Professor of Strategy and Entrepreneurship
London Business School

Change for change’s sake

Have you ever worked for a company that changed its structure, and you couldn’t figure out why? Me too. Ages ago I was working for a consulting company which was organised by “function”: consultants were grouped into departments defined by “strategy”, “operations”, “HR”, etc. But then the company decided that they really should be organised by “industry”, that is, group its employees into a division for fast-moving consumer goods, a division for government, heavy industry, professional services, etc.

And when people would ask “why?”, the company’s management would come up with quite convincing answers why it was beneficial for consultants working on the same type of customer to be grouped together. And people shook their head in reluctant understanding and grudgingly eyed up their new colleagues.

But I couldn’t help but think “I could come up with equally convincing reasons for why this company should (still) be organised by function”. And that is usually the case for organisations. For example, you could easily come up with an explanation of why a bank should create divisions organised by geography; after all people located in the same country often need to coordinate and have a joint manager. Yet, you could also come up with an argument of why they should be organised by product type; after all, people working on the same product (wherever in the world) should coordinate and learn from each other. Similarly, you could come up with valid reasons why the bank should be organised by customer-type; after all, big customers often want one point of contact, regardless of the product they require, and where in the world.

And I used to think, unless you can come up with very convincing reasons why being organised by “industry” is now really more beneficial than being organised by “function”, there is no justification for dragging everyone through a hefty reorganisation.

But I’ve changed my mind. Dragging everyone through a hefty reorganisation is exactly what you should do (every now and then), even if it is unclear why.

Now that I have seen many more companies change their structures, I realise that, unless you can come up with very convincing reasons that being organised by function (your old structure) still is a heck of a lot more useful than becoming organised by industry (the proposed new structure), you should change the whole darn thing. Just swap the divisions around, reshuffle them and force your people to work with a new set of colleagues, under a new set of rules.

Let me explain. There is value in the process of re-organising. Usually people in an organisation should coordinate with other employees in their country, just like they should also cooperate with others working on the same product (wherever in the world), and others in the same function, etc. Yet, you’re going to have to make a choice what criterion you will use to organise your departments. Once you’ve for instance chosen to group people by function, inevitably, over the years, employees will start to identify with others in their function, their networks in the firm will be dominated by those people (because that is the people they interact with most), and gradually they may become a bit insular, and not have much understanding or appreciation of people in other functions and departments, even if they are working on the same product or serve the same geographical market.

The trick to resolve this – or even avoid it, if you manage to do it pro-actively – is to simply swap them around. Break up the old functional departments and, for instance, put them all together in departments defined by product (or whatever). The employees won’t like it, because they think these other folks are a bit weird (if not dumb and whining) and they will tell you they felt quite comfortable in their old functional departments – which is precisely the reason you should change them!

Once people become comfortable in their groups, stop communicating and coordinating with others outside their department, and fail to see others’ perspectives, it is time to turn them around. And the good thing is, for the first few years after the reorganisation, they will still have their old social networks, perspectives and knowledge of their previous, functional departments, while already working with the new product structure. As a result, you can actually get a bit of the best of both worlds. And once they start to lose that; just change them again.

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3 Comments for “Change for change’s sake”

  • Hakan Ener says:

    Hello Freek,
    This is an intriguing idea, and I’d be interested in finding out how it would hold up in different contexts, for example not just in consulting firms but also in other service firms or even in manufacturing. Do you think the idea would apply equally well across different industries?

  • Freek says:

    Yes, I do think this holds in different contexts & industries. I have done some research on it in, for instance, private banking and fund management. Closely related to this “phenomenon” (of change for change’s sake) Professors Nickerson and Zenger found beneficial effects of intermittent centralisation and decentralisation processes in HP. Professors Gulati and Puranam uncovered similar processes and benefits within Cisco. The value of the process of changing seems in no way restricted to one particular context.

  • Brenda Loots says:

    Working in an industry (IT) where change is commonplace, I find that the constant organisational change (on top of change driven by technology and markets) is an incredible drain on productivity. I believe such change is often more an ego-trip by management than anchored in sound business practice and -reason. I have yet to come across any such change initiative that can claim, after the dust has settled, that the change has created any tangible (in $$s) benefits. But hey, I've got half my working life still ahead of me, so here's hoping. Meanwhile, allow me to smile when the next bright Gen-X spark in a designer suit rocks up and tells me that change is on the menu. Nothing new or unexpected will come from it and in about 3-5 years time we go around again to a new guise of a management fad that was tried many times before (e.g., centralisation vs decentralisation, any flavour of improvement programs, etc.)

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