As anyone who’s spent much time in the business world knows, reorganization is a common activity, indeed almost a sort of corporate sport.

Of course there are times when reorganizing can be essential—for example after mergers, when businesses are performing very poorly, when divisions have grown bloated and inefficient, etc. But there are also many instances when “reorgs” are done more casually—a new executive wants to put his or her personal stamp on an organization, or a person in charge wonders: Are we really organized as efficiently as we could be, or might there be a way to drain a few more expenses out of the organization?

Wikimedia Commons
Source: Wikimedia Commons

When in fact the organization is running reasonably well as it is.

It’s these latter circumstances I’m concerned with here. Because beyond the obvious costs that most reorgs entail—the fees of consultants to review the organization from a hopefully objective perspective, the expense to retrain employees in new roles, plus the considerable executive time devoted to the endeavor—there are other high, hidden costs that management would do well to bear in mind. In particular these are:

The productivity lost while employees talk about the reorg, gossip about it, speculate on it, and are generally worried and distracted by it. As an alumnus of  many reorgs, I can personally attest this occurs. It’s only natural: Employees fear for their jobs and invariably are less than 100% focused on them. All sorts of dysfunctional survival behavior results, as employees may become focused on what is good for the individual rather than what is good for the business as a whole. Productivity suffers.

The cynicism toward management that may result. If employees feel that a reorg is more of an exercise or a game than a vitally necessary business project, it’s easy for cynicism to set in: This is a waste of time and the leaders who are running it aren’t going to lose their jobs!  This cynicism manifests itself in various ways: employee disengagement, reduced effort, retention problems, etc.

Though this is a subject that’s seldom covered (partly I believe because it’s in consultants’ economic interest to reorganize), I did come across a 2010 article from a European HR executive, Dirk Verburg, who wrote about it thoughtfully in “Less is more: The hidden cost of change in organizations.” Verburg notes, “Cynicism should be expected if employees cannot be convinced of the necessity or usefulness of the changes, and/or if they see a discrepancy between the way in which leaders talk and the way they act. This cynicism usually goes hand in hand with a loss of credibility of the leaders and can undermine the long-term trust relationship between the employees and their leaders.” I observed this dynamic on multiple occasions in my own management career.

While there’s a notable lack of hard data on the topic, TINYpulse, an employee engagement firm, found in an analysis of mergers, acquisitions and reorganizations, that employee “happiness” scores dropped by 10% after reorgs, and attitudes toward “professional growth opportunities” fell by 12%.  I suspect further analysis would only confirm these trends, plus the productivity and attitudinal challenges discussed above.

There’s a vast number of consulting organizations out there making an excellent living helping companies reorganize. I’m not saying reorgs are never valuable—at times they can be extremely valuable of course. But when companies simply default to this option without a compelling business driver, they’d do well to keep in mind the subtle but very real costs these projects entail.

As Verburg writes, “Change is essential for organizations to survive. However too much non-functional change programs can harm the performance of organizations.”

This article first appeared at Forbes.com.

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Victor Lipman heads Howling Wolf Management Training and is author of The Type B Manager.

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