Re-orgs

In my sun.com blog I posted several entries addressing thoughts on corporate re-organization - here's a copy of those, for future reference:

Titled "Re-orgs - a case in point" dated 6/10/04:

I was at IBM in the late 80's, early 90's when they decided that they needed to change from primarily a HW Product sales company into a company with more emphasis on SW and Services.

This was clearly a large change, since implementing SW for customers generally means longer projects than installing HW, with a shift in the pattern of revenue recognition (lower at first, more annuity-based). IBM Executive Management felt that they needed to educate their employees as to the significant changes this would mean for their business. They put all managers through training which included explaining how the business results would likely suffer in the short term before the changes had time to mature and bring increased revenue and profit.

What they did not do was explain to their employees and stockholders that this "investment" in change would have a cost which would show up in near-term quarterly earnings. When their quarterly results showed "disappointing" numbers, they tried to explain it with standard talk about the economy and other factors, with no reference to this investment effect which they had PREDICTED as part of their management training.

Once the shift had time to mature, the company thrived.

Conclusion I drew from that experience - any company that does a shift from product sales to annuity sales, should be very careful how they report the likely effects, or else people can be surprised for results which were entirely predictable. This is not based on any more information than just the basic difference between the types of businesses.

this got one comment, from cousin Alice Smith:
Income recognition rules have vastly changed since then. GAAP is much stricter, so the head on investment is understood by the decision -makers, and the big investors, but never by the average shareholders. Strict accounting rules are an obligation of the management and failure to be upfront results in Enron and Worldcom debacles.

Titled: Re-orgs and their value, also posted June 10, 2004:

(I later reposted the same entry, Titled: "Re-orgs redux", posted July 9, 2008 - see below for comments)

I have seen many (20+?, 30+? not counting) re-orgs over the years in several companies, and there is a question these have all raised. Did the management holding the re-org identify what was NOT working and how the re-org would solve it, rather than just determine that something was not working and a re-org "seemed" to be the right way to fix it?

The reason for asking this is that clearly there is a high cost of any re-organization - everyone has to learn the new org, their new roles and responsiblities, and usually there is an accompanying new business model or plan which has to be developed, learned, and executed. Frequently new systems need to be developed - compensation, job classification, etc. - to support the new organization as well.

Before spending all this time/effort, doesn't it seem like more work should go into what is the problem with the previous organization? There are always good reasons why a different organization, with a different model, can POTENTIALLY be successful in some new approach to the business. In fact, when the previous organization was put in place there were obviously lots of people who thought IT would be successful!

This is avoiding the tough questions as to why the previous business model did not work. The answer(s) could be several - poor management is one, but there is also:

* the old organization was not given enough time to be successful (there are always start-up costs)
* the old organization/business model was not appropriately staffed/supported to succeed - this failure can easily be repeated with a new model
* the old organization/business model was implemented hastily by people who did not have prior experience with what they were trying to do, so there were some major flaws in it - this is also a problem which can easily be repeated by trying yet another re-org

What would be interesting would be to see one of these businesses hold their management accountable for making the current model succeed, and to have the stamina to NOT reorg without very clear identification of what the flaws were in the last plan

this entry got 3 comments the first time, 2 more on the re-post:
I will say that speaking in general about changes, the why is less powerful than the what. Second, a change, to be really effective, must bring the action into another class frame instead of going to another state of a system. Third, to address the today ever changing world, the right org to find is an highly adaptative one. We are still in a old model that we try to strech to a high speed changing, but it just can't do it.

Posted by jjmahe on June 10, 2004 at 04:31 PM PDT #


Regardless of why a reorganization is initiated, the worst management sin is to assume that "OK, we're done" and not start thinking ahead to the next reorg. When, what, why. Because if history has taught us anything..... Of course it's simpler to ignore the problem until it becomes urgent, but management isn't paid to ignore issues.

Posted by Geoff Arnold on June 10, 2004 at 04:55 PM PDT #

I don't recall if Sun always reorg'd in July, but it's been that way for many years. I assumed this was because Scott was determined that Sun would never become stale, like DEC or Wang or ... The downside is, as you say, that there is -significant- overhead involved, and loss of traction, each time a reorg is effected. I used to muse about what it would be like to go 2 years without a reorg, but .. that never happened in my tenure.

Posted by Gene on June 10, 2004 at 06:47 PM PDT #

after re-post, the following comments:

In all my reading, I have come across comments in research that supports your position. By not holding team accountable, by operating a culture with little to no trust, by being unwilling to challenge a peer (at Sun this veneer is called being nice) there is no accountability.

If you read the book "Five dysfunctions of a Team" you will see a great parable on this very subject.

Posted by Dave on September 05, 2008 at 01:22 PM PDT #

You are absolutely right about the costs, but the real reason for frequent re-orgs at Sun is we reward failure by moving the senior executive to a new position and bring in the next one who has a great idea. To cover the tracks of the previous failure, the new executive re-orgs to his better model. Sun has allowed a Frankenstein organization to be created.

The real answer is to make a executive live with his org for a minimum of 2 years and give it a chance to work. A re-org should only occur if the first year is way off (>10% off number) or caused major alignment issues. Orgs have been around forever and are not that hard to figure out; if a unit doesn't perform, get rid of the executive, not the organizational structure (at least until you have real proof that the org was the issue, not the executive)

Posted by Gary on September 05, 2008 at 02:30 PM PDT #