My Favorite Choopchicks - Reorgs
For this next blog topic, I spend a few minutes talking about another favorite choopchick, which is the ever popular Reorganization, or Reorg. This phenomenon appears to occur about every two years. Why? It starts with leadership. They are unhappy with the current rate of improvements and the overall profitability of the company. They've been given excuse after excuse on why the improvements they are concerned with are not happening more quickly. Finally, in frustration, they decide a restructuring is necessary. How large the reorganization depends on the level of crisis within the company. An organization or project that leadership wants to make more effective will end up with more resources and more money. Organizations and projects that have a lower priority will end up with less money and less resources. But the money usually does not end up working out evenly. As part of the reorganization, a 10% reduction in the budget is taken. Thus, several organizations will have to be reduced in order to provide the money and resources to improve the effectiveness of the chosen organization or project. This should significantly accelerate the rate of improvement of the chosen organization or project. It turns out, as most of you who have worked with large organizations already know, this level of improvement doesn't occur.
From a Theory of Constraints perspective, the reason is fairly clear. The structure of the organization is not the root cause problem. The root cause problem is probably the conflict that exists between local optimization and global optimization. If the constraint happens to be in the organization that is limiting the performance of the company, there is a possibility that results will get better. Since the organization of the company is very large, the chances of actually correctly identifying that part of the organization that has the constraint is small, certainly less than 33%. Even if we do add more resources and money to that part of the organization that has the constraint, improvement will only occur if the constraint can be positively influenced by money and resources. Unfortunately, this will only last for a short period of time. The constraint will eventually move to another part of the organization, and the rate of improvement will slow down and eventually become zero.
The best we can hope for in every Reorg is a small amount of improvement, followed by an extended period of stagnation. This stagnation is only tolerated for so long before leadership becomes frustrated again and demands changes. Then another Reorg occurs. Thus, Reorgs appear to be a cyclical process, and the time period appears to be about two to three years.
In my next entry, we'll take a look at the result of these constant Reorgs - Management Churn.
