company doesn’t clearly communicate the changes to the employees and team members. However, it causes a lot of confusion and uncertainty about their roles and responsibilities in the transformed structure. For instance, if the company has changed the reporting structure and job titles, then it causes a lot of misunderstanding about organizational restructure.

Lack of Motivation

The restructuring project comes with a lot of risks of decreasing the employee morale and confidence level, limited employee engagement, and lowering their productivity. It happens due to uncertainty and confusion about the new structure’s roles and responsibilities. Most importantly, employees would lose the sense of job security that they have about their employment. It decreases their motivation level and makes them feel fearful of their future.

Employee Resistance

The company’s restructuring initiative causes a lot of resistance among employees and team members. The resistance happens due to multiple reasons; limited trust about the new structure, lack of clarity about the new roles and responsibilities, and fear of job security.

Employees and team members would resist the changes at multiple levels. Psychological resistance is the main reason because it is highly difficult for them to give up the existence that they have performed for years. They’re uncertain about how the new structure would impact their employment terms and job security.

The company’s assets are its employees and team members and they have the capability to adapt to the new roles and responsibilities. However, it causes a lot of risks and uncertainty due to the new structure, and they perceive it as the main threat to their job and employment.

Negative Reaction of Stakeholders

Shareholders and investors have a negative reaction to the company’s restructuring initiatives due to multiple risks associated with the change processes. The bad restructuring would impact the company’s financial performance in the short term, and it would reduce the company’s revenue and profitability.

Investors and shareholders have a great interest in the impact of the company’s structure in the long term. The company’s restructuring caused to decrease in the company’s revenue and profitability due to the new roles and responsibilities, changed reporting system, and confusion.

Losing Resources

One of the main risks of restructuring is losing the human capital resources. It causes a lot of changes about the new roles and responsibilities and the new reporting system would baffle employees and team members. As a result, the loyal, expert professionals, and skillful employees would leave the organization.

Public Image

The new company’s structure damages the company’s reputation and the public image. The negative impact of structural changes would significantly impact the company’s reputation and brand image in the long term. Most importantly, it jeopardizes customer trust and confidence, and it decreases the company’s sales, revenue, and profitability. The bad restructuring has a great negative impact on the company’s reputation and image.

Conclusion: Organizational Restructuring Risks |The Risks of Organizational Structural Changes

After an in-depth study of the organizational structure risks; we have realized that structural changes come with a lot of risks. If you are learning about the risks of organizational structural changes; then you should keep in mind the abovementioned risks, types of structural changes, goals, and objectives.